Category: Innovation

The title is already too long, but what it should have said was; “No, [all] Passwords are NOT Dead, and No, Biometrics [by itself] is NOT the Answer!”

Passwords represent one of only 3 factors in authentication; the something you know, and to get rid of them when they are already so established in favour of another single form of authentication; the something you are represented by biometrics, is wrong to the point of being irresponsible.

In one of my previous articles related to biometrics hype, subtly titled “Anyone Else Getting Sick of Biometrics Hype?” I made it clear that I am actually a fan of biometrics. I went as far as to say; “…they are absolutely intrinsic to the future of non-cash payments and the implementation of true identity management…“. But what I cannot accept, and will rail against until I’m blue in the face, is those shamelessly trying to make biometrics the only player in town.

Somehow my enormous blog following of 99, (including family) has so far been unable to effect the changes the industry so desperately needs. But this is the not the first time blatant self-interest has made matters worse for everyone; The battle over NFC delayed its useful implementation for years, the on-going battle for loyalty / reward programs means there are tens of thousands of them (most of little use to the end consumer), and having a different adaptor for almost every device we own (even if you only have Apple!) annoys me endlessly.

Biometrics vendors are now firmly in this illustrious group, and it’s all so unnecessary.

However, there are a lot of organisation out there trying to do the right thing, those whose mission is to ease the transition of the payments space from cash / paper / plastic to digital, and who recognise that no ONE organisation has all the answers. Passwords are not the answer, biometrics are not the answer, hardware devices are not the answer, it’s a combination of ALL of these things and all the things to come that will get us to where we need to be. Those prepared to collaborate, to be part of the solution instead of being the problem, will all get a piece of a much larger pie. If they can prove their merit.

The worst part of it is that the ‘problem’ biometrics vendors are trying to solve has been created mostly by them! Yes, a lot of people want digital payments to be easy, or ‘frictionless’ (as the current buzz-phrase goes), but the vast majority of people are not concerned about passwords, they just change them, nor are they concerned about cashless payments, what’s wrong with their credit cards? While there is no question that payments will transition from plastic to mobile, it will be a long transition, and there is no room for disruptive innovation in this space.

I of course blame Apple for this, Apple Pay has driven an increase in interest in biometrics that has every vendor clamouring to monetise before the interest dries up.  And dry up it will, IF they continue along the current course. Biometrics by itself does not solve the security challenges, but if they embraced the collaboration with all the other forms of authentication (including passwords), they would cement their future in a far more positive place.

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By now I think everyone has heard the phrase ‘Disruptive Innovation’, as defined by; “…an innovation that helps create a new market and value network, and eventually disrupts an existing market and value network (over a few years or decades), displacing an earlier technology.“. This phase is especially bandied around in payments.

But how many of you have heard the phrase; ‘Sustaining Innovation’, which; “…does not create new markets or value networks but rather only evolves existing ones with better value, allowing the firms within to compete against each other’s sustaining improvements.”

So if you accept that a payment itself is just a way for you to access your stored value (what we call money) any time / place of your choosing, why is everyone so interesting in disrupting the existing payment ecosystem? And by “everyone” I of course mean those who are trying to either break into market, or those trying to wrest even more control for themselves. Non-cash payments work [for the most part], and you have a large degree of faith in your bank’s ability to protect your monetary assets, do you really want the whole thing to change? Do you even know what it is that you want that’s different from what you have today?

Do things even need to change? Yes, they do. Are there innovations available NOW that make the payments process easier, cheaper, and more secure for the consumer? Yes, there are. Can we expect the entire payment industry to throw out everything they have spent billions on over the last few decades, are used BY billions, just to make room for every start-up with a good idea? No, we can’t, and that’s the real issue here.

In the last 10 years there have only been 2 true disruptors in the payments industry; the mobile phone, and block chains (Bitcoin et al), neither of which has achieved anywhere near its full potential. Yet. Not because the technologies are flawed [necessarily], but because the introduction OF the technologies was done poorly. For mobile devices, the payments challenges included the ‘fight’ between NFC and BlueTooth, the numerous options for security on the device (Secure Elements, Trusted Execution Environments and so on), and the presumed insecurity of the technology overall. For block chains is was, and still is, the almost complete lack of understanding of how they even work in the first place. I’ve looked into them and I still find the concept nearly incomprehensible.

But even these disruptors need current context, and they represent a fundamental shift from our overly complicated view of payments back to its basics; I go to work to earn value (money), the value gets stored somewhere (a bank), and I access the value when I want it regardless of time or location (mobile payment). This would suggest that the only disruption we really need is the disintermediation of some of the players. There are simply too many middle-men whose only input to the new world of payments will be value erosion. Thank God the Mobile Network Operators (MNOs) are too busy bickering amongst themselves or this would be even more complicated!

As a consumer who has a very good idea of what he want to see change, I know that only those who help the payments industry evolve will have a lasting positive impact, and this will only be though collaboration and fair competition.

The greedy can stay home.

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Before I can answer that questions, I need to define what I think Identity is. Too often authentication is used interchangeably with identity, but that’s like saying a bank account and money are the same thing.

In its most basic terms, authentication is the what-of-you, identity is the WHO-of you. You can authenticate via password to log into your computer or buy a cup of coffee, but if you want a mortgage, considerably more background information is required. I could give you 5 usernames & passwords, 5 forms of biometrics, and have 5 different hardware tokens and you would still not know to any degree of certainty if I’m good for a loan.

Example: Two people are standing in front of you, one’s a stranger and one’s a close friend. You know [for the sake of this hypothetical] that they are both who they say they are, but do you feel equally comfortable lending them your car?

I would assume the answer is no, you would NOT be comfortable loaning a stranger your car, so what’s the difference? Trust, pure and simple. You trust your friend because you know WHO they are, not WHAT they are.

Unfortunately you will never be able to know everyone on the planet as well as your friends, so how can you assure a sufficient level of trust to do business of any sort? Currently, authentication is enough, but it’s almost entirely one way. If you want to buy something on the Internet YOU have to complete the login details (often including a permanent account), you have to enter all of your payment details, and you have to accept the risk that the merchant will send the goods as promised.

With an identity, built over the course of time and receiving input from many sources, every individual and every organisation can build a demonstrable level of trust so that both sides have the assurance they need to conclude the transaction. Fraud in e-commerce is rampant because we simply don’t have this 2-way assurance.

From the individual side: Credit score, confirmation of available funds, payment history, and any number of other factors can build a Trust Assurance Score (TAS), and it will be up to both the buyer and the seller to agree on the level of score required to complete a purchase. e.g. on a scale of 1 – 100 (100 being a perfect TAS) the merchant needs a score of 5 to buy the ubiquitous cup of coffee, but a score of 50 to rent a car, and a score of at least 75 to get a mortgage.

From the merchant side: Time in business, corporate credit rating, ratings and reviews and so on can build their TAS, so you can decide up front the level of risk you are prepared to accept to conduct the business at hand.

Clearly there are many challenges with this; How do you build a rating in the first place (the young and new businesses should not be unfairly advantaged)?; How do you provide instant access to this rating without exposing all of the detailed information behind it?; How do you tie in the level of authentication required to even request a TAS? And so on.

I’m not proposing a way to fix this, I’m simply trying to demonstrate that the reason we don’t HAVE identity built into transaction authentication is that these issues have not been addressed yet. And until we have identity built into transactions, we won’t have the levels of trust required to make significant change. Payments for example will move from plastic to mobile, but authentication (even multi-factor) is not enough to significantly reduce fraud.

I suspect block-chains (the technology behind crypto-currencies) has a big chunk of the answer, but I can’t even conceive on how this will be done. I just know it needs to.

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In October of this year, any merchant in the US who does not demonstrate the ability to accept EMV transactions can be deemed liable for the fraud associated with counterfeit cards.

That’s only 5 months from now.

Most people in the EU can’t really understand the confusion this has generated – we’ve had chip & PIN for well over a decade – but for the population of the US, swipe & signature is as natural as handing over cash. Retailers are rightly concerned that adoption will be a slow and painful process, but that may not be their biggest concern.

Estimates of the cost of transition from magnetic stripe to chip range from 12 (mine) – 33 (the press) billion USD, and the lion’s share of this will fall to the retailers who must replace their existing payment entry devices (PEDs) with chip compatible ones. The chances are good that this expense was not in their long-term costings, and bringing forward the end-of-life of their PED infrastructure is simply not an option in an industry where profit margins are razor thin.

But the thing that few people realise is that while the chip alone is a positive factor in fraud reduction (anti-counterfeit), the greatest benefit of the roll-out of EMV is only achieved when in conjunction with the use of a 4 digit Personal Identification Number (PIN). This effectively adds a second factor of authentication (the card is something you have, your PIN is something you know) making card present transactions significantly more secure. PIN alone would have significant positive impact as well.

It follows therefore that while organisations scramble to comply with the letter of EMV, there already exists in almost everyone’s pocket the capability to provide not just a PIN, but multiple forms of authentication and value-add services that far exceed the benefits of the chip; the mobile phone.

Even the loss of the Primary Account Number (PAN), which is the largest cause of card related fraud, is meaningless if the thief can’t complete the transaction. Add to this the numerous benefits of instant coupons, loyalty programs and even ratings & reviews, and the retailer now has the capability to enhance the customer journey while meeting the intent of EMV.

Neither the card issuers or even the card schemes themselves are fixated on EMV itself, they are only truly interested in reducing fraud. Retailers share this goal, even if they do not entirely agree with the way to get there.

It is up to authentication vendors to provide alternatives, and get those alternatives tested, real-world proven, and on the table. This will not be authentication vendors alone, or mobile device manufacturers alone, and the result will not be a decision made by card schemes alone. This will be a collaboration between ALL players, and will only work if everyone comes away a winner.

Especially the consumer.

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Looking at this as objectively as I can (given my current career focus), I fail to see how the sheer number of authentication factors a mobile devices is capable of doesn’t make authentication of card-not-present transactions at least as, if not more secure than card present transactions.

Well, they SHOULD be more secure, the technology is available, but the payments and mobile industries cannot seem to get out of their own way.

Let’s examine the card present transaction: I walk into a shop, choose my items, then go the counter. The shop assistant rings in my stuff, I place my chip & PIN card into the terminal, enter my PIN and I’m done.

The only things ‘guaranteeing’ that I’m an authorised user of the card is that I have the card in my possession, and a 4 digit PIN number. Yes, some cards have photos on them, but they are few and far between, so the real security in a card present environment is the difficulty of obtaining the card and the PIN from the true owner. I will not underestimate just how difficult this is, but other that the true owner finding the card missing and reporting it, there are very few checks and balances.

Now let’s consider what you currently have to do to buy something online, and everything a mobile phone COULD be doing to provide security. Traditionally:

  1. To create a new account with most e-commerce retailers, you just need a valid email address – May or may not require confirmation from email address used.
  2. To add a payment card you need a valid billing address, and a mobile phone number – May or may not be validated in the back-end.
  3. To make a purchase, you log into your account, choose your stuff, then go to the checkout. You select the saved payment card you wish to use, then enter your CVV2 code and / or your 3-D Secure password.

All of this is far easier to fake / bypass than in card present environments, hence the higher rates of fraud.

Now, imagine a scenario where you have registered your mobile phone and tied it to the payment card in question. At your disposal you have all of these available to you;

  1. PIN / Password – the most ubiquitous form of authentication on the planet, and while it’s not the best, it most certainly adds a significant layer of complexity for the bad guys.
  2. Fingerprint – If you have an iPhone 5/6 or a later version of Samsung, you have fingerprint biometrics. This facility will only increase as time goes on.
  3. Voice Recognition – Nowhere near as prevalent as fingerprint, but gaining ground.
  4. Retina / Face Recognition – Combine these two because they both use the camera in a very similar way. Not a huge fan of these so far, they are rather ungainly.
  5. Geo-Fencing – a transaction request comes in from a Nigeria-based IP address and your phone is in Wandsworth, is that legit?
  6. Social Media Profiling – Not common at all …yet, but you could choose to add your social media profile to the purchase decision. e.g. you’re a rabid Arsenal (UK folks) / Redskins (US folks) fan, would you really be buying Spurs or Eagles merchandise respectively? Maybe, but I assume only to burn it.
  7. Reputation Profiling – Again, not common, but another growing form of identity management.
  8. Device Profiling – App layouts and such.

…and so on.

The vast majority of these will require an initial set-up and configuration, but will then be largely invisible to the user during use. Innovation without practical use is just a dream, and in this case practical use means that everyone can use it without inconvenience.

Done correctly, the integration of all of these factors during a transaction will take no more effort than a user expends in the normal use of their mobile device, but so far the individual vendors of each service and mobile device are trying to corner the market for themselves.

Digital transactions account for trillions of €/£/$ annually, there is room for everyone in the EVOLUTION (not revolution) of payments from Plastic & PIN to Mobile & Multi-Factor, and disruptive innovation will do nothing but delay the end goal;

Frictionless and ultra-secure mobile payments.

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