Some challenges for banking technology at the edge of innovation

Here's three challenges for banking technology at the edge of innovation. As always, it's instructive to take and an end consumer focus in reflecting on this issue:

• Identity anarchy, or: how do we credibly establish identity in the absence of face-to-face contact?
• Mobility fragility, or: the rise and rise of mobile devices and their inherently heterogeneous environments.
• Two-point-oh fatigue, or: let’s party like its 1999.

Firstly, as more and more transactions move to electronic channels, banks have an increasingly difficult problem in credibly establishing the identity of the person at the other end of the conversation. And this problem is not limited to banks because the end consumer too, needs reassurance about who they think they are dealing with.

Secondly, if the trend to motility manifests as I think it will, then there will be one characteristic of the technology landscape that will be very different from today’s PC operating system monoculture. The mobile handset market is vastly more diverse than the current PC domain, and this has two implications. Firstly, the diversity of platforms means that there will be more holes for attackers to chase and exploit (potentially a unique set for each handset and operating system combination). Secondly, because the lifecycle of a mobile handset is so short, vulnerabilities are often not patched because it is cheaper, easier and/or quicker to bring out a new model. The result of these factors is that if we think we have a problem with endpoint security today, then we are potentially in for a whole lot more trouble in the future.

Finally, there is some amazing promise in the notions of Web2.0; however there is also a very real risk of it all bursting in an explosion of social networking sites poaching each others members. This time around it seems driven by acquisitions not IPOs, but some of the same bells are ringing. How many times can we attach “2.0” to something before people start to lose interest?

I think that the solution to the first problem lays in a credible, universally accepted, portable, cheap, effective, secure, and privacy respecting digital identity. I know from personal experience that this is not at all an easy thing to achieve; however, there are some technologies in this space that look promising right now. A solution for the second problem becomes a whole lot easier if we stand back and forget for a moment that the mobile device is a phone, and consider that is just a PC with a small screen. In my view, it does not make sense to build a whole new banking platform and delivery capability designed specifically (and only) for mobile phones. It’s expensive, non-standard, time consuming, and prone to error and obsolescence. What makes more sense to me is to take the existing online channel and make sure that it can be viewed on a constrained form factor device, over IP on a 3G (or 4G) mobile network. Although these capabilities are beyond the average device today, I firmly believe that it will be the default capability of devices for the majority of consumers in the near future. As we have seen (hype aside) the iPhone has raised the bar by bringing a new brand of unconstrained web browsing to handheld devices so we can be sure that other manufacturers will follow suit.

Finally, I’m not sure there is a solution to the problem of “two-point-o fatigue”. As anyone who went through TechBubble1.0 can attest, it was a pretty fun time – right up until the very end. There’s a lot of activity in this space at the moment, both in terms of innovations such as Prosper.com, Zopa.com and Kiva.org, and in terms of acquisitions. For example, I recently read [1] that FaceBook turned down a US$1b acquisition, making it public that it is only entertaining offers in the US$10b price range (I just hope they don’t turn out to be another PointCast).

M@

References
[1] "FaceBook founder ‘stole our idea’", Sydney Morning Herald, 25-July-2007