Banks must handle vast amounts of personal data to comply with regulations, and a high level of trust is needed to protect customers.
The internet has created more opportunities than we could have ever imagined. But one thing we are yet to fully solve is how to establish trust over who we say we are online. This is a challenge that a digital identity (ID) could help solve and could become a vital tool for the UK economy, and other economies around the world.
In simple terms, a digital ID is a way to prove who you are, while providing personal details such as your age digitally, instead of using traditional documents such as a passport. Digital ID is not about tracking people or data collection; rather it is about security, convenience and privacy, and could even minimise the amount of data customers need to share.
One thing we are yet to fully solve is how to establish trust over who we say we are online
The efficiencies are clear: consumers would benefit from a secure and trustworthy way of proving who they are, whether they are opening an account or accessing other services. Banks must handle vast amounts of personal data to comply with regulations, and a high level of trust is needed to protect customers. Digital IDs would simplify this process for both parties, providing a secure solution for verifying people’s identity.
The benefits go beyond the financial sector. For example, when a person rents a property, they might have to share their passport or driving licence to prove they are who they claim to be. This is not always secure and provides companies with more personal information than they actually need. Access to a digital ID instead could mean a company only sees what they need to know. It could also help people prove who they are, even if they do not have traditional forms of ID, helping to unlock access to many critical services. This could mean setting up a bank account becomes easier for people without traditional forms of ID, while also enabling access to access other services, such as government benefits or medical care. Additionally, having a secure way to verify a person’s age could have a positive impact on issues related to online safety and protecting children online.
Reducing fraud
Limiting the amount of data available is also important in the effort to reduce fraud. In 2020, criminals stole more than £29m in the UK using fraudulently obtained personal details to open or take over people’s payment card accounts. Use of digital ID could make it far more difficult to impersonate other people and reduce the chances of criminals accessing data which is not held securely.
But a digital ID ecosystem not only benefits individuals; the benefit to the economy could be huge. Research conducted by McKinsey Global Institute in seven countries, including the UK, US and China, showed that using digital ID could unlock 3% of UK gross domestic product by 2030, by enabling growth in the digital economy, with a similar uptick in growth elsewhere.
Progress is already well underway. Last year, the UK Department for Digital, Culture, Media and Sport announced a strategy to enable the creation of a digital ID ecosystem and published the UK Digital Identity and Attributes Trust Framework Alpha in February this year. A beta version of the document is expected later in 2021. UK Finance and Innovate Finance set up the Digital Identity Taskforce to work with government to help develop an approach that works for firms and customers.
Digital identity solutions are currently being built, and the taskforce provides support for firms to understand the marketplace and how solutions are being developed, learn from international lessons and encourage interoperability. Solutions can differ in approach: enabling consumers to build a wallet, providing ways to prove their age and eligibility for certain products, and allowing customers to give permission for data held by one firm to be shared with another.
Digital ID has the potential to unlock access to the digital economy, reduce fraud and increase security. It provides a way to achieve inclusive growth and increase competitiveness, and it is an obvious and natural answer to our growing need to be online in a safe, secure and more private way.
Jonathan Middleton is director of technology and digital policy delivery at UK Finance.
