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How blockchain can transform credit union operations

As the credit union industry explores the practical applications of distributed ledger technology (DLT), commonly known as blockchain, they should first seek to understand how digital self-sovereign identity. Self-sovereign identity is a portable form of identification that does not depend on any central authority and is nearly impossible for hackers to steal or corrupt. It is built on DLT technology, which serves as an immutable, highly secure digital network of exchange, and can serve as a bridge between this technology and members’ everyday needs.

One of those member needs is security; credit unions can address this by replacing trust in humans with technology. Using DLT removes the emphasis on biometric digital identification and replaces it with an incorruptible source.

Because of the structure of DLT—relying on scattered nodes, instead of a centralized location—this technology is ideal to act as a decentralized “self-service” registry for public keys, which would serve as digital identification for members. By decentralizing identification, credit unions can enable true self-sovereign identity. By using these digital credentials, credit unions have the potential to transform call center operations, in-person physical credentials for validation, offer easy-to-use voice banking services and streamline cross-border payments.

Call center transformations

Many credit unions have concerns about the high cost of call center operations. In particular, they commonly face two problems. The first being that the member authentication time is too long and costly – both in employee time, but also in its negative impact on the member relationship. The second issue is many credit unions see high fraud costs that result from contact center operations. The necessary fraud-protection measures contribute to driving up operational costs.

By utilizing a digital form of self-sovereign identity, call center staff can quickly and securely verify the identity of members calling in. Having members use their digital credentials to verify their identities enables call center staff to address their concerns quickly, instead of frustrating members with multiple verification questions, leading to lengthy call times. Using an incorruptible digital credential also addresses call center fraud, which has been rising. Aite Group identified call center fraud as one of the top three sources of fraud for financial institutions, among data breaches and first party fraud.

In-person ID verification

Most members use a government-issued photo ID, such as a driver’s license, to prove their identities when they are in the branch. However, the use of physical credentials to prove a member or prospective member’s identity is time consuming and a known source of fraud. Credit unions have already invested significant resources to address the compliance issues associated with the physical aspects of Know Your Customer (KYC) regulations.

Particularly during new member onboarding, credit unions have an opportunity with DLT to build an identity-verification and compliance solution that helps streamline KYC requirements during these processes, while improving their ability to detect fraudulent physical identity documentation and prove the validity of any other documents a prospective member provides. Using a self-sovereign identity hosted by DLT, credit unions can transform member authentication, particularly leading to faster member onboarding times, reducing the risk of accepting fraudulent identity documents and creating authentication times of just a few seconds.

Enabling voice banking

As credit unions have started to integrate with voice assistants, such as Alexa, many members have complained about how the current identity-verification processes have been cumbersome and insecure. Right now, most voice-banking integrations require members to interact with a physical device, such as a mobile phone, to receive a one-time passcode which defeats the purpose of a hands-free, voice-only experience. In order to conduct transactions using these devices, members may also need to vocalize their username and password which does not provide any security or privacy over that information.

In order to overcome this challenge, while retaining the all-important security features to protect members, credit unions can use a single-touch authentication through their mobile applications’ self-sovereign identity to verify their activity. This way, members can enjoy the convenience of asking Alexa to make transfers, pay bills or check balances easily, but also confirm that visitors or children do not have access to those same functions.

Cross-border international payments

International, cross-border payments total several trillion dollars each year. SWIFT remains the norm for most international transfers, but these transactions typically take a day or two to clear and generally cost between two and three percent of the value of funds transferred, but can exceed 10 percent where payment volumes and values are low. With the volume and size of these transactions continuing to grow, credit unions should look to utilize DLT to make these transactions faster, safer and cheaper for members.

These points of friction can all be addressed through DLT, which conducts transactions nearly instantaneously and could operate much more cheaply. Distributed ledger technology also has security advantages over SWIFT transfers, which tend to attract fraudsters making fraudulent transfer requests.

Any transaction with a member requires that a credit union prove his or her identity, whether a call center inquiry, an in-branch transaction, voice banking activity or international transfers. For digital channels, this typically happens through biometric security measures, such as passwords or even fingerprints. Branch transactions usually begin with a staff member reviewing a government issued identity card, while ATM withdrawals require consumers to enter a PIN. Call center staff members are trained to verify a consumer’s identity by asking a series of security questions before proceeding on to discuss account information.

Credit unions now have access to distributed ledger technology to transform each of these types of interactions, with the potential for even more transactions in the future. By adopting a DLT-based network of digital exchange, credit unions will continue to set themselves apart from their bank counterparts by working together to provide members with assurance that each transaction is a truly secure, private flow of information.

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