Using Digital Identity

Digital identity is the lynch pin in each of the activities we have just discussed, along with a wide variety of other activities important to business. Consequently, how your organization manages digital identities will have a great impact on whether you are constantly fighting problems brought on by a lack of attention to managing identity, or whether you are exploiting opportunity enabled by a flexible and rational digital identity infrastructure.

The common ATM machine is a great example of how digital identity enables new business opportunities. Before ATMs were invented, a bank's customers took care of their banking needs by presenting pieces of paper to a human teller. The papers included instructions to the bank (e.g., deposit slips), cash, checks, and other financial instruments. Unless the teller personally knew the customer, the customer usually also presented some kind of identity credential, such as a driver's license. The teller was able to verify the identity of the customer and the validity of the various pieces of paper.

The ATM was possible only because banks created a means of identifying their customers digitally. We're all familiar by now with the debit card and PIN that ATMs require from us before service. The card carries identity information and the PIN tells the bank that the person presenting the identity is entitled to use it. With the advent of a digital identity infrastructure, banks no longer needed a human in the loop to verify the customer's identity.

From the bank's perspective, the most obvious benefit from an ATM is to reduce the cost of employing the teller, but there are other benefits as well. I lived in Japan for two years during the 1970s and experienced ATM machines there for the first time. I'd never even heard of ATM machines before that. I had a chance to visit Japan again in 1996 and found something strange. There were still plenty of ATM machines, but they operated only when the bank was open. You you could only receive during banking hours.

Japanese banks, at least in 1996, still viewed ATMs as simply "teller replacements." But in the U.S., something more interesting had happened: ATMs were used to extend service in ways that went beyond merely replacing the teller in the branch. ATM machines extended service in three fundamental ways:

  • ATM machines were open 24 hours per day, seven days a week. In fact, the first time I ever saw the phrase "24/7" was as part of a branding campaign for a small credit union in California. 24/7 was a catch phrase in the banking industry before the Internet made it popular.

  • ATM machines increased the number of customers a bank could service simultaneously, with multiple ATM machines being installed in many bank branches.

  • Because they are relatively inexpensive, ATM machines were installed outside of bank branches in convenience stores, shopping malls, theaters, and so on. These businesses usually shared in the profit from the ATM transactions.

This example shows clearly the three primary ways that information technology can extend a business. Tom Parenty[*] describes them as extensions of time, scale, and locale.

Each of these extensions is built on a foundation of digital identity. Without a digital identity infrastructure to give bank executives the ability to trust that people using the ATMs are allowed to take authorized actions, ATMs would have never been deployed.

The other side of this relationship is equally instructive. Customers feel good about participating in transactions with the bank because of trust marks that they encounter before and during the experience: the big building, the brand of the bank, the FDIC sticker, and last but not least, the teller are all part of this. The first ATMs were installed in bank lobbies to keep much of that intact. Humans frequently helped customers through their initial fear of dealing with a machine, effectively transferring the trust that customers placed in the human teller to the digital identity infrastructure and computer systems that made up the ATM system. Nowadays, of course, ATMs appear in all kinds of settings, and most people trust the debit card and PIN to adequately protect their assets.

Just as ATMs changed the way banks do business, information technology, and especially the growth of the Internet, has fueled a multitude of opportunity for business to throw off the old restrictions of time, scale, and locale. Doing so, however, requires a better understanding of digital identity than ever before.



[*] Parenty, Thomas J. Digital Defense: What You Should Know About Protecting Your Company's Assets. Cambridge. Harvard Business School Press, 2003.

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