Welcome back to our course on FinTech Foundations and Overview
In this session, we're going to be looking at one of the technologies underlying
FinTech which is the technology related to identity
Closely linked to identity are also privacy and anonymity
Sometimes we use alternatives or other perspectives on identity
Maybe I care about privacy instead of identity or anonymity but they're
really all important in different magnitudes or aspects of our identity
Identity is important in many ways in both the online world and the physical world
And we'll talk about how do we identify ourselves today in the physical world
and how is that different in the digital world
Privacy also matters and sometimes I might identify
myself too much and revealed too much
Like I go to a bar and bartender says
prove that you're 21
And I might show a driver's license
That would prove that I'm 21
it also proves what my weight is
it also proves what my address is and maybe I don't want to reveal
those things but I have to to prove my age
I might want to maintain more privacy and say
"You don't need to see that.
Let me just prove what you need to know."
And in a digital world
we could do more selective identity or verification of information and just share a bit
but we may have to prove more
And sometimes you may say
"Well, I have nothing to hide.
I'm not embarrassed about my weight or my address,
or I'm not embarrassed about my age."
But sometimes you want more privacy
and there are trade-offs with privacy
Some societies value privacy more than others
Americans think they like privacy and they do in many ways
but America is one of the least private countries in the world in terms of data privacy
Much, much data is available about you in many ways
whereas we may say
we're not as concerned about privacy in
some other parts of the world but Hong Kong for example
has extremely high privacy protection
Now, that's good in some ways
it's bad in other ways
When you have high privacy
it's hard to do data mining
it's hard to do big data analytics because you don't have as much data
You can't find out as much about somebody
You can find out much more about
an American person and do better analytics and therefore
offer them a lower rate on a credit card or
a lower rate on a loan because I know more about you and therefore
I can verify that your higher risk or lower risk
So, I can give you lower health cost, lower insurance
for life insurance, or other things because I can do better data analytics
So, sometimes I would trade-off privacy to get lower price or greater convenience
Anonymity is also sometimes important
And sometimes you can do that in traditional markets and not just in online spaces
For example, if I want to make my political donations anonymous
I can set up a limited liability company
a corporation, or an LLC
or a trust, or foundation
I may not have to reveal to the public who my backers are or donors are
I may be able to create a shield so that something I'm doing may be hidden or anonymous
You might be able to say, "Oh I see it's that entity."
But you may not know exactly who's behind everything
And so, you may be able to have to some degree of anonymity
through virtual identities like corporations that exist online
In some corporations, you know a lot about
their shareholders but others may be incorporated at
a place that does not allow such transparency and so you may have greater anonymity
And if you value that
there are ways to do that in the physical traditional world
It just may be more costly or more difficult than it is in cyberspace
So, we may be able to do anonymity cheaper in a digital world
We may be able to do privacy cheaper, easier or faster
And we may have some problems with identity but we may be
able to identify the owner of an asset easier than in the physical world
Well, how do we do identity today, and historically?
It's important and it's fundamental to secure
financial transactions to be able to identify this is my cash
this is my account
this is my asset
this is my property
You care about identity
you care about ownership and that's part of the financial world
In ancient times, identity was often tied to your face
or your family, or your name
I know you, you're John Smith's son
And I know John Smith
and he's a man of honor
therefore, you probably are a man of honor
So, identity would be associated with your clan
your village, your family, your face
A merchant might say
"Sure, I'll give you credit.
I've known your father for years,
I've known your brothers and sisters,
I know your family,
you're good for the money."
But that changes as society changes
As society becomes more mobile
the village breaks down
our village becomes a global village or
at least a much larger more fluid village of people moving in and out
We can't rely on the local community banker saying
"I know you, I've known your father,
I've known your grandfather,
therefore, you're good for the loan.
Here's your mortgage on the property," or "Here's your money to start up a new company.
I know you're good for it."
That doesn't work as well in a modern society and so we need other proofs of identity
And if we don't have proof of identity
and we don't have ways to at least recognize people and verify identity
we have a lot of inefficiencies of trying to connect information, goods
people, we end up with bankless societies or other inefficiencies
we end up with fraud
And so, this is a problem in India with many people who don't have government issued
IDs or didn't in the past with difficulties of collecting taxes
difficulty distributing social benefits
food or other things to help poor people
Difficulties of voting and fraud
lots of inefficiencies and lots of fraud when you can't verify individual identity
So, we care a lot about that not just FinTech but in society at large
In the physical world
to have verify identity
we'll use different techniques
For a long time, we've used signature
That might work, but it's becoming increasingly
easy to commit fraud in one way or another
You can copy a signature
you can forge a signature
and so signature may or may not work as a proof of identity
It has limitations
We may use some kind of documents or paper like a physical check
How did you get a hold of that check if you're not the check holder?
Well, I may actually be able to commit fraud with that too
it's not that hard to print a check
It's not hard to photocopy a check with
digital photocopiers and magnetic ink and other printers
I can commit fraud in that way too
so that can be difficult
IDs can protect your identity sometimes with pictures
sometimes with magnetic strips that are
associated with the ID like a credit card that has a magnetic strip
it's a piece of magnetic tape on the back of the card
It might be part of your government ID or your company ID
that gives you access to buildings or other kinds of access
This kind of digital information connected to a plastic card
sometimes with a picture or other verification
really came out of the 1960s
In 1960, a employee of IBM came up with
a secure plastic card for
security services invented with this magnetic strip on the back
and that's 60 plus year old technology
almost 70 year old technology now
which is still being used to a large extent for much of
the digital payments that we use in the financial world today
Credit cards, that comes out of the 1960s
So that's really old tech
and it's not as secure as we'd like it to be, fraud happens
Passwords can be used and often are used to protect
our identity both in the physical space and in the digital space
You may enter a password to get into a building or a password to
get into a room within a building
and you feel like that's secure
it may or may not be secure
Fingerprints or other biometrics may make you feel secure and it sometimes works
it sometimes could be bypassed or find ways around it
Theodore Henry King CLARKAssociate Professor
