When the internet was first built, it seemed that no one really thought about the need to establish a robust system of digital identity. There was no standard mechanisms defined for digital identity verification, so people built their own. Most people had physical proof of who they were, like passports, driver’s licenses and social security numbers. That’s all they needed. But these physical methods of identification are easy to forge and hard to verify during online transactions.
As the internet evolved, service providers began to manage identity at the application or enterprise level. In order to do business online, individuals selected a user name and came up with a password. This led to an extraordinary amount of security information for people to track. In fact, the average individual has 100 passwords. That’s the average — for heavy users of technology, that number is likely to be much higher. And although we all accept that reusing passwords is a security risk, we do it anyway — because, after all, who has time to manage 100 passwords?
Beyond the unwieldy management of all these sign-ons, there are even bigger issues. All of those individual accounts contain a treasure trove of information that is vulnerable to misuse in addition to housing the money that fraudsters want to steal. And for financial institutions and other organizations that must comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, they need a solution that is private, secure and verifiable in real time. The emerging field of decentralized digital ID may be the answer.
If you need an onboarding solution right now, Instnt can have you up and running with its plug-and-play solution in days, not months. We can help grow any kind of business, from financial services to e-commerce to gaming.
Why Decentralize Our Digital Identity?
Decentralized identity, also known as self-sovereign identity (SSI), is emerging technology that establishes a verifiable digital credential to represent an individual in a virtual setting. Beyond mere digital representation of physical documentation, a digital identity may include a collection of information generated by a person’s online activities. This can be passwords and date of birth, but it can also include purchasing history and online search activities.
With this methodology, credentials are issued to users and bound cryptographically to to their identity using private keys that only they posses in an identity wallet. In the same way, the Issuer digitally signs the credential to prove provenance, writing a public key to a blockchain or distributed ledger (DL) so the credential can be easily verified by third parties. Once the credential is issued, users are able to present only the information needed upon request from a Service Provider (SP). SPs can then use the public signing keys written to a distributed ledger (like Blockchain) to verify the integrity of the credential that’s binding to the holder.
4 Advantages of a Decentralized Digital Identity
There are tremendous benefits to decentralized digital identity. These benefits accrue to companies, as well as the customers they serve. They include:
Privacy and Convenience
Decentralization means that these identity systems are self-sovereign i.e. users have complete control over how their identity is shared. For online banking and account opening, decentralization simplifies onboarding. Financial institutions can be confident in who they are doing business with since they can rely on the credentials already issued to customers. In this case, firms don’t have to go through the customer onboarding process themselves.
Improved Security and Fraud Reduction
Decentralized digital identification does not rely on usernames and passwords that can be hacked. Instead, the user creates an online identity in the form of a wallet that is verified in real time against authoritative sources, such as government databases and other anti-fraud checks. Decentralization also reduces the opportunity to access the data. Instead of 100 different SPs with a customer data repository, the data is controlled by the user.
Cost Savings and Efficiencies
Decentralization means that each company invests fewer resources into collecting, storing and maintaining data which dramatically reduce onboarding costs. When identity is decentralized, onboarding is primarily automatic, frictionless and you only have to do it once, meaning you’ll lose fewer customers along the way.
The cost of compliance with KYC and AML regulations is significant. On average, compliance programs cost $5.47 million annually. Frequent updates, sometimes monthly, make it even more difficult to stay within the lines. There are other regulations, as well, such as GDPR on data privacy, that require businesses to give users control of the use of their data. Decentralized protocols streamline compliance since you only go through it once. Plus, you can utitlize a revocation registry that makes it easy for verifiers to check that a credential has not ben revoked or expired.
Instnt Provides Fully-Managed Digital Onboarding Services
With cutting-edge technologies come new opportunities to explore lucrative markets and provide innovative products and services. Financial institutions that do best in the future will execute strategies that allow them to capitalize on emerging market trends.
If you’re still using a centralized identity verifications system, fear not! Instnt Accept™ provides a path forward by allowing institutions to leverage all of the benefits of decentralized identity while they update their legacy systems. Our codeless platform is powered by the most sophisticated artificial intelligence (AI) to help you accept more customers while reducing fraud and costs. Get started today with a free demo.
As mentioned, there are many benefits of decentralized identity. Similarly, there are countless benefits of a secure single sign-on customer onboarding process. Read our next article 3 Benefits of a Secure Customer Onboarding Process to learn more.