Data and identity theft are two of the most dangerous financial problems that most consumers are blissfully unaware of to date. A recent report from Risk Based Security found that more than four billion data records were stolen in 2016 with most of us not even knowing that such a thing even happened. Most users today are more concerned with the theft of their data through social media when the real threat is the loss of data from financial institutions since that data can be used to bankrupt us. Before we can explore how we can help this data theft threat, we must first examine how it happens.
Credit cards and financial data
Most people who purchase goods and services through the internet have a credit card. Digital Transactions reports that VISA surpassed $2 trillion in volume in the third quarter of 2018, showing the quantity of money credit card companies are responsible for. Each one of us who has a credit card knows that we need to be aware of how credit card details can be stolen and to guard against it. To this end, we don't leave our credit card details lying around unguarded or write them down anywhere because that could leave us at the mercy of unscrupulous individuals who would like nothing more than to have us sponsor their shopping sprees. As a means to circumvent the potential for credit card data to be stolen, some consumers opted to replace credit card payments with NFC payments from a mobile phone.
How does an NFC payment system work?
Since we're talking about data, it seems counterintuitive that we would be speaking about replacing one set of data (a visible credit card) with another set of data (invisible transmission) that seems even harder to guard. The NFC system is designed to be safer than credit card information because the system never sends out details of your credit card. The NFC system uses a tokenization method by which the credit card data is linked with the bank using a secure transfer that verifies the user's card and creates a token which is sent back to the phone. It then proceeds to generate a dynamic token of the first token received from the bank which changes dynamically and can be used to complete payments through sending that secondary token through a data transfer medium (in the case of NFC transactions the channel used is a specific frequency of Radio-Frequency Identification [RFID]). The secondary token changes on over time and the software is continuously updating this token so that even if it is intercepted, it becomes unusable almost immediately. The speed of transactions done using this method is a lot faster than cards and cash and can be done without the help of a cashier, so there's no need to hand over your card and have to keep it in sight.
How does tokenization help data security?
The tokens created by the NFC payment solution don't look anything like your credit card, and because of that, there's no chance of the card being decrypted and stolen, even if the system were to be hacked resulting in identity theft and the legal implications that entails. By implementing tokenization, the NFC payment method ensures that data that is sent from the phone to the receiver is only valid for that one transaction and after that the token that is sent changes again. This dynamic change ensures that it would be impossible for someone to utilize a similar token generator to try to reverse engineer the code to generate tokens linked to your card. Tokenization isn't something entirely new, but tokens are usually connected with blockchain, since they are prevalent upon that sort of technology, offering a secure system for data storage.
The shortfalls of a central banking system
Reuters reported that in February 2016, the Bangladeshi Central Bank was defrauded out of $81m due to an exploit in the global interbank messaging system. The BBC followed up stating that the interbank messaging system could be tampered with as well, later down in the same year. These point to a significant problem in our banking organizations – the lack of security for this interbank messaging system, inclusive of the wire transfer system SWIFT. Blockchain offers a viable alternative for financial institutions looking for methods of securing their messages through tokenization. While in the past banking institutions have been adamantly against blockchain, more and more of them are coming to the reality that this may be the way to save the data of millions of users from theft. Recently CNBC announced the first ever bank-backed cryptocurrency to aid in bank financial transactions within the JP Morgan group of companies.
What this means for the consumer
The idea of blockchain is one that gives the user the power over his or her transactions. This premise is at the core of every cryptocurrency produced including the very first, Bitcoin. However, we must look beyond Bitcoin or any other cryptocurrency if we are to accept blockchain as a technology in its own right.
Blockchain offers us a level of security through tokenization that doesn't exist in any banking institution in the world today. While we can take back our individuality in transactions through an NFC payment method, we should encourage banking institutions to be more proactive in securing our accounts. After all, as an institution, a bank can close its doors, and the owners still survive, but the people who lost that money, they will be the ones left to suffer the consequences.