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Federated Bank ID: Implications for Business Payments

September 4 2019

At Glenbrook we’ve been thinking about consumer data privacy and control, particularly as multiple competing ‘Faster Payment’ schemes arise in the U.S.. Obviously consumers need to feel comfortable asking for money; but they also need to safely receive and respond to ‘request for payment’ from billers and other businesses. This is a global concern.

Citi Trade and Treasury’s Tony McLaughlin just published a treatise arguing for federated bank IDs highlighting an example from Sweden (here). A number of banking and fintech leaders provided commentary.

My contribution (excerpted below) considers the business payment implications of digital ID:

Federated digital ID infrastructure is relatively easy to imagine in a consumer context but may be even more transformative for business-to-business transactions. As new push payment rails become available, businesses need to publish their payment address – in effect, proclaiming “send money here.”

Unlike consumers, businesses typically utilize multiple financial solutions: at least one bank, a card acquirer, an accounting/ERP platform, often a separate billing/invoicing provider, and an accounts payable and/or a procurement solution. An increasing number of these business solution providers enable payment. Many of these providers suffer from network fantasies, hoping to achieve scale and differentiate by serving a proprietary ecosystem of business buyers and their suppliers. Businesses need to manage their identify and access to their payment credentials across the ecosystem of their own providers – but also those of their counterparties with whom they exchange invoices and payment.

This dizzying array of business providers jockey to represent business – as senders or receivers of payment. I believe the small community bank, midsized regional, or national/global treasury bank where a business maintains its operating account is the most logical custodian of its digital ID regardless of the business process or transaction context. In concert with open banking permissions/consent, directories that enable look-up, and new real-time request for payment messages a federated digital ID would allow businesses to confidently transact with a wide array of trading partners. And also confidently interact with the solutions their counterparties (vendors and customers) use.

Of course, there is complexity associated with the business transactions. The hierarchical nature of many enterprises, with varying line of business or geographic entities, would have to be managed. And business transactions are accompanied by data explaining “what’s this payment for” (remittance information including a list of invoice numbers, explanation for short pays). The bank hosting a business’ digital ID would have to be well equipped to offer value add solutions to address this complexity. That, in turn, may require collaborating with many of the same solution providers that would otherwise hope to offer digital IDs to businesses. Banks, enterprise software providers, fintechs, and a host of real time solution providers must cooperate to address the needs of businesses.

Learn more: Download the Citi piece and check out contributions from Thomas Egner, Imran Gulamhuseinwala, David Birch, Oscar Berglund, Ralph Bragg, Hamish Thomas, Bianca Lopes, Dr Brad Pragnell, Hiroshi Kawagoe, Simon Black, Kenneth Tessem and Michael Salmony.

If you’d like to debate this topic further, do not hesitate to reach out via email or on Twitter.

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