Blockchain and beyond

Distributed ledger technology can make all kinds of transactions more secure, while other applications such as biometrics are also becoming mainstream

The alarming rise of data breaches has compelled banks to collaborate with financial technology providers to embrace new ways of strengthening their security systems, such as distributed ledgers and biometric authentication.

Distributed ledger technology such as blockchain allows financial institutions -- and for that matter, any industry where transactions occur -- to identify opportunities, test proof of concept, and understand regulatory concerns better, according to the technology consulting firm Capgemini. It represents the new, trusted way for financial institutions to track the true ownership of assets without having to pass through a central authority.

Think of it as an Excel spreadsheet or a digital ledger full of valuable information that is duplicated thousands of times across a network of computers, and designed to be updated regularly in order to prevent thieves from hacking it in one place.

"It is a digital spreadsheet that anybody can view but no one can edit and it is extremely secure, because once the information is on this spreadsheet, it is immutable. You cannot change it, you cannot edit it, and you cannot take it out which represents a 'cryptographic version of the truth'," explains Zach Piester, co-founder and partner of Intrepid Ventures.

Intrepid Ventures develops startups and enterprise blockchain technology platforms for insurers, financial services clients and governments.

"You've got to trust in the math, and the math is really dense and the information on the blockchain is just that, it is information about X where X can be information on a transaction of some sort," he told Asia Focus.

The "blocks" on this "incorruptible digital ledger of economic transactions" can store any kind of information, but generally it is a transaction of transferred value that is cryptographic, Don and Alex Tapscott point out in their book Blockchain Revolution. It can be any kind of valuable information as the digital spreadsheet "can be programmed to record not just financial transactions but virtually everything of value", as they put it.

"It is not a replacement but an optimising of existing infrastructure where the world is run on databases today, and these databases are owned by companies and governments," said Mr Piester. "Even if you are in the cloud you are still storing databases in a server farm somewhere, so the challenge is that they are centralised with a single point to attack.

"A hacker only has to break into one database to get to the information in the cloud, but in a blockchain world, the databases, or the blockchain, are distributed and decentralised which means that there is no one place to attack."

There is no centralised version of the distributed ledger for hackers to gain access to all the information in one go as they have to hack into millions of computers, simultaneously, in order to get the complete picture of the information that is stored.

"By the time, in theory, that you can hack into one spot, the chain of information has already moved to the next chain so there not enough time in the world to be able to break into one," said Mr Piester.

Developed by Satoshi Nakamoto -- the computer genius and Bitcoin inventor whose true identity is still in dispute -- Blockchain was originally designed for transactions involving the digital cryptocurrency. Its potential, however, is limitless.

More than 40 top financial institutions have begun to experiment with distributed ledger technology while more companies across other industries are jumping on the bandwagon, though blockchain is still in an experimental phase inside many large firms.

But Mr Piester said that if banks, major technology vendors and startups still do not have a clue about blockchain already, they may find themselves already behind their competitors. This is because distributed ledgers allow financial institutions that use them to bypass central authority for authentication of ownership, speed up the transaction process, cut financial costs and lower the chance of fraud and corruption from middlemen and hackers.

"If you do not have a dedicated blockchain or DLT (distributed ledger technology) capability in your company right now, or if you do not have dedicated resources, a budget and people for blockchain or DLT then you are already behind because your competitors do, and they are in a lab somewhere building products that will put you out of business," he said.

"The good news is you are late. The bad news is you are really, really late, and now you have to play catch-up."

In a traditional payment system, a bank will charge you as much as US$45 to wire money to most parts of the world, with most of that fee pocketed by the bank and its correspondent banks.

"But in a blockchain world, using peer-to-peer networks and decentralised blockchain technology, I can send money anywhere in the world for pennies and it absolutely minimises the cost for anybody to do it," he said.

"It absolutely lowers the cost of trust for consumers. How a bank capitalises on and exploits this technology to its benefit and to the delight of its customers is the key, because this is not being done through Swift, it is not being done through correspondent banks, and this is where banks struggle."

Instead of using 15 partners to transfer money, banks would need only one with blockchain. "If banks do not apply this technology then their customers will go away. I do not like my bank but I have to bank because there are no alternatives; however, at some point, we are going to have alternatives," he said.

Around 2 billion out of 4.5 billion people globally live below the poverty line and are unbanked but they still have money, said Mr Piester. If banks want to survive in the longer term they have to figure out a way to tap into the poor and the elderly by coming up with products and services that are meaningful for people who have very little money.

"What you will see is that all these emerging technologies will lower the cost of their infrastructure and will ultimately shift their business model ... so that they can build products or services to tap into this customer base," he said.

"Blockchain enables banks and organisations to optimise their value chain and it is not just blockchain alone. Artificial intelligence, machine learning, advanced analytics and the distributed cloud -- all of these technologies will be used by banks in order to be relevant, competitive, and adapt to the rapidly changing customer base."

Banks are also adopting hardware and software that are changing not only the level of security but also enhancing the consumer experience. These technologies include various types of biometric authentication such as voice recognition, retina and fingerprint scans.

Efrat Kanner-Nissimov is the marketing director of the software solution provider Nice based in Ra'anana, Israel, which is best known for its telephone voice recording applications. But she says it has also been developing real-time authentication (RTA) which is a platform or an application that enables companies to authenticate customers with "zero effort".

"Every time you call your bank you will have those tedious questions such as 'What was your first pet's name' or 'what is your PIN code' and this is a process that customers hate because it takes a long time for the conversation to take place," she said.

"Instead of doing that we can now authenticate the customer with their voice which eliminates all these processes. This provides a better customer experience, better operational efficiency and cost reduction, and it is better for security because nobody can steal your voice but everyone can steal your PIN."

The technology can create an individual voiceprint as unique as a fingerprint, with a combination of hundreds of attributes such as mouth shape, speed and loudness of voice. It can be applied to security and authentication across industries and it can reduce average handling time by 40 seconds per call because it can authenticate customers in within three to five seconds.

Biometric applications are not new -- some have been on the market for 50 years -- but they are evolving all the time and Nice is involved with contact centres in financial organisations.

"It is all about availability. If you cannot see the person, such as in a call centre, you will need to use voice authentication. A lot of organisations are taking this direction because this is the only tool that does not require special hardware," she told Asia Focus.

"For fingerprints you would need a device to read them and the person must be there, and for the eyes it is the same where both of the biometrics require a dedicated reader, but for voice, everyone has a microphone no matter where we are such as on your mobile, on your PC, or at your branch."

Voice biometrics are the easiest to implement without any constraints on the customer side or for the organisation, so the question comes down to which technology is most secure. Ms Kanner-Nissimov believes "they are all the same" because the voice, eyes and fingerprints are all unique.

According to research by Nice, more than 80% of customers surveyed in Asia Pacific don't like traditional authentication processes and say they are willing to provide their consent to use biometric solutions to prove they are who they say they are.

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