Financial innovation

Universal digital identity: how to get it right

As digitisation increases, the idea of universal digital identity as a fundamental human right is growing

Whether you shop online, use e-services or post on social media channels, everyone has a digital identity that represents them as an individual, usually based on email, national ID or mobile phone number. At the same time, that which distinguishes a person in the physical world is generally irrelevant to how they are identified in the digital world.

Therein lies the challenge for banks, technology companies and governments – how to make it easier and safer for people to identify themselves online, while at the same time allowing them to have control over and give consent for the use of their own digital identity.

These days, you are asked to create a new login when you apply for each new service, whether it is online shopping or food delivery. So, you potentially have to enter your log in details a few times a day and remember multiple passwords. A universal digital identity for everything would make life much more convenient.

More than ever, banks need to give their customers a seamless experience.

In a scenario where everyone has a universal digital identity, the documents that identify us in the physical world – passports, driving licenses, birth certificates – will no longer be necessary. A business trip or vacation would be a seamless experience, where passport control may no longer be required, and banking services such as overseas transfers and the opening of accounts will be a breeze because of more robust and trustworthy ‘know your customer’ (KYC) processes.

Some governments have already taken the lead on this as part of their development of digital economies. Singapore’s rollout of a one-stop database of personal data – called MyInfo – where citizens can apply for government services or open a bank account without having to fill in multiple forms or provide supporting documents, is convenient for consumers and efficient for banks and government agencies.

Meanwhile, India’s ambitious Aadhaar project provides a unique ID to each of the country’s 1.2 billion citizens so they have access to vital healthcare services, education and government subsidies. It is a key driver of socioeconomic development and ensures government benefits directly reach unbanked pockets of the population.

The role of financial institutions

More than ever, banks need to give their customers a seamless experience.

The development of a universal identity system needs robust processes to recognise and authenticate a person’s data. The system also has to work for a myriad of institutions with complex, interconnected operations across different geographies.

Financial institutions have traditionally performed the role of custodians of data as they collect and verify identities when customers transact with them. They also have established cross-border operations. With banks already acting as stores of customer data, financial institutions are well positioned to support the creation of digital identity systems.

About half of the world is now connected to the internet, and having a digital identity is in some quarters regarded as a fundamental human right

Additionally, banks are naturally incentivised to collect accurate data because the viability of their business depends on it. For example, banks cannot open an account or approve a mortgage if they do not have accurate information about the applicant’s income, credit worthiness or employment.

New anti-money laundering directives and KYC rules mean that regulators also expect financial institutions to maintain high standards for identity verification of new and existing customers.

To that end, we have started a project with fintech firm KYC Chain, to improve our client onboarding process. The project, which uses blockchain – the distributed-ledger technology behind the digital currency Bitcoin – can recognise and verify identities of clients in a reliable and fuss-free way.

Data ownership

As things stand, individuals control their information by choosing what personal details to give out – for instance, by providing employment, credit history and residential information when opening a bank account.

Any universal identity system should replicate this level of control, and allow the ownership of personal data to lie with the individual.

With about half of the world now connected to the internet, having a digital identity is in some quarters regarded as a fundamental human right. This is because proof of identity is required for people to gain access to a range of rights and services such as healthcare, education and financial inclusion.

Achieving a universal digital identity would have many advantages but making it work would require cooperation among financial institutions, governments, technology companies and many other parties. The benefits in terms of cost, time and user satisfaction are so great that we are optimistic a comprehensive and holistic solution may not be too far away.