Financial services and collaboration key to digital identity and blockchain systems
18 August 2016: A year-long study involving the world’s leading banks has concluded financial institutions hold the key to digital identity management.
Deloitte and the World Economic Forum co-produced two reports, The future of financial infrastructure: An ambitious look at how blockchain can reshape financial services and Disruptive innovation in financial services: A blueprint for digital identity, as part of the Beyond the Future of Financial Services project, exploring how blockchain and digital identity have potential as foundational enablers of future disruption.
The key finding from the digital identity report articulates there are many players who are capable of driving the creation of a global digital identity system, or at least a national system for Australia, but one player in particular is uniquely well positioned to catalyse the opportunity - financial institutions.
Blockchain “is not a panacea”
Meanwhile within the blockchain report, one of the six key findings reveals distributed ledger technology is one of many technologies, like digital identity, that will form the foundation of next-generation financial services infrastructure.
Blockchain has immense potential to drive simplicity and efficiency within financial services, by establishing new infrastructure and processes. But it will be the collaboration of blockchain with digital identity technology that proves essential in developing their positions as foundational enablers of future disruption.
Jesse McWaters, World Economic Forum’s Financial Innovation Lead, says: “We view digital identity as a critical enabler to unlocking the full value of distributed ledger infrastructure. You can implement blockchain without a digital identity standard, but it introduces inefficiency in the system. Blockchain is a foundation that you could build a digital identity standard on, and other applications within a blockchain environment are able to benefit or be turbo-charged by digital identity.”
As another of the key findings from the blockchain report states: “The most impactful distributed ledger technology applications will require deep collaboration between incumbents, innovators, and regulators, adding complexity and delaying implementation.”
Richard Miller, Deloitte Australia’s Payments Advisory national lead, says, “There is a call to collaborative action to position Australia for long term success in an increasingly virtualised global financial industry. Unlike the US, Australia has a much more consolidated financial services system with deeper history of collaboration. Given this, Australia could be a good place to trial collaborative system-wide distributed ledger technologies.”
Australia’s state of play - how would financial institutions contribute as a key driver?
In comparison to other countries including the US, Australia and its financial institutions have unique characteristics that provide an advantage to drive the blockchain and digital identity space.
Miller says, “We have a stable and mature government and banking sector with existing strong connectivity between major competitors. We have an advantage in our small market - it means fewer players in terms of winning the space, and we can move faster. We were less affected by the global financial crisis than many other jurisdictions. Our banks are fairly progressive in their internal efforts, making investments globally, understanding the technologies locally and developing their skills with highly advanced user technology. The regulatory system is sound and progressive, as regulators are quite supportive of blockchain and digital identity because it brings additional transparency into transactions.”
Concerns around the privacy and cyber security of information in the hands of the government, as raised during the recent Australian Census, helps one understand the advantage the private sector may have in comparison to the public sector, particularly in the digital identity space. The Australian public’s sensitivity to privacy and low levels of citizen trust need to be addressed as they are at the core of creating a successful digital identity system – one that enhances user-enablement and the user-experience; essentially to better serve users, make them feel safe, and give them control of their identity data.
Trey Gannon, Deloitte Australia’s national lead partner of Identity and Access Management Services, says, “Banks already have access to identity-related data of account holders as part of know your customer (KYC) and anti-money laundering (AML) regulations. This data makes them particularly well placed to provide digital identity services on a large scale. The motivation for banks to participate in this space is obvious too - digital identity will provide banks a more customer-centric focus; potentially providing a new business line as well as opening the door to blockchain; and a way to embed themselves into a world that is being disrupted.”
One digital identity system, two sectors, many players: collaboration key
The digital identity report explores how current identity systems have been built in silos as individual entities rather than as holistic systems. While many efforts are underway to solve parts of the identity challenge and create true digital identity, there is a need - and an enormous opportunity in Australia - for a concerted and coordinated effort to build a truly transformational digital identity system.
“Banks could lead the roll out of a holistic digital identity system for financial services, but they would need the support and collaboration of government and regulators. Digital identity needs to be solved through collaboration of the public and private sector,” says Gannon.
Collaboration between the public and private sectors in Australia is already evident in current work by the Digital Transformation Office (DTO). The DTO are working on a new identity framework, set to be unveiled by the end of August 2016, with plans of having a single identity provider, owned and run by the Federal Government, with all agencies, the States and banks admitted to the Australian Identity Federation. This has significant implications for improving the efficiency of accessing government services and could simplify the verification process and issuance of digital credentials for users in Australia.
Various other global examples highlight how different public and private sector approaches can achieve implementation of digital identity technologies. In Canada for example, the Digital ID and Authentication Council (DIACC), working in a public and private sector partnership, is developing a roadmap for digital identity. Finland is another country where the public sector outsourced to the private sector, giving banks tenure. Estonia has successfully implemented a government owned and mandated system.
McWaters says, “Identity is cultural and that culture varies from region to region. There are certainly areas that have a preference for rollouts by government. And there are other areas that have an aversion to government because broadly citizens do not trust it. But either way, it’s important for a digital identity system to be flexible. A government agency may tend to roll out a set of digital services that are unique to that situation, for example drivers’ licences, but the services cannot extend to interact within a broader network. I think that would be failing to capitalise on the real opportunity here”.
About the reports
These latest two reports by Deloitte and the World Economic Forum make up the Beyond the Future of Financial Services project, which continues the disruptive innovation work begun in The Future of Financial Services project from June 2015. The Future of Financial Services project set out to understand how disruptive innovations are reshaping the way financial services are structured, provisioned and consumed. It explored the landscape of disruptive innovations in financial services, provided the first consolidated taxonomy for these disruptions, and explored their potential impacts on the structure of the industry.
Download the reports at the following:
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