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What is the source of trust in the digital economy?

October 28, 2019

With the digitalization of finance, that which was previously impossible, such as personal identification via smartphone, is now part of everyday life. To ensure that everyone can enjoy such convenient services with peace of mind, we must achieve both security and convenience. SBI Holdings and NEC are combining their respective strengths in finance and technology to co-create the future. This is their vision for the foundation of trust that will support that future.

──The world of finance is undergoing dramatic changes. What role can companies play, when faced with such circumstances?

Fernando Vázquez:
In the future, mobile devices may essentially become personal banks for their owners. This would only be possible with accurate Know Your Customer (KYC) processes, and would require companies to both strengthen their security measures and keep up to date with changing legislation.

Fernando Luis Vázquez Cao
General Manager, Cybersecurity Office, SBI Holdings
CEO, SBI Security Solutions

Came to Japan, from Spain, in 2003, to join NTT Data Intellilink. Worked on the development of open source software and is one of the leading contributors to the commercial application of Linux. Recipient of the Japan OSS Contribution Award and other prizes. Joined SBI BITS in 2015. Assumed his current positions in 2018, where he is responsible for reinforcing the cyber security measures of the SBI Group as a whole and developing novel security services that utilize cutting-edge technologies.

Daichi Iwata:
Japan’s Act on Prevention of Transfer of Criminal Proceeds was revised in November 2018 to enable online identity verifications. Security measures are now all the more important. Companies must take robust measures to combat international money laundering and the financing of terrorism. At the same time, they also need to make digital financial services more secure and convenient.

Daichi Iwata
Director, Digital Integration Division, NEC

Responsible for planning and launching new digital businesses. Launched the ICT infrastructure business that enabled the making of bank transactions using national IDs in India, and a FinTech joint venture between NEC and Mitsui Sumitomo Banking Corporation. Besides developing new digital businesses, is organizing dialogues with various stakeholders regarding new forms of governance for the digital age.

Vázquez:
That’s a challenging problem. Using multi-factor authentication can prevent impersonation and enhance security. But the more factors you have, the less convenient it becomes. We are taking a different approach. We intend to utilize AI to analyze a wide range of data, such as bank transactions, communication carrier data, and e-commerce purchasing history, and identify the risks facing each individual user. We hope that this will form the base of a new authentication model that achieves security without compromising convenience. Nevertheless, there is yet another issue, which is the potential misuse of data and the creation of a surveillance society. We therefore need to be very careful about how data is utilized.

Iwata:
Yes, we certainly don’t want some kind of Big Brother situation. On a more positive note, the digital age allows us to better understand customers based on data, which then makes it possible to creatively enhance customer experiences. This will surely lead to the emergence of all kinds of new customer-centric services, as long as we can guarantee security without compromising convenience. At NEC, our aim is to develop services that are accessible to everyone. Optimal KYC operations are essential for doing that. There are four social values that we strive for at NEC—Safety, Security, Efficiency, and Equality—and I believe Equality is probably the most representative of our company.

Vázquez:
Nowadays, digital finance initiatives have to involve a wide range of stakeholders, including financial institutions, ICT companies, carriers, and the relevant authorities. As a member of a financial institution, I am very happy to be able to work with a technologically-advanced company like NEC. If our institution were to act alone, we may be seen as technologically incapable. Conversely, a technology company acting alone may be seen as lacking understanding about finance. Ours is a win-win partnership. Together with NEC, we can take a completely novel approach to digital finance, taking advantage of our respective human networks and expertise.

Iwata:
Financial actors have many different points of contact with customers, which, in a way, puts them on the front line of regulatory compliance. For that reason, I believe a technologically-advanced company like NEC can play a major role. We will need to build a new ecosystem spanning a wide range of industries. We will also need to develop new rules for this ecosystem, a task for which partnerships among different companies will be essential. I am sure that the teaming up of a technology company and financial institution, as envisioned by SBI Group and NEC, will produce substantial synergies.

──What initiatives have SBI Group and NEC already taken and what is your vision for the future?

Vázquez:
In August 2017, SBI Holdings, SBI BITS, and NEC launched a demonstration trial of KYC operations using distributed ledger technology. As of April 2018, a total of 16 companies have participated. The trial showed that it will be possible to open accounts more efficiently and offer users improved convenience. Based on these findings, we have been holding continued discussions since April 2018 on the actual implementation of such operations, as part of a securities consortium comprising over 50 companies.

Iwata:
To date, NEC has already worked together successfully with SBI Security Solutions on numerous occasions. In October 2019, we will set up a joint venture for the provision of KYC services and anti-money laundering / combating the financing of terrorism (AML/CFT) regimes, which are needed by financial service providers in Japan and worldwide. There is growing demand for KYC operations due to the spread of cashless payment methods. Moreover, this joint venture becomes all the more significant given that the Financial Action Task Force on Money Laundering will begin its 4th Round of Mutual Evaluations for Japan from autumn 2019, regulations are expected to be further tightened, and the need for AML/CFT efforts is growing.

Vázquez:
We hope such initiatives will lead to new data-driven businesses concepts. It is very possible that the guidelines created by our securities consortium will eventually become the global standard.

Iwata:
I believe so, too. Thinking ahead about the future of data-driven businesses, first and foremost, we need to build an ecosystem in which anyone can provide any data securely. Developing such an ecosystem will make us more competitive and, above all, will create a new source of customer trust. We are very pleased to be working on this endeavor with SBI Security Solutions, with whom we share a common understanding about the importance of privacy by design, and also a common vision for society.

Vázquez:
We want to co-create a secure common platform that enables us to handle customer data with AI, while providing greater user convenience and without violating anyone’s privacy. As has been the case in Europe, with the General Data Protection Regulation, data governance is sure to become critical also in Japan. Nevertheless, there is a lack of any real sense of urgency in Japan, and many companies’ security concepts are behind the times. Companies need to assume that any system is vulnerable to being hacked, and therefore take measures that focus on detecting the attack, restoring the system as soon as possible, and preventing any real damage.

Iwata:
Accidents happen. If we are unable to produce and grow new companies because we are afraid accidents might happen, then our priorities are all wrong. We have to create mechanisms that prevent the loss of trust even if an accident occurs. There is real value in doing so. Moreover, security measures are becoming more costly, meaning that some companies are unable to take all the necessary measures. If companies like ours, who have the relevant cyber-security knowledge and technologies, work together to address this issue, we will be able to decrease the cost of such measures and therefore the cost borne by society. For example, in Berlin, many fintech startups came into being as a result of the many white hat hackers who lived there. In the same way, if, within the broader ecosystem, we play the role of fully ensuring security, it should make it easier for small startups to launch their businesses and create new financial services. It really would be something special if we could design a new source of security in the digital world, which would lead in turn to the emergence of various innovations.

Vázquez:
While it was initially startups that led the advances in fintech, larger, existing financial institutions will no doubt come to have an important role to play as well. Compliance and governance are now essential, and customers cannot be protected without rigorous risk management. As Japan’s Financial Services Agency works on developing new legislation, we hope companies like ours will lead new revolutions in the world of finance, in collaboration with such financial authorities and other wide-ranging players.

Iwata:
It has been nearly 30 years since the birth of the internet. If we continue to develop services as part of the conventional web, which is not premised on data flows or personal identification, their security will be severely limited. We need to design next-generation architecture that will serve as a new foundation for trust. In doing so, we hope to make it possible for all members of society to enjoy secure and convenient services.

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