June 5

Ignacio Mas

I’m a Victim of DFS: Digitizing My Dollars is Fine, the Problem is Digitizing Me

Editor’s note: Throughout 2017, NextBillion is organizing content around a monthly theme, dedicating special attention to a specific sector alongside our broader coverage. This post is part of our focus on financial inclusion for the month of June.

I recently had to walk away from the money I had in a bank account. It’s still there, but it’s unreachable.

My money wasn’t sitting with an old-fashioned kind of bank, it was with Simple, a new-age, purely digital financial service provider.

What you have to understand if you want to use digital banks is that they digitize everything except your identity. They’ll give you internet log-ins, but those are a matter of transient (in)convenience. You can regenerate them on the fly any time you like, and the bank can “expire” them any time they like.

In either of these situations, when you need to assert your ownership over your money, they’ll fall back on simple questions like your phone number and address – the two things that leave the biggest digital trail. Yes, the phone number that so many people churn through – dropping one line or SIM card and buying another that offers a better deal in the latest mobile promotion. Yes, the address that is such a fixture in the middle-class psyche, but so fleeting for people in a transient life stage, and unwritable for many people in rural areas. So many people, including me at the time I walked away from my money – I was between jobs and hence likely between cities – have to resort to putting down a friend’s (much less memorable) address.

When asked to prove my identity, I struck out on phone number and address. Two strikes, you’re out.

There were no bank statements I could go back to and check my information, because they’re paperless.

There was no place I could go to with my passport or national ID, because they’re branchless.

There were just cheerful-but-wooden call center staff (“Hello my name is Josh, what can I help you with today?”) with indifferent detachment (“Who doesn’t remember their address?”), armed with oxymoronic stock answers (“We must have you verified for your own security”) and infinite-loop scripts (“Please gather your information and call us back”), on a clock and with key performance indicators (“Must move on …”).

Never mind that this seems like a degraded banking experience, that branchless banking is banking with less recourse. The main point is that our whole framework for digital money is inadequate.

Digital money really means assigning a monetary value to a digital identity. Digitizing the notion of 100 dollars into zeros and ones is easy; giving me the means to unfailingly prove my identity digitally is the real job of digital banks. Without a proper digital identity, money cannot be said to be properly digitized.

Which then raises the question: Who should have the responsibility for digitizing people’s identity, so that money can start being assigned to them? At first blush it would seem to be the government’s job, but most fall far short; because there is no national ID, the national ID database is not digitized, or there is no widespread mechanism for digital authentication based on national IDs.

So governments have tended to delegate that function to banks, through the legal know your customer (KYC) rigmarole. The problem is that a government’s identity needs (finding you if you do something wrong) are different from mine (a simple “Give me my money back!”). That’s why my contact information has come to be what identifies me in my bank’s eyes. And that’s why my so-called digital identity was working against me in this case.

KYC rules ought to reflect this dual set of objectives. Banks should have to do the government’s bidding and comply with anti-money laundering and other rules. But they also need to fulfill their fiduciary duty to their customers by providing a robust, multi-pronged procedure for identifying their customers.

It should not have to come down only to address and phone number when, for instance, I had another bank account in my name. Simple could have asked me to transfer a specific small amount from my linked bank account to my Simple account, thereby free-riding on the KYC of the other bank (similar to what PayPal does, for account opening). But try explaining that logic to Josh the call center guy. That’s not in his script.

So I call on authorities everywhere to unbundle their KYC rules into two: the set of KYC-G standards that serve financial integrity and law enforcement, and the set of KYC-C standards that fulfill the fiduciary duty toward customers.

This distinction will be particularly important if government takes the bull by the horns, as it should, and builds a purely digital national ID system, such as India is doing with Aadhaar. The danger there is the slippery slope that the national ID will pervade every domain of commerce and life, simply because it’s there and it’s easy. As more and more transactions become linked to your legal identity, why stop at requiring ID for purchases of banking services and SIM cards, or booking of hotel rooms and airline tickets? You will become inexorably linked to a digital Panopticon.

Take the case of banking. The fact that the government needs to be able to discover who I am when I open an account doesn’t mean that the bank needs to know my legal identity. So let me open an account with a pseudonym, and require me to link that pseudonym irrevocably to my legal identity with the national ID provider. This way, government has the means to know who owns the account, and I can use my national ID to prove ownership of my account with the bank if I need to as a last recourse. But the bank need not have access to my legal identity (KYC-G); for the bank, I ought to be whoever I tell them I am (KYC-C).


Ignacio Mas is executive director at the Digital Frontiers Institute.

Photo by Paolo Trabattoni via Flickr, of Kilmainham Gaol, a former prison in Dublin, Ireland; a Panopticon in which every cell is visible from a central platform.

Homepage photo credit: Kenny Alexander, via Flickr.



business development, digital finance, microfinance