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In search of global digital identity
THE identity systems we have today are slowing innovation in the fintech industry. They are also getting in the way of online financial services delivery. Digital transactions, so close at hand, will come about only when digital identity does.
Much of the pain with the current system comes from a common source: it stems from a system designed to support face-to-face transactions. Put simply, we have a modern digital economy that still depends on physical records to establish identity - and until this is solved, a purely digital fintech offering will remain in the future.
THE LINCHPIN OF ONLINE TRANSACTIONS
The concept of identity is important because it is at the centre of many financial services processes. Institutions need it to comply with regulations, assess risk for insurance and credit, and provide a tailored customer experience. Detail and accuracy are critical.
In a digital identity system, an "identity" is a set of digital records that represent a user. These records are held in a standard format by entities that provide the identity information or assurance needed to complete transactions. A digital identity also accepts and integrates new records to create a rich view of the user.
Thanks to cutting-edge authentication and security protocols, a digital identity system makes it harder to damage, lose, steal or tamper with identification records. In addition, it also offers customer-serving institutions - such as financial services institutions - a better way to know and serve their customers.
A MULTI-LAYERED PROBLEM
The need for a digital solution is becoming urgent. Transactions are growing in volume and complexity. Customers are increasingly expecting seamless, omni-channel service delivery and will take their business elsewhere if they do not get it. Regulators, for their part, are demanding greater insight into transactions.
But just where do we currently stand with digital identity systems? One way to understand this is to view it as a multi-layered problem. At the bottom are the standards that govern system operation. At the top is service delivery, which must be efficient, effective and seamless to users. In between are authorisation, attribute exchange, authentication and attribute collection. Each of these has its own set of challenges. Many efforts today address one layer but not others. For instance, authentication technology solutions tend to rely on attributes that have already been collected. These solutions provide a better experience for users and ensure that the same person is transacting each time, but it does not help identify who that person really is.
Other solutions address a particular type of transaction only. They might only facilitate the delivery of a government service, for example, and wind up collecting "tombstone" data - things like name and date of birth - rather than data that paints a more nuanced picture of the user. At the same time, we also see a lot of consensus building around standards and processes at the expense of building a full-fledged identity solution that could be put into broad commercial use.
THE ROLE OF STAKEHOLDERS
The path towards a digital identity system is a bumpy one. Amid all the technologies in development around the world, some have already failed. Obviously, if the system is not designed well, does not work well, or does not seem trustworthy; people simply will not use it. But there are subtler pitfalls, such as serving a too-narrow set of interests or failing to meet stakeholder expectations.
Although the financial services industry is in a unique position to spearhead the development of digital identity systems, given its access to a wide range of data and sophisticated technology, the role of the government will be crucial for cross-industry standard setting. In this regard, Singapore - with its push towards becoming a Smart Nation - has already begun taking its first steps.
Earlier in March this year, noting the growing importance of digital identification and authentication, the Singapore Government called for a tender for a Mobile Digital ID. With this Mobile Digital ID - likely to sit within a mobile phone's SIM card - every internet user can be uniquely identified. A wide range of transactions, such as those with the government, banks, or telecommunications operators can also be authenticated with the system.
Ultimately, marketplace approaches will differ dramatically to suit the cultural and geopolitical needs that they serve. Different groups are likely to build their own identity networks, with technology companies, professional organisations and governments all carving out territories.
NO ONE-SIZE-FITS-ALL SOLUTION
Identity needs also vary by user: individuals need to complete transactions safely and conveniently, legal entities need a comprehensive way to aggregate data for managing risk, and assets need tracking systems that are transparent about ownership and value.
There is also the issue of privacy. Individuals must have it, but legal entities and assets can do without it. In fact, privacy might even interfere with their larger purpose. In any case, individuals have self-determination, whereas legal entities and assets have custodians who act on their behalf.
So there really is no one-size-fits-all solution. But if there is one thing that financial institutions can do as a group, it is this: they can build connectors between the networks. This is what will allow digital identity networks to form within their natural boundaries, serving constituents in the ways that suit them best, indefinitely. They are the rails of interoperability and, among them, will allow a global blueprint for digital identity to emerge.
- Bob Contri is Deloitte Global Financial Services Leader and Ho Kok Yong is Deloitte South-east Asia Financial Services Leader.