How banks can leverage digital exhaust to bank the unbanked

With high-profile breaches that result the theft of millions of personally identifiable information (PII) data records in the news seemingly every day, businesses that cannot positively identify an online consumer are likely to reject them, rather than risk them being a fraudster.

It might be the smart decision, but it doesn’t change that the business loses revenue that would come from “unidentifiable” prospects, the thin-file population into the modern economy.

Thin-file customers consist of the “under-banked” and “un-banked.” Under-banked customers might maintain a checking or savings account, but they won’t use their bank’s other services, and they don’t have much credit history.

>See also: What makes a great digital bank? 

Un-banked customers are even less visible. They use cash, barely bank, and have no credit history. Un-banked and under-banked customers cannot do what most customers can do: participate in e-commerce.

More specifically, they have trouble accessing the online goods and services. The reason? They barely have credit. Without credit—without credit cards, without credit histories—online businesses have difficulty positively identifying them during transactions.

Who are thin-file customers? They are typically Millennials (ages 18-34), the first digital natives in history. Now the largest generation in the US, tech-savvy Millennials are proving to be loyal to brands that personalise products and ad campaigns. Millennials are also in the beginning stages of inheriting $30 trillion in wealth.

FIs rightly want a piece of that, particularly as Millennials age out of their lazy, entitled stereotypes and start businesses and buy bigger-ticket items. Thin-file customers could also be immigrants, or people who have slipped through the cracks of the financial system. They could be people who simply distrust large institutions or people who live in areas that have gone through tough economic times.

>See also: Lloyds Bank’s £1.75BN bet on the future of banking

But it doesn’t have to be either-or. Just because thin-file customers don’t have robust credit histories does not mean, however, that they don’t generate reams of data. Thin-file customers are not Luddites.

US smartphone penetration at over 80% of the US adult population. US internet access is 88%. Email, texting, social media, and web browsing have progressed beyond novelties to standards. Everyone uses them.

The best solution to folding thin-file customers into the digital economy is to leverage their “digital exhaust” in order to give them a digital identity. A person without a social security number (like an immigrant) or a person without a reliable address (someone between jobs) might never have had the ability to build the standard credit history.

But these pieces of information are no more valuable an identifier than a single email account or social media persona or phone number that’s been used every day for twenty years.

>See also: The rise of digital banking in the mobile era

We live in an ever-expanding world of cables and clouds. E-commerce is just a couple years away from topping $4 trillion globally and comprising nearly 15% of all retail sales. (Amazon will own almost half the US market.)

Each day we send 2.5 exabytes of data through servers—90 years’ worth of HD video. What will it be when the Internet of Things (IoT) market alone approaches $1 trillion in 2025?

There is one certainty: the more we use our devices, the more “digital exhaust” we will emit. That is, each time we do anything on the internet—share an article, buy a product, turn up a thermostat, let alone the more common use of our phone, email, social media—we leave a massive trail of data. And while each byte is ancillary to our actions, together they paint a detailed portrait of our digital identity.

>See also: Changing global banking model to focus on the digital

For financial institutions (FIs), digital exhaust is one of the best opportunities to solve problems and increase revenue. Once businesses understand that digital and social data can be harnessed in this way, they will gain the ability to positively identify and authenticate an entire class of customers. The key to unlocking a new revenue stream has never been as clear.

 

Sourced by Sunil Madhu, CEO of Socure

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Nick Ismail

Nick Ismail is the editor for Information Age. He has a particular interest in smart technologies, AI and cyber security.

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