Digital Identity in Financial Institutions
Introduction
The wave of Digitization is washing over nearly every step of human life. The convenience that comes with digitization has taken over even the most skeptical. However, to make this change a persistent one, it must be made secure and hassle-free. This in turn necessitates unique identification of each user as an owner of the transactions under their name. Increasing use of online platforms including social media networks for accessing financial services has led to an alarming rise in cyber crime. This further necessitates a tighter security to fully exploit the service while reserving the customer’s trust.
A digital identity solution based on blockchain is economical, immutable, secure and easily accessible, while providing a legitimate audit trail. Blockchain acts as a repository of all transactions in hashed digital packets called blocks. The advantage of a Digital Ledger Technology (DLT) identity system over traditional ones is its ability to record each identity shared in the global network and maintain continually reconciled data throughout the network.
The Working
The technology ensures that the consumers restrict sharing of their identity with only trusted local or remote entities. DLT-based digital identity works on the public key cryptography principle, where every identity is a ‘key pair’ consisting of a public key used to send data to an address and a private key to read data .
The institution then shares customers’ data with other entities for legitimate purposes, only after receiving the customer’s consent. This facility benefits all parties by saving time and money by eliminating the need for KYC at multiple places within or outside the country, thereby optimising costs involved in accurately establishing identities. With a single identity across the globe, it also aids regulators to monitor fraudulent activities, such as money laundering, more effectively.
The Adoption
Financial institutes across the globe have thawed to the need for a blockchain powered system to reinforce security by protecting customer data by the creation of digital identity.However, it is necessary to expand the scope of digital identity solutions to ensure interoperability and standardisation in customer-facing processes, in-house operations and risk management practices to reap further benefits.
It's a matter of time before this technology takes other organizations by storm.
Industry Use Cases
Let's find out how multiple parties can coordinate to verify trusted identity.
Finance
Customers using government-issued ID and proof of employment receive assistance from a bank to apply for a loan while following federal KYC regulations.
Healthcare
The seamless coordination of trusted identity verification among a patient, her doctor’s office, a third-party clinic, insurance company, and DMV office enables hassle-free routine blood work.
Government
Governments can work together with car dealerships and insurance companies to enable drivers to prove their identity, vehicle ownership, and proof of insurance.