Digital identity, a technology concept floated in financial services and broader economic discussions over the last decade, offers considerable economic and other benefits, but requires a supporting infrastructure.

“Foundational public digital infrastructure will accelerate the growth of the digital economy,” Alan Lim, head of the Fintech Infrastructure Office at the Monetary Authority of Singapore, said Monday at the Sibos 2021 conference. “Core to the digital infrastructure is a trusted digital identity.

“A robust digital infrastructure will enable financial institutions to verify a person’s identity without face-to-face interactions using physical documents,” Lim said. “Financial institutions [FIs] will be able to conduct transactions digitally without requiring users to visit a branch ― a huge advantage during COVID times.”

Lim defined “digital identity” as an electronic representation of an individual or entity that enables individuals and businesses to act with permission on behalf of others within the digital economy.

Digital identity contains various data. For a person, that might include a government identification or social media handle or other elements such as education, home ownership or health information. According to Australia’s Digital Transformation Agency, a digital identity for a business or organization could include things like entity identification number, entity name and entity type.

“A verified identity that can be accepted across multiple digital touchpoints ensures that all parties involved in an interaction can trust the other participants,” Lim explained, adding there are many possible uses for this.

A digital identity can communicate ownership of assets or confirm a user’s entitlement to access a service or perform a task such as open a bank account, drive a car or demonstrate vaccination status.

“Many of us are now accustomed to doing business with someone we’ve never met before, buying something without first touching it and conducting a financial transaction without walking into a physical bank branch,” Lim said. “Access to digital identity will remove some of the barriers users might have in accessing and using financial services.”

Common use cases for digital identity include:

More efficient know-your-customer (KYC) processes
“Financial institutions can leverage identity attributes provided by trusted sources to streamline the KYC process,” Lim said, and bypass steps like manual forms and supporting documentation submission, allowing for faster account opening, for example.

Authentication by businesses without implementing infrastructure
A digital identity “simplifies the customer verification process by reducing manual form-filling and eliminating the need to submit supporting documentation,” Lim said. “Users will be able to access enhanced financial and payment services digitally upon verification.”

Authentication with secure, consent-based biometrics ID
Remembering multiple passwords to access various services can be a thing of the past, Lim noted: “Federated digital identity allows us to use a single means of authenticating ourselves across multiple digital services and conversing websites, apps, devices and more,” he said, and permissioned biometric ID info such as a face scan can be factored in.

Digital signing of agreements
“Digital signatures enable users to complete transactions without the need to be physically present to sign documents,” Lim said. “Only a cryptographically random, unintelligible and irreversible code representing the signed document will be transferred during the transaction. The digital signature is cryptographically linked to the signer, providing businesses higher assurance of the authenticity and integrity of the signed document.”

Some considerations for a digital identity infrastructure are the following:

It must be trusted and secure.
Financial institutions must take measures to align the KYC process to strengthen their cybersecurity and fraud management capabilities to meet the evolving risk areas.

The system must consider user-centric requirements.
These would include personal data protection and ownership of data as well as system interoperability.

“There’s much effort needed to harmonize the attributes required for financial institutions to confirm your identity,” Lim said. “This reinforces the importance of establishing governance frameworks that can best serve the needs of the different stakeholders.”