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Digital IDs can boost US financial inclusion say govt, private sector experts

State of identity discussion at Aspen Institute event
Digital IDs can boost US financial inclusion say govt, private sector experts
 

Creating an inclusive financial system will require effective ways to verify people’s identities and prevent fraud. A recent event from the Aspen Institute Financial Security Program (Aspen FSP) discussed the role of digital identity in the financial system and the state of identity in the United States. Special attention was given to mobile driving licenses (mDLs) which have been spreading across the U.S.

The conversations, hosted on July 9th, invited government officials, such as U.S. congressman and former scientist Bill Foster, representatives from financial companies including Visa and Plaid as well as experts from McKinsey Global Institute and the National Institute of Standards and Technology (NIST).

Many conversations around digital identity have been focused on its importance to financial inclusion. But Jeremy Grant, managing director at Washington-based law firm Venable LLP, says a more important issue with financial inclusion is not that there is no digital ID but that a large part of the population has no ID at all.

The U.S. has been slow to accept the idea of a national ID card, with skepticism and fears of surveillance coming both from the left and right political spectrum. The Covid-19 pandemic, however, has laid bare the shortcomings of the U.S. approach to identity. Billions of dollars have been stolen through fraud during the pandemic, according to Foster, who has been working for the U.S. House of Representatives’ Financial Services Committee.

When it comes to digital ID, the bulk of the work will be done by private firms. One of the government’s roles, however, will be to provide a list of legally traceable citizens, he adds.

“The US government right now is the only club I know of that does not have a list of its members and this is the cause for billions of dollars of identity fraud that does not happen in other countries,” says Foster.

The government will also need to upgrade its IT: The root cause of the huge increase of identity fraud within the social benefits system is aging government technology systems, says Ariel Kennan, senior director at Digital Benefits Network hosted by Georgetown University. The organization started researching digital identity in public benefits in 2022.

Government agencies have been relying on unsecured identity-proofing technologies like knowledge-based verification. The move towards biometrics has created its own raft of issues, she adds.

Looking at the financial industry, banks have done a “decent job” in building new technology infrastructures and identity management platforms, according to Brian Russell, CEO of fintech advisory company DaVinci Partners Consulting. Fraud, however, remains an issue. Banks are trying to plug the gaps with new solutions such as behavioral biometrics and selfie IDs.

“The important thing is that you’re never going to find a silver bullet, but you want to make progress,” says Russell.

As regulated entities, banks have the responsibility to prove they performed identity proofing. This makes it difficult for them to use somebody else’s verified credential unless there’s an infrastructure set up that can validate it, he adds.

“There’s a lot of challenges out there,” says Russell. “We need government intervention, we need that support, we need to use those tools, we need more verifiable credentials.”

One of these verifiable credentials could be mobile driving licenses (mDLs). NIST has been working with financial companies to explore digital identity in remote account opening, including Know Your Customer (KYC). But it has also been exploring the use of mDL credentials in other settings such as federal government services such as benefit programs and the healthcare space, which involve different sets of regulations and standards.

“NIST has kind of taken on our responsibility as part of this project to try and tie together the technical components, the technical protocols, the specifications, the standards, to illustrate how things can work,” says Ryan Galluzzo, NIST’s identity program lead.

But while the technical side of mDL is not easy, it’s only one small part of the broader issue of adoption, he adds. NIST will need to educate all of the stakeholders, including regulators, compliance teams and users, so they can understand what these credentials bring to the table.

As more of our lives digitize, from financial and government services to everyday tasks such as renting an apartment, finding ways to digitize people’s identities will become even more pressing, says Jen Taylor, president of fintech company Plaid.

The collaboration will have to involve technologists, small and large businesses, policymakers who are tasked with ensuring the digitalization of IDs is regulated and meaningful for the security and consumers who can give input on ease of use and controls that they need.

“Fighting fraud is a team sport,” says Taylor. “In order to stay one step ahead of fraudsters, we have to bring to the table unique perspectives, unique pieces of information and unique capabilities.”

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