Less of a gamble? Proponents of identity cards say they are as secure as passports for use in financial transactions, but there are concerns that the supporting infrastructures needs to be equally reliable

Identity cards have been largely welcomed by the banking sector for their ability to efficiently prove customers' ID when they open accounts or enrol for new products and services - and it is only a matter of time before their use increases, with economies around the world introducing variations of the fast-growing technology. Writer Wendy Atkins

On the surface, the growing trend for national identity (ID) schemes may seem to be of little interest to the banking sector. But with many governments opting to deploy their programmes on smart cards, new opportunities are emerging for those institutions involved in the banking and payments business to improve security and even drive their payments services on a new channel.

The roll call of countries implementing - or considering introducing - smart national ID cards is growing rapidly, driven in part by the international push towards ePassports as well as by the maturity of the underlying technology, some of which has already been proven in the banking sector. G-20 economies including the UK, South Africa, India and Mexico are lining up next to countries such as Morocco, Portugal, Qatar, Belgium, Oman, Kuwait, Spain, Macao, Guatemala, Lithuania, Saudi Arabia and Rwanda to adopt the technology.

Why ID?

Governments have different reasons for rolling out the technology, with some opting to make the cards compulsory for all citizens aged over 16. Others, meanwhile, are choosing to make them optional in the hope that the convenience associated with owning a national ID will persuade citizens to participate. "One idea we have heard of in India is to make the ID demand driven," says Stephen Rasmussen, manager of the Consultative Group to Assist the Poorest Technology Programme. This would mean integrating the national ID scheme into a range of everyday services, he adds. "Thus, over time, requiring that access to medical records, driving licences, passports, bank accounts and so on requires one's unique ID. With sufficient demand driving the system, then it becomes a matter of enrolling individuals and sustaining a nationwide ID verification system and infrastructure."

Regardless of the motivation, the move could have an impact on the banking and payments sector. Take Oman, which has added an ePurse function to its national ID and resident cards. According to NETS, the Singapore-based ePayments provider involved in the scheme, the ePurse will help government departments collect payments for their services and will also enable citizens and residents without debit or credit cards to transact electronically. Gemalto, the main supplier to the scheme, says all banks in Oman are participating in the programme. "The first phase of the project will be actively steered and implemented by BankMuscat, which issues the ePurse," says Pierre Servettaz, Gemalto's vice-president for government programmes in the Middle East. It also processes the transactions and will implement phase two of the system, which will see Oman's Information Technology Authority hosting the ePurse Isystem in house and expanding the application to all the banks in Oman.

If a national ID card includes a payment mechanism on the chip, could this prove to be unwanted competition in an already crowded payments sector? Not really, say some suppliers, who argue that reasonable competition in the market is welcome. "If the government wants to get into that service, that's something for them to do," says Chris Gabriel, chief executive of mobile operator Zain Africa, which offers Zap mobile money. "We're still continuing with penetrating the market rapidly, so I'm not concerned with that at all."

In Portugal, the citizen electronic ID (eID) card containing biometric data was launched to replace a range of credentials, consolidating five different ID documents - civil identification, taxation, voting, social security and healthcare - into the one card. It can also be used for electronic signatures and authentication, to encourage use of electronic transactions. The deployment process has gone quite smoothly as the scheme replaced existing citizen documentation.

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Meg Hillier, UK's Home Office minister

London calling

Getting to the point of actually rolling out a national ID card in the UK has not been plain sailing. The ruling Labour government has faced stiff opposition from other political parties as well as from pressure groups such as No2ID and The TaxPayers' Alliance since it first announced plans to introduce such a card. And with a general election set for later this year, the future of the scheme - which has only just got off the ground - is still in serious doubt. The Conservative opposition has already revealed its hostility to the project, with Chris Grayling, shadow home secretary, telling The Banker: "We plan to scrap the ID card scheme immediately if we win the election."

In spite of the scale of the opposition, the government has made some progress in introducing its national ID scheme, and by the end of 2009 residents in the city of Manchester were being given the opportunity to apply for one of the new cards. Rollout is continuing throughout the region and is set to be extended to those aged between 16 and 24 in London later this year.

"These are as secure as passports, and can be treated as such when proving identity in financial transactions," says Meg Hillier, the UK's Home Office minister responsible for ID cards. "The cards feature a variety of visual and tactile features which are extremely difficult to forge. Because the cards don't feature address details on their face, a simple address check with the ID Card Validation Service can help banks prove a customer's identity in the same way as the Passport Validation Service works at present."

She adds: "The identity card also contains a distinctive security feature on both the front and back which fluoresces under ultraviolet (UV) light. Many retail banking outlets already have these machines to check bank notes which also have fluorescing features. In addition to the visual and tactile checks anyone can make on an identity card, a simple UV check will also confirm the card is genuine and not a fake."

As the UK has opted for a voluntary scheme for its citizens, it now faces a battle to win their hearts and minds and persuade them that it is worth paying the £30 ($49) fee for the card. No2ID, one of the campaign groups opposed to the scheme, argues that the National Identity Register would signal a loss of liberty, lifelong surveillance and the introduction of a meta-database. And the response of citizens to the project has been lukewarm, with many arguing that they do not see any value in a card that they will ultimately have to pay for.

So how is the government selling the card's benefits to UK citizens? Ms Hillier says: "Benefits include definitive proof of ID and added protection against ID theft, proof of age and the ability to use the card for travel throughout Europe. In addition, our marketing provides information on cost and validity along with how to apply. We have made the application process as straightforward as possible while still retaining the robust requirements for ID checking."

The government believes that, as more people sign up for cards, their use will gradually percolate through into everyday applications. Ms Hillier explains: "As the number of ID cards in circulation rises, the banking sector will increasingly be presented with customers intending to use their card to prove their identity to purchase financial products and services. Potential new employees will also increasingly present ID cards as part of the recruitment and appointment process. ID cards will therefore help with 'know your employee' checks. The identity checks carried out by the Identity and Passport Service will provide the banking sector with additional assurance of customer/employee identity."

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Mark Bowerman, spokesman for payments information service UK Payments Administration

Something for the banks?

The UK banking industry has already voiced its backing for the card. Mark Bowerman, spokesman for payments information service UK Payments Administration, says: "We've continued to support the ID card because of how it could help to better establish a customer's identity when they enrol for new banking products or services, or when they want to access their accounts in a branch-based scenario. However, any government ID card initiative must be credible and robust, and deliver a secure identity credential built on sound and secure registration and enrolment processes, with a secure supporting infrastructure."

Some insiders say they think the only way the UK government will sell the card to its citizens is to plug it into other retail and banking services. It seems to acknowledge this method of encouraging uptake. "Being able to use a card with retail and banking services is a valuable additional utility for the card which we are keen to encourage through working with the sector," says Ms Hiller.

Emerging markets

The emerging markets' appetite for ID systems is growing. Dr Detlef Houdeau, senior director for business development in the public sector at Infineon Technologies, says: "For many African states, the discussion is aimed first at changing the traditional card document to a more secure document with a long lifespan. Once this is in place, they then look to eIDs. ID systems are important for maintaining stability in the continent by helping to keep track of the number of nationals and foreign nationals living in a country."

India has taken steps towards making its ID scheme a reality. The Unique Identification Authority of India, headed by Infosys founder Nandan Nilekani, a renowned Indian technologist and entrepreneur, is producing unique identification numbers for each of the country's 1.2 billion citizens. Each record will include the personal and demographic details of the resident and will be associated with their biometric information. Deployment of the ID system was a major promise of the Congress-led coalition that won the country's general election in 2009. It says the aim of a single national ID card is to ensure the efficient delivery of public services, allow each citizen to identify themselves so they can make use of other services such as bank accounts, and allow the government to detect illegal immigrants more easily.

It is an ambitious project, with 100 million cards expected to be rolled out within the next three years. But with this comes huge benefits, say some. For example, commentators argue that a successful deployment could reduce widespread corruption and plug the leak in public distribution systems for the poor. Furthermore, it could allow portability of health insurance and pension accounts between employers. And it could help bring masses of India's poor into the formal economy, where they can gain access to financial and social services.

But an eID scheme on its own will not boost financial inclusion, argues Mr Rasmussen. "In the case of India, however, its government is discussing how to create public demand for eID as well as create conditions under which service providers have incentives to use the eID. They are proposing to go further than issuing an eID and to demonstrate practically how it can be used to enable better service provision. This could be done in many different ways, but one idea being discussed is to create a system that will link eIDs to bank accounts to be used in a national micro-payments system, enabling better delivery of all government payments to people [India has many such programmes] as well as enabling branchless banking generally. If these ideas were implemented it could have a significant impact on the financial inclusion of the unbanked over time."

Know your customer

It is possible that eIDs could also be used to verify customers as part of the stringent know your customer requirements that banks must follow. Mr Gabriel is upbeat about these prospects: "If customers have an eID card it will speed up the entire process. A lot of people in remote areas of Africa don't have any form of ID, so this will make life so much easier for us if it is introduced."

Mr Rasmussen adds: "A biometrically verified eID allows for very reliable authentication of an individual linked to his or her unique ID. Such a system would make things significantly faster, cheaper and more reliable, given the difficulties banks have verifying identity via signatures, photo IDs and so on. This potentially makes banking more widely accessible through bank agents. It can also be used to confirm identity at the time of transactions, thus reducing risks."

A unique identification number, as applied through a national ID scheme, allows an individual to be identified across systems. "Potentially this might allow for the wider development of a national payments system in which everyone with an ID can more easily participate," says Mr Rasmussen. "The ID could be linked to that person's bank accounts and then transact over the system."

Dr Joseph Atick, executive vice-president and chief strategic officer of secure ID firm L-1 Identity Solutions, agrees: "The key word is inclusion. If you go to the bank and don't have an ID, you might not be able to benefit from the loans and other services it can offer. A national ID that can be used for banking is very important."

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