Using the mobile phone to build trust and confidence for the distribution of financial services primarily in emerging markets.

1. Fall
08
USING THE MOBILE PHONE TO BUILD TRUST AND
CONFIDENCE FOR THE DISTRIBUTION OF
FINANCIAL SERVICES PRIMARILY IN EMERGING
MARKETS
Stefan Rust
stefanrust@exicon.mobi
@srust99
28 Aug 2009

2.
Table of Contents
Executive Summary ........................................................................................................... 3
Current Identity verification standards & problems ............................................. 4
I. The benefits ............................................................................................................................ 5
II. Target market sizing – mobile phone penetration in developing countries . 5
III. Solution & Concept ........................................................................................................... 7
.
a. Capture the identity of an individual .................................................................................... 7
.
b. Authentication of data & identity ........................................................................................... 9
c. Continuous interaction & updating ..................................................................................... 10
d. Scoring the identity ................................................................................................................... 11
e. Profile exchange .......................................................................................................................... 12
The Plan .............................................................................................................................. 14
IV. The System ......................................................................................................................... 4
1
V. Business model .................................................................................................................. 4 1
VI. Investment Proposition .............................................. Error! Bookmark not defined.
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3.
Executive Summary
At the core of every economy, establishing the identity of an individual is a top
priority.
‐ Countries use passports or ID cards,
‐ Internet destinations use email addresses and user names,
‐ Credit card companies use bank details and card numbers
‐ Mobile phone operators use SIM cards and IMEI numbers
Knowing your customers, citizens or community members permits insights into
behavior patterns which in turn establish trends and build a users track record and
profile. These insights enable the extension and offering of services including
financial products to consumers, entrepreneurs and the general population. All
parties benefit from these increased insights and the resulting increase in flow of
services including financial products.
In emerging markets consumers and businesses alike have little or no access to user
information beyond their direct and immediate circle of Friends or Family.
Particularly when it comes to financial services and products in order to for these
services to proliferate healthily the identity and associated financial history are
crucial.
Being able to identify and verify individuals with insight into their financial history
and transactions increases the level of trust and builds confidence which in turn
encourages confidence amongst the financial services industry to extend micro
lending and alternative financial products and services.
We suggest building out a system that leverages mobile networks and individual
mobile numbers as a key means to establish user identities and thus help develop
emerging market economies.
This document attempts to address at a high level
‐ how to capture identity information using mobile numbers
‐ how to augment this information using mobile related information from the
services they subscribe to and the agent networks
‐ Using the mobile as a means to provide authentication and verification.
‐ Extending this information in an opt‐in federated model to industry
participants
This document acts as an outline and summary for a detailed business case and
further deep dives into the model, roadmap and key milestones to creating a
successful implementation.
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4.
Current Identity verification standards & problems
Managing risk is critical to any financial institution. Huge institutions and
departments exist to assess acceptable levels of risk and return, all based upon long,
detailed financial histories and multiple sources of information. Additionally, in
many countries, government restrictions and policies require detailed identification
for any type of financial transactions, "know your customer" (KYC).
Confidence in an individual`s identity and knowing exactly whom money is being
lent to, and if that person is really who they claim to be, is found to be of more
relevance than the financial position of that individual. Thus, even without a credit
rating or score, the lender may still consider lending money to a customer with a
high “identity confidence score”.
Presently, particularly in developing countries, those living in poverty do not have
identification of any kind let alone (ID) cards (e.g., driver`s licenses, social security
number (SSN) cards, military IDs, etc.) and identity verification systems are
marginal at best. Out of the 192 UN members only about 100 countries have a
national ID card system and, notably, almost none of the Commonwealth countries.
Yet all of the 192 countries have some level of mobile telecom services.
According to the World bank (Aug, 2008), around 25% of the people in developing
countries are living below the poverty line. Below is an analysis of 11 of the most
populated of these countries, with a combined population size of 3.7bln. Of those,
the lack of identity information remains a huge problem in African countries, around
the Indian subcontinent and Brazil. China, however, has already introduced a
nationwide initiative to provide all people with proper national identification.
Figure 1: percentage of population below poverty line (details on request)
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5.
Furthermore, most developing countries typically lack banking or other financial
networks to support the flow of money across the country. The lack of such
networks also means that the more traditional routes to identification information
are not available.
Hence, in these developing countries, there are a number of issues
‐ Lack of ID systems
‐ Lack of Associated Financial information
‐ Lack of Typical Routes to Credit information e.g. financial institutions
These issues create the following vicious cycle
‐ Inability to adhere to minimum identification requirements required to use
financial services
‐ Lack of financial networks to roll‐out financial services as unable to verify
customer suitability
‐ Less money flowing through the economy
‐ Remain below the poverty line
I. The benefits
Resuming the existing guidelines in developing countries, as confidence increases,
the options in services available to customers may be increased.
The challenges are how to build up the basis for the identity confidence score & how
to measure it. Overcoming this challenge can increases the spread of and demand
for financial and consumer services in a lot of the emerging markets resulting in an
increase of the mass of money and its velocity.
II. Target market sizing – mobile phone penetration in developing
countries
Mobile subscribers have recently exceeded 4.1bln people worldwide (UN report,
March 2009). This makes the mobile phone one of the essential items for people,
alongside their personal wallet and keys. The average penetration rate of mobile
phones in the selected developing countries stands at 48%. Growth rates are still
impressive, with South Africa and Brazil representing the leading markets.
Cross‐referencing the mobile penetration rate with people living below poverty line
in these markets, it would be possible to provide 431M additional people with a
form of verifiable identity through the mobile phone.
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6.
Mobile phone users living below poverty line (est., in mil) in selected
developing countries (n=431mil)
China
11 6 India
20
23 100 Nigeria
Brazil
24
Pakistan
25 Indonesia
Philippines
South Africa
34
Bangladesh
Vietnam
88
50 Kenya
50
Figure 2 mobile phone users living below poverty line in selected developing countries (details on request)
Additionally there are large funds being remitted into Asia and Africa. The World
Bank estimates these inflows into Asia to represent only 50% of the actual. 90% of
these recepients are unbanked and therefore once again without a centralized
Profile.
Figure 3 Main Flows (2007) larger than 2006 bn USD
Asia Opportunity India China Pakistan Indonesia
Formal Receiving (US$ bn) 2007 27 25.7 6.1 6.0
Sending (US$ bn) 2006 1.580 3.025 2 1.359
Source: Development Prospects Group at World Bank
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7.
III. Solution & Concept
The key to any identity solution utilizing the mobile penetration is to establish a
method and scoring system required to undertake the following steps
a. Capture the identity of an individual
b. Authenticate the data and identity
c. Continuous interaction and updating
d. Score the identity (identify confidence score)
e. Establish a Profile Exchange
The creation and management of the associated identity databases and identity
confidence scoring system will provide customers of financial, telecommunications
and other sectors with the required identification/verification and/or credibility
check.
a. Capture the identity of an individual
The key to this step is to establish a relationship with a credential provider. The
single largest credential providing identity information in emerging markets would
be, due to its high penetration, the mobile phone number issued by mobile
operators. While a lot of users in these markets are tied to “prepaid mobile phone”
numbers these are still uniquely tied to an individual.
While it is common to share a single phone within a family, each person typically
owns a proprietary SIM card. Creditworthiness, expendable income, usage patterns
etc. can be tracked based on the information available. It is the single largest
common denominator.
The identity information captured by a financial institution typically includes
general information such as;‐
‐ first & last names,
‐ home & work addresses
‐ duration at addresses
‐ phone number
‐ type of identification
‐ valuable additional information (i.e. banking, utilities, mobile phone)
‐ customer’s transaction history e.g. the number, frequencies & amount
of each transaction,
‐ Relationship duration (mobile device, bank agreement) etc.
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8.
In emerging markets a start can be made on a few of the items;‐
‐ names,
‐ addresses
‐ type of identification
However, in rural areas many people are unable to provide even this on a credible
basis. In these cases, the mobile number must serve as the primary unique
identification number with which additional information will be associated
(similarly to a social security no, passport no, etc).
In a typical financial agreement a customer is first required to provide proper
identification e.g. identify themselves as the owner of an account from which funds
are being withdrawn.
Contacts at physical locations generate a report, based on the data gathered during
the transaction. This report is transmitted to the identity verification & confidence‐
scoring database via a network interface or mobile phone. Such identity information
would be collected and used to create the customer’s identity profile.
Diagram 1
Various initiatives are already underway to encourage Mobile operators to open up
identity related API’s to access the necessary initial information and subsequently in
an on‐going continuous information‐gathering processes.
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9.
If the customer is using a mobile phone (or PDA) to complete a remote transaction,
the customer`s phone number, account number and any other personal information
associated with the phone account can be captured and added to their profile.
The SIM card could be used to record when & what identification has been checked
to the customer or an automatic number identification system could be integrated.
Further, a mobile phone`s camera (or other recording apparatus) could be used to
add multimedia content to the profile (i.e. picture, audio, video). Additionally, if a
customer initiates a web‐based or mobile interaction (e.g. financial transactions
through web/PDA, mobile (mobile wallet)), the customer`s IP address, internet
provider, web profile account information, etc can be collected & submitted in the
same way. Information from Kiosks, Agents etc could also be used for this purpose.
b. Authentication of data & identity
Verification of identity is required to initiate money transfers, bill payments, apply
for a loan, financial services, a government‐issued ID or passport, employment
verification, etc. A customer’s identity may be verified at a customer service (or
agent) location.
This can be done with the mobile phone number by providing the number to the
representative of the bank, insurance, etc. This person can then send an SMS to a
server system, requesting verification & additional information about the inquiring
person.
Based on this request, the server sends an SMS to the customer, requesting them to
reply with their PIN to proof their identity and confirmation of the intended action.
The central server checks the provided PIN with the PIN entered when activated the
number and sends an informational SMS to the vendor (either verification or non‐
verification of identity), if available, with additional information/an identity
confidence score.
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10.
Diagram 2
Such verification process may also include checking the customer’s ID, mobile phone
bill, a government ID card, etc if and where such sources are available.
A positive identity transaction includes a successful ID check or non‐fraudulent
transaction. Such transactions and verifications may be performed through any
channel (e.g. via a mobile device, on the internet, over the phone, in person, etc.).
Therefore, the identity verification process must include a connection to channel the
data to a host computer configured to authenticate the identity prior to processing
the transactions for an account.
In order to avoid fraud by using a different number to fake an identity, a personal
digital signature must be attached to the number (e.g. a picture, physical signature,
etc or other IDs). The easiest form is a personal identification number (PIN) which
the consumer is requested to enter, remember (and re‐enter as identity
confirmations at verification points) upon activating their number.
c. Continuous interaction & updating
Information associated with a mobile number is constantly being updated through
additional and recurring interactions between the customer and the physical and
remote locations (i.e. mobile top ups, bank visits, online money transfer, etc).
To enrich identity profiles in order to analyze patterns and habits to provide the
most accurate picture of creditworthiness updates on the profiles are undertaken
regularly in a manner similar to that of the initial identity capture and verification.
Furthermore, additional “deeper” information can be gathered and added in the
same way, e.g. multimedia, alternate IDs, etc.
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11.
Additional "physical locations" may include a mobile phone providers’ and other
utilities office locations, government office, convenience stores, shopping center or
any other location where the customer presents identification and engages in
financial transactions, in‐line transactions or point‐of‐sale (POS) device transactions
(local channels) or at other utility/service providers (e.g. gas company or insurance
provider).
Contacts at physical locations generate a report, based on the data gathered during
the transaction. This report is transmitted to the identity verification & confidence
scoring database via a network interface or mobile phone. Such identity information
would be collected and used to create the customer`s identity profile.
Essentially any usable identity information source (e.g. type of action, (ID card),
amount & type of payment, recipient etc) can be utilized in order to generate a
fuller, more accurate profile for each identity.
All additional information contributes to further analysis and influences the identity
confidence score.
d. Scoring the identity
All identity information can be stored in a database and used for verification
processes, calculations & analyses to generate a confidence identity scores.
The confidence scoring system is intended to serve as a measurement for
businesses & institutions to assess whether a particular individual is credible or
not, based upon their:
i. personal profile
ii. history of transactions
iii. transaction purposes and recipients
iv. amounts and frequencies
Essentially any usable identity information source (e.g. type of action, (ID card),
amount & type of payment, recipient etc) can be utilized in order to generate a
fuller, more accurate profile for each identity.
An algorithm and point‐based system is being developed which represents the
identity`s confidence score. On activating an identity/mobile number, the newly
created identity is awarded a certain amount of points. Based on the nature, size,
impact, frequency, method and purpose of ensuing transactions, points are
added or subtracted. A positive/negative identity transaction is therewith
directly causing an increase/decrease of the identity score which is aligned by its
impact (e.g. 12 months monthly money transfer (+++) > one‐time shop (+) >
canceling standing order (‐‐)).
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12.
The generation of the identity confidence scores further comprises weighting the
identification information (e.g. government ID > university pass > mobile
number) which proportionally affects the amount of points allocated per
transaction.
Each type of physical and/or remote location affects the identity confidence
score at a varying rate, too. The score is then scaled and unified in order to
provide “relativity”. Points will be measured against a benchmark and presented
as a confidence percentage.
Once the required data is gathered, the identity confidence score is continuously
updated, based on any additional identity information available, including a
successful, unsuccessful and even no attempt in verification. Each piece of
identity information and each transaction will derive a more accurate identity
confidence score.
e. Profile exchange
The ability to build a database of meaningful transaction information and the
creation of an enhanced customer database & scoring system is only beneficial if
it provides the underpinning for a variety of other institutions to build off.
Ideally the core system should be accessible through a federated model and
integrated into other businesses and/or systems.
Using open standards and common used industry protocols would simplify the
integration and exchange of authorized profile information. Software could
easily be converted using these open standards and protocols with various
proprietary.
Figure 3 The Open Stack for Internet Identity. These standard interfaces make the web more open, social, and
interconnected.
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13.
A third‐party mobile network operator (MNO) could utilize the customer
confidence and verification data to verify customer identities. New customers
might be directed to an agent location for a third party entity to gather
information and, based on the stored information about the customer, a report to
the MNO could be generated indicating whether or not the new customer`s
identity could be (re‐)verified. In essence, this third party entity becomes an
identity confidence broker to MNOs, by using the established infrastructure and
collected data to provide a level of confidence.
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14.
The Plan
In order to assess the best markets to target and create and execute a detailed
business plan the following items IV and V need to be examined in more detail;
IV. The System
The solution can be developed based on market requirements using a variety of
different software‐, application‐ and hardware‐standards and technologies.
Utilizing open and industry standards in a federated manner will simplify the
exchange of identity profiles & histories. Defining the API's and the level of
access and services could easily automate the management, use & exchange of
data.
The customer account may be activated on a provisional or limited basis in order
to allow for the gathering of additional identity information as well as allowing
for a history with the customer to be developed. The account may have various
restrictions placed on it, based on the limited identity information collected.
The method of establishing a general system which provides information about
the customer`s credibility and trustworthiness compromises of the above
mentioned steps of gathering & constantly updating identity information and
based on that generating the identity confidence score associated with each
identity`s profile.
An identity confidence system & the available identity data enable people in
developing countries to make use of a larger pool of services (e.g. taking a loan)
in a more advanced environment (e.g. legal contract), thereby opening up new
opportunities & facilitating the financial development of those currently below
the poverty line.
V. Business model
Establishing a partnership with mobile operators would be the primary focus to
establish identity records. In countries like Nigeria, South Africa and India there
are currently strong initiatives amongst mobile operators working to open up
APIs and enable the exchange of information in order to collect & access data.
These markets have a high mobile penetration while at the same time there is
relatively high percentage of the population without a form of identity.
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15.
Working with the various governmental institutions and industry Associations to
align behind the initiative will further enhance the go to market and partnership
links.
Further informing vendors, financial institutions, governments and NGO’s of the
identity verification service will lead to further partnership which would provide
additional exchange of information.
A service fee would be charged to access the database & identity confidence
scoring system. Customers would include financial institutions & interested
parties such as MFI’s for microloans, banks, insurances. The confidence index
and score would provide these parties with a credible third‐party
recommendation along with access to additional consumer data and support the
market & businesses in their expansion.
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@exicon
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