Disruptive digital-only banks, new regulations, and shifting consumer privacy demands have changed the global finance landscape. Yet the benefits of digitization come with a big trade-off. Identity verification challenges, data breaches, and increasing rates of fraud pose a significant and increasing risk.

As many as 1.5 billion people lack access to basic banking and checking account services. Their challenge? They are unable to prove their identity. Yet, as more and more people wish to get onboarded to the global finance ecosystem, traditional banks struggle to meet that demand, opening the floodgates for digital-only “neo-banks” to gain significant market share and potentially topple incumbents.

Identity verification and anti-fraud measures underpin the core processes associated with financial services. Globally, banks are required to subject their customers to strict identity checks, both to protect those users’ finances and to meet regulatory compliance requirements.

Countless efforts by incumbents have aimed to streamline digital identity verification online, but these attempts have largely failed to fully address this issue. Customers are often required to create unwieldy passwords and verification details that can encumber account access. A lack of portability and reusability means that users are often faced with the same repetitive tasks. Data breaches and hacks threaten entire populations.

The Hope of a Breach Resistant Identity

Data privacy and security are the central challenges of the digital age. As Equifax, Facebook and Google continue to experience major data breaches, governments now question the nature of data ownership. GDPR, California Data Protection act, among others are now in the spotlight.

In the wake of numerous exposures to data exploitation, with Cambridge Analytica and Equifax as the most notable examples, privacy is an increasing concern for the public. Apple has embraced privacy as a strong selling point. They’ve taken a radically different approach from their counterparts with “sign in with Apple”, rather than using other services such as Google and Facebook, who notoriously mine and sell your data.

Even as thousands of companies pool and sell your data, there’s still only one “you.” That’s why identity is the best path to security, but the paradigm of who owns and accesses your data needs to change.

Microsoft, IBM, Facebook and many startups propose Blockchain as the silver bullet to solve all our digital identity needs. Mark Zuckerberg clearly spotted this. With the upcoming launch of Facebook’s cryptocurrency, Libra, the company has the potential to further strengthen its position as a leading provider of a global digital identity solution, which is a notable section in its white paper.

 

Tech Incumbents: Facebook vs Microsoft vs IBM

A single consolidated and verifiable digital identity benefits both users and providers. However, allowing Microsoft, Facebook or The “Libra Association” to take custody of our consolidated digital identity is a sinister path for the future of both privacy and democracy.

Microsoft, for its part, contends that their digital identity is not controlled by them.
In a press release, Microsoft stated that “Anyone who reads the news knows that many individuals feel organizations have way too much control over their personal information. Organizations are rightfully being asked to take more responsibility for protecting the information of their customers. Even the best security isn’t enough if we don’t give people greater control and privacy as well.”

This is why many governments, banks, and key identity leaders are skeptical of Microsoft and Facebook’s foray into identity. That said, backing from the tech incumbents certainly will usher in a flood of financing and an arms race to control the industry.

“At Microsoft, we envision a world where technology facilitates respect for privacy. In this world, organizations no longer need to issue new identities. Instead, they embrace the digital identities that individuals bring with them. Each person’s digital identity belongs to them. They control it.” says Joy Chik, Corporate Vice President at Microsoft Identity.

Banking is one of the areas where the ability to verify one’s identity in a secure and compliant manner is a prerequisite to access basic services. Looking at the unbanked population of the world today, the need for an evolution in identity management is critical.

Governments Setting the Path Forward

Surprisingly, it’s governments (not corporations) that have set the path forward. Currently, Estonia leads the digital identity frontier, primarily because of its highly-developed national ID card system.

Singapore, India, and various districts in the United States have all announced digital ID programs.

In both Singapore and Estonia, their mandatory national ID card system does much more than identify citizens. These digital IDs provide access to all of the national e-services. The most important observation to make is how entire developed nations like Estonia and Singapore managed to successfully implement a digital identity verification platform for its nation’s citizens. Estonia’s platform validates many of the purported benefits of proliferating a digital ID platform.

In Estonia, each card a citizen receives has a chip embedded with files and uses public-key encryption to ensure the safety of users. In August 2017, a potential security threat was discovered which could’ve affected 750,000 ID and e-residency holders; fortunately, the threat was stopped before any widespread damage occurred. The crisis did prevent access to some e-services for tens of thousands of citizens for a limited period of time.
Singapore aims to take this one step further. Singapore has announced research into Blockchain technology to give users control of their data. Users would decide how the data is shared and who they share it with.

Yet, despite the national strides by these two nations, the solution should not rest in the hands of governments. Corporates, banks, and bureaus should take the lead. Motivated by improved user experience and access to an expanded customer base, some already are.

MasterCard sees decentralized identity as the path forward. “Today’s digital identity landscape is patchy, inconsistent and what works in one country often won’t work in another. We have an opportunity to establish a system that puts people first, giving them control of their identity data and where it is used,” says Ajay Bhalla, president, cyber and intelligence solutions at Mastercard.

Earlier this year, MasterCard announced an initiative to serve as the foundation for new Mastercard services powered by Microsoft Azure.

All Eyes on Startups

Startups like San Francisco-based solution Bloom and foundations like the Decentralized Identity Foundation are making significant pushes towards mainstream adoption.
These next generation of startups enable consumer data ownership, putting an end to data profiteering and giving you back control of your data.

Bloom’s identity app has been downloaded over a million times and more than 500,000 identities have been created on the platform to date, making it the largest digital identity system currently in use.

While Bloom’s focus is banks and governments, other startups are taking a retail approach. Another Bay Area startup, Civic, announced a user provisioned blockchain ID that could be used to buy alcohol and age restricted products from vending machines. An estimate of 10,000 Civic IDs have been created.

While the United States House of Representatives and NIST have cited Bloom as a consideration for national scale replacement, they are not the only startup looking to governments for adoption. In early 2018, the Swiss city of Zug performed a pilot with Consensys-backed uPort to issue city identities on a blockchain. After the 6 month pilot, approximately 200 people had registered uPort IDs.

These startups are building new data storage and sharing models with privacy in mind, while also making it easy for anyone to build and control their identity. Digital identity platforms like Bloom have proven that a scale of millions is within reach. If these startups are able to succeed and reach the 1.5 billion people who lack formal documentation, they may kickoff a financial and data revolution that could change the face of banking.