Digital Identity- The Catalyst for Fintech Globally
By Ingrid Vasiliu Feltes MD MBA
Quality and Innovation Officer, Senator and Chief Ethics Officer
A few recent global reports published have highlighted numerous countries where a significant digital divide exists and there are opportunities to improve financial inclusion. However the journey of narrowing the digital and financial divide is long and arduous. It encompasses basic needs such as providing access to internet, to computers, to banking or mobile payments and more advanced use global resources dedicated to enhancing digital literacy and digital fluency.
Currently it is estimated that 1 in 7 people lack a means to prove their identity and this places them at a major disadvantage given that we live in a digital economy and identity is vital for political, economic, health and social opportunities. Therefore, a core foundational element for optimizing financial inclusion is the creation of digital identity ecosystems.
All stakeholders that can influence the outcomes will have to collaborate closely in order to be successful. Governments, financial and investment institutions, fintech, private sector, academia and not for profit organizations should all play a vital role.
The fintech industry is widely regarded as a major driver for financial inclusion and establishment of digital identities, however one could also argue that the global effort to create digital identities acts as a catalyst for the proliferation of neobanks, large scale mobile payments adoption and digital currency utilization.
Definition of digital identity
In contrast to classical human identity, digital identity is machine related and is deployed to represent external agents used by computer systems. It can refer to a person, a organization, an application or a device.
Digital identity includes and can be expressed as electronic signatures, seals, time stamps, registered delivery, website identity authentication etc.
However, we designing and building ecosystems that require digital identity we need to harmonize the digital with the philosophical and legal aspects of identity in order to develop sustainable legislative and regulatory frameworks. Understanding the naturalist versus constructivist world view, as well as how the right to a digital identity interferes or augments the other legal rights requires a complex and thoughtful approach. In various regions of the world the right to own a digital identity versus the right to life, our personal integrity, our physical privacy, our freedom of expression, our right to vote or our intellectual property might not always be synergistic or even in total contradiction.
Establishing sustainable digital identity ecosystems will require a global focus on financial inclusion, mindful design and state of the art governance. There are several foundational principles that all stakeholders will need to follow in order to be successful, such as universal coverage from birth to death, ensuring global cross-border interoperability and validity, as well as vendor and technology neutrality. Sustainable implementation and adoption of universal digital identities will require investments in basic technology infrastructure, trust in the ecosystem, as well as a well designed policy and regulatory framework.
Not only is the journey towards creating digital identity ecosystems long, but it is also arduous and fraught with risks. There are numerous challenges identified that will need to be mitigated in order to be successful and safeguard privacy rights.
Some of the major operational risks outlined by experts and organizations dedicated to creating digital identity frameworks are accuracy, security, sustainability and societal cost to only mention a few.
Additionally, discrepancies in the legal and taxation systems will have to be resolved and the current lack of consistency, lack of synchronization and lack of harmonization will need to be addressed as soon as possible in order to be successful.
Lastly, improving digital literacy and fluency is a societal imperative for survival in the digital economy and a hyperconnected globalized work environment.
Digital identity ecosystems can fuel economic growth, as well as access to social benefits, education, healthcare and other critical services. According to a report by McKinsey, it is estimated that deploying full digital ID coverage can unlock economic value equivalent to 3-13% of GDP by 2030.
To illustrate the vast impact the creation of digital identity ecosystems can have, one could analyze how several of the sustainable development goals could be accelerated via deployment of unique, safe and portable digital identities. By providing access to a variety of resources, having a digital identity can certainly optimize the pace of reducing poverty and hunger while also increasing access to healthcare, employment, education and clean water or sanitation.
As the foundational element of a digital economy, digital identity can also be a conduit to economic growth. Last but not least, it is evident that providing digital identity to the 1.1B people without an identity currently can reduce global inequality. By mitigating risks and focusing on mindful design, agile innovation, continuous performance optimization we can achieve a state of the art global digital identity ecosystem that will improve the state of our digital economy.
From an ethical perspective we need to strive towards optimization of digital identities, with enhanced user control, development of dynamic consents, directed identity, and consistency of user experience across contexts. From an operational perspective, we need to ensure pluralism of operators and technologies, interoperability, technical architecture design and standards, cross-border validity and portability, as well as transparency and security. From a legislative and regulatory perspective we will need a global framework and clear guidelines related to establishment of self-sovereign identity ecosystems versus user-centric, centralized, or federated ones.
Futurists also envision use of digital twins for various industries and specific applications, such as having a digital twin for fintech, healthcare or voting needs.
In conclusion, digital identity is not only a catalyst for an accelerated development of the fintech industry. It is also a gateway to financial inclusion and economic development.