Digital identity is an area of strategic importance to a growing number of organisations. Digital is a key channel for service delivery. High-value services, such as banking and health care, are being transformed by digital technology and the shift to digital has been accelerated due to the environment created by the global pandemic. Digital identity is the key to ensuring security, privacy, and convenience for people and businesses as they increasingly participate in the digital economy.
The lack of widescale digital identity is not due to a lack of effort. There are numerous government and industry initiatives actively seeking to build and promote digital identity networks. These will give individuals, organisations, and, potentially, devices digital identities that enable all types of digital service.
Today, identity is often siloed, with customers needing to have separate relationships with each organisation they deal with and each organisation keeping a separate (and likely different) digital version of the customer. This creates massive friction and risk. Without reliable and portable digital identity, consumers, governments, and businesses will have a significant lack of trust in online interactions, which in turn will prevent everyone from realising the full potential of digital services.
The concept of digital identity is changing too, from something narrow (basic identification use cases) to broader information about the subject and developing an ongoing ecosystem of trust between parties interacting digitally. This shift in focus has enabled both individuals and organisations to think differently about the information that needs to be shared in a digital context.
Digital identity can enable transactions where it is no longer the default assumption that tons of personal data need to be passed between parties. It can also enable wider use cases with customer consent, such as streamlined account opening, shared KYC, and ongoing fraud monitoring.
The establishment of a trusted digital identity can support conducting transactions where only the minimum amount of information required needs to be exchanged. This is beneficial both from the customer’s standpoint by protecting personal data and from the organisation’s perspective by only needing to collect the information required to complete a transaction. The concept of data minimisation and the use of verifiable credentials that can be cryptographically verified without needing to go back to the identity source in real-time is one method that many organisations are beginning to experiment with more broadly.
While the potential that surrounds digital identity sounds great, the reality of implementing an effective solution that meets the needs of everyone involved is often much more complicated. There are many stakeholders involved that could both issue and leverage various aspects of a digital identity scheme, including governments, businesses, and individuals, often with competing interests. One of the most common challenges in implementing a digital identity scheme is how to know what information can be trusted and to what extent identity data being shared has been validated. Various ongoing initiatives are looking to solve this issue both from an ecosystem perspective through assurance standards (e.g. the Pan-Canadian Trust Framework being developed and published by the DIACC) and from a technical interoperability standpoint (e.g. technical governance frameworks being developed by the Trust Over IP Foundation to be implemented in decentralised ecosystems).
These developments are all moving the use of digital identity towards a future where ecosystems of trusted digital identity can enable new opportunities. This will support the goals of a more digital and cashless society by enabling trusted digital interactions, including the ability to conduct customer due diligence (CDD) using digital identity while also complying with local regulations. In early 2020, the Financial Action Task Force (FATF) released guidance on using digital identity as an input to risk-based approaches implemented by banks, financial services companies, and other regulated sectors to onboard customers. These guidelines can be used as a roadmap not only for financial services but for other sectors for implementing digital identity into existing onboarding workflows. The primary takeaway from this guidance is that there is a clear decision process that can be used by organisations to determine the robustness and assurance levels of digital identity systems and whether they are reliable, independent, and able to be used for CDD. This decision process can help with ensuring that organisations properly evaluate the risks involved in digital and remote onboarding, while also leveraging the benefits of streamlined digital services.
While many banks and financial service providers have already begun a transition to remote onboarding due to the challenges introduced by the COVID-19 crisis, the integration and evolution of digital identity schemes into digital onboarding and ongoing AML/KYC monitoring processes should inevitably lead to a better user experience for customers.
By leveraging a portable and interoperable digital identity that they already have, or can easily get through an existing service provider, customers will adopt digital identity schemes that make their lives easier by simplifying both everyday tasks and more infrequent, but comparatively complicated tasks. The perfect storm created through the unique challenges introduced by the global pandemic has fostered an environment where customers will come to expect incredible and seamless experiences through remote and digital-only channels.
The key to making this successful will be to continue building on the momentum and growing importance of digital identity in the average person’s everyday life. If we are successful in making digital identity useful, efficient, and effective, it will become an afterthought for consumers just as it is today to present a physical identity or payment card from a wallet.
This editorial was first published in our Financial Crime and Fraud Report 2021 - How to Fight Fraud and Master KYC, Onboarding & Digital ID, which provides a comprehensive overview of the major trends driving growth in fraud prevention, identity management, digital onboarding and KYC, transaction monitoring, financial crime compliance, regtech, and more.
About Justin Gage
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