The rise of digital identity wallets: where will banks play

For decades, banks have acted as the trusted custodians of customers’ personal data, with strong Know Your Customer (KYC) procedures, strict regulation, high customer engagement, and best in class security and authentication – but what about digital identity?

The rise of digital identity wallets

Banks have a unique opportunity to expand their portfolio of services to become brokers of trust in the trust-based digital economy or ‘Digital Trust Economy’, where entities including people, businesses, and machines can exchange data with each other in a reliable and trustworthy manner.

But, what can banks do to ensure that they will not be left out of the Digital Trust Economy? This is the question a new report from Mobey Forum and its Expert Group, seeks to answer.

By considering viewpoints from banks, and through an analysis of the current landscape, trends, regulation, opportunities, and risks, the report features insights from a survey of prominent financial institutions around the world, conducted by the Expert Group in mid 2022, and reflects the current views of the financial institutions on the topic of Digital Identity Wallets.

The landscape

The digital economy has a trust issue. It is extremely challenging to authenticate and verify the identity of an individual over a digital channel. Many of the most common methods used today, such as password combinations, knowledge-based authentication etc. have several shortcomings and risks.

As the world becomes increasingly digitized, governments across the world have recognised the need for a robust Digital Identity system and are prioritising legislation aimed at protecting customer information.

In Europe, eIDAS, which provides regulation around electronic identification and trust services related to electronic transactions, is being updated to account for different trust services, improve efficiency, better meet user expectations, and meet market demand.

The regulation also seeks to establish a Digital Identity Wallet, which will be available to all EU entities (citizens, residents, businesses, etc.).

Several other countries have government-led Digital Identity or digital trust systems, such, as Estonia’s e-ID and India’s mAadhaar, which have seen wide scale adoption.

Other countries such as the United Kingdom, the United States, Japan, Australia, and China, are also following suit. In fact, research from Gartner indicates that over 30% of national governments will provide Identity Wallets for mobile phones by 2024.

From a consumer perspective, there is a strong demand for Digital Wallets. Over 66% of Americans expect to have a Digital Wallet by 2023 and 54% of consumers in all age groups prefer to use a Digital Wallet issued by a bank.

Examples of Digital Identity systems that have been set up by banks include BankID in Norway and Sweden, and Canada’s Verified.Me. All these systems have successfully been able to bridge the divide between private and public sector to drive adoption.

Markets are however very different and each geography requires thorough analysis on local drivers and users preferences.

Roles for banks

The Expert Group believes that for banks to unlock new use cases and value streams, they should not only focus on serving their customer’s financial needs, but also their customer’s broader life needs.

One of the ways banks can do this is by going beyond the traditional trust services they have historically provided and provide Digital Identity -based services.

A recent McKinsey report on the consumer data opportunity and the privacy imperative found that the highest number of survey respondents (44%) trust financial institutions and healthcare companies with data management and privacy, while the corresponding figure for public sector and government, telecommunications, consumer-packaged-goods, or media and entertainment companies was less than 13%.

The growing need for trusted online identity means that Digital Identity services can enable banks to be more embedded in their customers’ daily lives.

The Expert Group also believes that banks, with their strong position of trust, can play a prominent role in the Digital Identity space to mitigate their risk of disintermediation in a world where banking and the future of money is being disrupted.

To determine their approach towards Digital Identity, banks should start by looking at their broader strategic framework and objectives to determine how Digital Identity can help them achieve their goals.

Banks should prioritise the following benefits Digital Identity can deliver against their strategy’s critical success factors:

• Improve customer experience
• Lower operational costs
• Mitigate risk and reduce fraud
• Add new revenue streams
• Create deeper customer relationships

The complexity and breadth of Digital Identity networks means there are several roles a bank can play in the network.

The most common roles include: 1) Wallet Issuer 2) Credential Consumer /Relying Party (RP) 3) Credential Issuer/ Identity Provider (IDP) 4) Authentication Provider and 5) any combination of these.

As a concluding note, the Expert Group at Mobey Forum believes that it is the responsibility of the banking sector to elevate its role and contribute to the Digital Identity system. Digital Identity holds great promise for society at large.

Without banks, it’s going to be very difficult for society to stand up a Digital Identity system. So, it’s not just about a business case, it’s about driving positive, real, and long-lasting change.

To read the full report CLICK HERE

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