Benefits and Challenges of Adopting Digital Identity: Key Takeaways from Future Identity Festival

The Future Identity Festival held in London from the 14th to the 15th of November and brought together a group of identity and cybersecurity innovators, including individuals from the financial sector and various other industries. The festival inspired attendees to set more ambitious goals, improve their design, and cooperate efficiently to build an identity ecosystem for the future.

The event hosted speakers from a diverse range of organizations such as Decathlon, Vodafone, and Booking.com, as well as Mitek, IDVerse, and the Open Identity Exchange (OIX). In the panel discussion, topics like business models, concerns such as fraud and cyberattacks, and solutions involving decentralized ID technologies were discussed, reported Biometric Update.

Digital identity technology, which assists with Know Your Customer (KYC) processes, streamlines the identification and authorization of individuals across multiple sectors including government entities, financial institutions, healthcare, and beyond. Global Regulatory bodies are actively taking initiatives to implement and optimize digital technology in diverse sectors. This innovative approach not only enhances user experience but also upholds the highest standards of security and privacy.

What is the future of digital identity, what are its applications, what are precedents set by industry and the governments, and what are the standards that need to be set for effective implementation?

Here are the key takeaways from what experts have to say concerning the Future Identity Festival.

Challenges in Encouraging Reusability of Digital Identity

The fundamental aspect of digital identity is its reusability in multiple sectors. It offers the convenience of secure and streamlined access to different platforms and lowers the need for repetitive identity verification increasing operational productivity.

While reusable KYC and digital identity are renowned for streamlining the processes their may be implementation barriers. Hannah Jeffreys, a senior product owner for digital identity at Lloyds Banking Group during the event said, “You all understand the kind of chicken-and-egg nature of the reusable digital identity market,”. Moreover, she added, “Users don’t want a reusable app until there are lots of places that accept it and places don’t want to accept it until lots of users are using it”.

On Using the Decentralized Digital Identity

Over the past few years, the future of digital identity has been associated with the decentralization aspect. Experts particularly data privacy advocates are pushing for a decentralized approach to ensure that no central authority has control over data. Therefore, the talks of decentralized digital identity also echoed at the Future Identity festival.

Jason Boud, co-founder, and CEO at RegTech Associates said, identity management has different ways. Various identities are authorized and issued by a single entity such as the government while others are issued by third parties like private companies including Lloyds or the UK Post Office. The third approach is decentralized identity.

Through decentralized data models, individuals are given authority to control their personal information, improving privacy and autonomy in data sharing. The decentralized data decreases the likelihood of extensive data breaches and central system failures, contributing to a safer and more stable digital environment.

Lack of Legal Framework for Decentralized Digital Identity

Decentralization has advantages like being more secure from cyber attacks, which impose serious problems for centralized systems storing personal information, and aims to give people more control to people over their personal data like Self-Soveriegn Identity. However the idea is new, some individuals and even regulatory authorities are hesitant to adopt this technology as they have heard about problems linked to technologies like blockchain.

Talking about the decentralization of digital identities at the event, Jacqueline Watts, head of commercial law at the A City Law Firm, said “I think that our current legal system and the regulation don’t fit at the moment at all with the idea of decentralization. I think it’s one of those things where you’re always going to be probably behind the technology for quite some time,”.

The speakers concluded the first day of the event with remarks, that the way to commercialization of decentralized identities is still unfolding. However, they are on track to become more prominent in response to rising concerns about the privacy of users and rapidly embracing digitalization.

However, there are some challenges associated with digital identity management. There exists a concern of uneven distribution of access and digital awareness limiting certain communities from gaining the benefits of digital identity systems.

Global Interoperability of Digital Wallets

The concern for the global interoperability of digital wallets was raised during the festival. It is crucial for seamless transactions across borders and to promote economic integration at the international scale. This feature provides consistent and user-friendly access to financial services across different regions by enhancing user experience and expanding financial inclusion.

The speakers highlighted that Europe has advanced a “huge leap forward” in setting standards recently when the European Parliament and the Council of the EU agreed on eIDAS 2.0  regulations, which aim to provide a secure and reliable digital identity for all the citizens of Europe. The eIDAS Regulation provides a legal framework for ensuring that spans across borders and ensures the interoperability of electronic identification systems in all the EU member states.

Francisco Martins, regional senior sales manager at IDnow, said, “If we think about how everything looks now, it’s a very fragmented landscape where every country has its own regulation, its own style. And sometimes regulation even hinders innovation”.

Cybersecurity Concerns for Digital Identity

A major challenge for digital identity is to ensure robust security and privacy, as it often exposed to cyberattacks and data breaches. Sally Felton, director for Fraud Risk Management at auditing and assurance company BDO, said, in the past illicit actors used traditional methods to fraud financial systems but now they have become able to scam thousands from their homes with the advancement of digital technology.

He said, “These criminals have no governance committees, they have no sign-off processes. They can react much quicker to weaknesses in systems,”.

Cyberattacks targeting digital identities are evolving in complexity, posing threats to personal and national security by breaching sensitive information. Governments need to take action to develop strong security measures, raise public awareness, and collaborate with the technology industry to build a secure digital identity infrastructure.

Digital Identity in Financial Systems

A cautious and considerate bond exists between the use of digital identities and financial payments. Switching from traditional passwords and PINs adds complexity to financial transactions. Sanjeev Bhatti from Bank of New York Mellon said, that digital identities used across borders involve diverse information, regulating such systems and facilitating data exchange may pose difficulties.

During the discussion of combining digital identities with financial transactions, Bhatti said, “Everyone has an idea in their head, how they think it will work,”.

Bhavna Saraf, head of payments, products, and propositions at Santander UK, added, that the responsibility of the regulatory bodies is to ensure financial stability and implement safety measures. She remarked even though the progress by the regulatory authorities is slow yet not completely stagnant.

The European Union is making efforts to create a fair environment in the digital sector, with digital identities playing a significant role in strengthening innovation, not only within established banks and institutions but also startups. In order to enhance EU prospects, a key initiative would be making the use of EUDI Wallet compulsory for customer authentication in sectors such as banking, telecommunications, healthcare, transportation, energy, and insurance.

Apart from technology and regulatory issues, governments in various regions face political dilemmas while dealing with digital identity and find it challenging. While talking about such challenges, Bhatti said, “In the UK and especially in the U.S., there’s a lot of negative feelings around digital identity,”.

In order to thrive and extend the influence of digital identity, digital ID providers must take a moment and adopt a systematic approach. Securing a competitive edge in the rapidly expanding market can be achieved by prioritizing the customer segments with potential and collaborating with solution providers that align with the needs.

Also read: The 4 Pillars of KYC for Effective Identity Verification 2023

Evolution of Identity Verification in the Digital Age