U.K.-based Nuggets is integrating its blockchain technology to existing payment rails, creating a system wherein merchants will no longer have to access or store consumers’ personal data. It puts an end to the password authentication or the need for merchants to store personal information with third parties.
The system works for clients of London-based Lateral Payment Solutions, which has processed millions of e-commerce B2B and B2C transactions for merchants since 2001 and plans to connect its payment gateway and merchant digital identity into the Nuggets blockchain.
“We’re seeing a number of blockchain-based experiments with identity management, although this is the first I’ve seen with a major merchant processor,” said Julie Conroy, research director and fraud expert with Boston-based Aite Group. “Obviously, anything that can take sensitive data out of the merchant’s environment is good news, given the fact that most merchants need to view a possible data breach as a matter of ‘when,’ not ‘if.'”
With the Nuggets setup, the merchants will not need a username and password to connect to the payment provider, and consumers will not need them to login and make purchases.
“When the consumer logs on to do online shopping, the fingerprint authentication is performed through the Nuggets option when payment is made,” said Alastair Johnson, CEO and founder of Nuggets. “The online shopping website is accessed after the authentication is passed, and in this way the personal sensitive data is not stored on the merchant server.”
The concept of a digital ID has picked up steam in the past year, but it brings along plenty of questions about how a universal digital ID could work and who would govern such a virtual key.
Still, the idea of digital IDs is starting to take hold in various forms, said Zil Bareisis, a London-based senior analyst for research firm Celent.
“Instead of supplying all of your details to any new relationship you might establish with a merchant, you refer them to your identity provider who validates your identity,” Bareisis said.
Some identity schemes are mandated and built by governments, such as in India, and others are coming from bank consortiums such as BankID in Norway; or from individual third parties like Verify in the U.K.
But Nuggets represents a different type of solution because it promises to put individuals in charge and let them decide how much and what data to share with requesting parties, Bareisis said.
Noting that the delivery of reliable digital IDs has been inconsistent, Mastercard and Microsoft revealed a partnership late last year to address this opportunity and need in payments security.
Mostly, digital ID platform developers have had the goal of eliminating passwords and the friction they cause in payments and the gaps they leave open for hackers. To pursue that goal, most have been seeking partnerships with payments networks or processors.
U.K.’s Nuggets certainly falls into that category, anticipating the effects of the Secure Customer Authentication requirement of PSD2 taking hold in September 2019. It will increase the demand for biometric ID technology and increase the flow of online transactions requiring two-factor authentication.
“Funded decentralized digital identities will be at the core of many industries, especially payments, where reducing friction during the checkout process and protecting customer data have become the main focus for merchants,” Nuggets’ Johnson said.
The digital ID may come to consumers through apps and across devices like phones, watches and smart rings, Johnson added. “As more devices become connected this year, being able to accommodate mobile payments via those devices will be primarily driven by digital identity.”
As with any payments scheme, Nuggets and Lateral Payment Solutions will have to overcome any roadblocks in trying to achieve scale.
“The big question mark here is how many consumers will care enough to actively participate?” Aite’s Conroy asked. “Consumers have to sign up with Nuggets, and right now it’s just a niche group of consumers who are security conscious enough to actively change established behavior patterns and sign up for a digital ID service.”
Conroy views the Nuggets scheme as “a great example of the potential of blockchain” that solves a big pain point. “But the actual production numbers will be pretty low due to the consumer dependency,” she said.
Businesses will create incentives to get customers to use Nuggets, as they are anxious to solve the problems of fraud and chargebacks, Johnson said.
“With Nuggets, businesses minimize data storage and mitigate data breaches,” Johnson added. “With recent data breaches, more retailers and services will realize that the existing model of storing personal information is broken and not sustainable.”