Should banks lead the charge for Digital IDs?
“A digital representation of an entity, detailed enough to make the individual distinguishable within the digital context.”
That’s the definition of Digital ID, according to the International Telecommunication Union (ITU).
Befitting the digital world we live in – where consumers interact on smartphones more than any other device – Digital IDs are versatile, efficient, and of course, paperless.
For governments, digitalizing citizens can enable services to be universalized, while, for sectors like banking, travel and insurance, they can facilitate more seamless processes for their products and services.
In Australia, for one, the state of Queensland recently rolled out digital driver’s licenses. The plan is to later allow 3.7 million of the state’s citizens to quickly access other online government services, but it can also be a convenience in opening a bank account, renting a house, or just on a night out, for example.
In fact, McKinsey thinks enterprise uptake Digital ID could help boost countries economically, thanks to the efficiency of service, improved UX, and value-add offerings made possible thanks to quick ID verification.
However, the question remains over where the custody of digital IDs should lie; among the government or by private enterprises themselves?
Banks leading the charge
For many observers, some of the most fitting candidates as Digital ID custodians are banks. And they are indeed ensuring they remain key components in how the space evolves and how it will be managed.
Banks have a lot of skin in the Digital ID game – many are exploring various technologies (including blockchain) to create these systems. If they can make authentication more efficient and more secure, they can make it quicker and easier for customers to open accounts and start transacting.
At the same time, banks are also considering what a universal digital ID might look like. That same ID technology that allows prospective customers to open an account, for example, can be used by customers to log into websites, access government services or prove they’re old enough to drink.
“Somebody has to initially validate that identity, and banks are well suited to do that,” said Gary McAlum, chief security officer at USAA. But they don’t have to work alone.
Scandinavian countries, including Finland, Sweden, Norway, and Denmark, are showcasing a blueprint for collaborative digital ID systems.
“Over time, many solutions have evolved, but in all four countries, a solution jointly initiated by a group of banks has taken the dominant position. This is because banks in collaboration have a huge advantage over governmental and third-party solutions,” states a report by Arkwright.
In Norway, the nation’s digital identity scheme — BankID — was well-received due to its range of accessibility, such as government integrated taxes and student loans. Moreover, the electronic identification is also marked for its transparency.
In 2019, some of the largest banks in Canada launched a blockchain-powered digital identity verification network.
Leading institutions such as Royal Bank of Canada, CIBC, Desjardins, Scotiabank, and TD backed the Verified.Me scheme and Canadians are now given more control and access to share encrypted personal information across banks and third parties in real-time.
Managers of the scheme aim to slice onboarding processes in half when 15 percent of service provider interactions are digitized — saving tens of millions of dollars for organizations.
McKinsey Global Institute found that digital ID has the potential to boost economic growth, particularly in emerging economies where they can improve citizen access to services where IDs are required. Countries with a good digital ID system are predicted to achieve an economic advantage of 3 to 13 percent of GDP by 2030.
The economic gain can be attributed to the reduced labor work in verification through repeated processes and duplication of vital documents.
With the development and authentication of these universal digital IDs in good hands with banks, in the same spirit as the open banking movement, governments and other organizations can use them for interactions with their own services.
For customers, who would remain the individual owners of the data stored on these systems, the perks come in convenience and ease of interactions, whether registering for a mobile plan or taking out a hire-purchase agreement.