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
