Digital identity must adapt to new financial ecosystems
With digitization in some cases driving exclusion from the financial system, digital identity and biometric technologies must be addressed in new regulatory frameworks, a U.S. state government representative suggests.
Podcast Financial Inclusion & Beyond interviewed Matt Homer, Executive Deputy Commissioner of the Research and Innovation Division of the New York State Department of Financial Services regarding the importance of adapting digital identity and financial solutions in the face of new challenges within the industry.
The podcast focused on technological benefits of digital and biometric financial technologies; digitization has in some cases driven exclusion, says Homer, who calls for new regulatory frameworks to reverse the trend.
Homer highlights that for many, salaries are not digitized, which makes it difficult to convert cash into a digital value that can be held in an electronic wallet. Even if people do own mobile phones to link to a bank account or digital wallet, often in rural areas the coverage and service quality can be limited, meaning people still slip through the cracks. Therefore, having multiple ways to identify themselves, and other ways of accessing digital finances for different types of communities is key.
Where people use agents to deposit cash for conversion into a digital wallet, it can be difficult to regulate or supervise, and this could be one aspect where trust frameworks come into play.
Homer describes other approaches that regulators look at when mitigating these kinds of issues: “Something called tiered KYC, which has become…sort of a standard that even the FATF has endorsed and many countries follow. So these are the requirements regulators imposed for customers to identify themselves. And the idea that with tiered KYC is that the larger, the risk you pose to the system, the more strenuous, the identity verification procedures you need to go through.”
The cost of KYC compliance for banks has risen to €50 million ($55.2 million) a year, along with rising fines.
Having a digital identity also makes other parts of life accessible too; getting access to government benefits, enrolling a child at school, being able to travel. From a consumer perspective, it is not necessarily the digital ID that people are after, says Homer, the driver here is economic opportunity.
Therefore, is having a well-constructed digital identity too idealistic? According to Homer, we have to navigate balancing the rights of the individual with the rights of society. “To me, regardless of whether it’s a government program or a self-sovereign program…it really comes down to the governance of the program that matters so much. And frankly, it comes down to kind of the people that control it, whether you trust them and whether they are subject to democratic norms and responsive to citizens.”
Deposit insurance is one way of building trust around people’s monetary assets, but a trust framework for financial data does not yet exist. Impactful solutions should address providing people with agency over data, and the ability to exercise that agency.
While Homer highlights the development of new frameworks and multiple methods of biometric collection as the key to holistic financial inclusion, others believe that a self-sovereign identity for all is the way forward.
Latin American call seeks further development for self-sovereign identity project
A new regional call for proposals was announced this week by Argentina-based Project Didi and the DECODES Civil Association based around the self-sovereign digital identity model developed by Didi. Projects will be focusing on civic and economic inclusion in Latin American and Caribbean countries, furthering the model already in place in innovative ways.
Project Didi is the first self-sovereign identity (SSI) project in Argentina, creating solutions to reduce information asymmetry and generate financial inclusion. The project developed a self-sovereign identity app, AIDI, which acts as a digital document holder for a multitude of services.
Last year, humanitarian digital identity solutions company, iRespond ran a pilot study in Southeast Asia around a self-sovereign identity to provide “birth attestation” credentials to families of new-borns.
The proposal call seeks to strengthen public administrations for the identification of people within new international standards, like digital wallets, blockchain networks or verifiable credentials. Also aiming for organizations to incorporate the mobile app into the work process for open source, free license use.
“Self-sovereign digital identity models on blockchain, like ours, mean empowering people on the management and use of their personal data, their privacy and security, which means something highly innovative and transformative compared to traditional models of identity, where the information of the users is centralized by companies and institutions that can use it for other ends and purposes,” says the DIDI Project.
The call has support from LACChain, the Global Alliance for the development of the blockchain ecosystem in Latin America and the Caribbean, and closes on June 15th. Winning projects will receive between USD $10,000 and $50,000.
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