DI is the trusted digital representation of an individual or organisation’s unique attributes, validated through credentials like biometrics, cryptographic keys or official records. Indeed, AI agents and bots may soon need such "passports" too.

Unlike cumbersome physical documents, DI offers instant verification, whether you are online or face-to-face, streamlining complex financial processes that once seemed insurmountable. Traditional methods of authentication - passwords and manual document checks – are not only a hassle but a goldmine for fraudsters. With robust user authentication, the odds of identity theft and unauthorised transactions plummets.

For example:

• India’s Aadhaar programme, the world’s largest biometric ID system - slashed welfare fraud by ensuring payments are made after biometric verification.
• Ukraine’s Diia, has turned smartphones into digital wallets, storing everything from passports to driver’s licences with access to more than 70 government services via a single, user-friendly platform.
• Belgium’s itsme app  allows users to authenticate transactions for banking and government services.
• Norway’s ID system even allows you to file for divorce! 

DI nurtures trust by making onboarding and transactions significantly easier, eliminating manual and error-prone data entry, smoothes e-commerce checkout processes and makes banking services safe yet lightning-fast.

Open Banking is another domain where DI thrives; empowering consumers to decide which data to share and with whom; addressing privacy concerns and fostering trust in third-party providers. As Open Banking scales globally, DI could become the backbone that secures data flows with user-controlled consent frameworks by default.

Implementing DI presents hurdles for users and beyond. 

Starting with the former, users must have absolute confidence that their data will only be used with their explicit consent and that it will be shielded from breaches. Therefore, legal frameworks need to be both robust and technology-neutral, defining clear liability structures while fostering innovation.

And interoperability with numerous proprietary and fragmented biometric systems could require users to re-register their data across various services, meaning a terrible user experience. So, the establishment of global standards is critical for building a cohesive DI ecosystem that operates seamlessly across platforms and borders.

While biometrics sits at the heart of many DI solutions, it presents challenges i.e. fingerprint recognition performs less accurately for children under 12 and adults over 70 due to underdeveloped or fading prints, while facial recognition accuracy varies across ethnic groups. Ensuring inclusivity in biometric systems is essential to prevent discrimination and exclusion.

Away from the mechanical hurdles faced by users, DI requires collaboration among governments, industries and users to uphold privacy, interoperability, inclusivity and security. Spoiler: it’s never the technology... it’s always the rules. So, what might become of DI?

Banks have a unique role in managing and delivering Digital ID, and in the UK they already operate technology that authenticates consumers. Not forgetting  bank statements are the “gold standard” of identity credentials.

DI plays a pivotal role in building the trust backbone of a digital economy, enabling consumers, merchants, banks, and governments to authenticate transactions securely, reducing fraud, complying with regulatory requirements and while tackling the exclusion that often restricts access to basic needs i.e. e-commerce or government services (good news for governments desperate to unlock economic value)

In an era where our digital interactions increasingly dictate our daily lives, DI will validate our identities and empower participation in economic, social and civic life. Payments and Digital Identity can create a virtuous cycle where they reinforce each other. Payments offers frequent, familiar authentication use cases that build consumer trust in DI, while DI will enhances payment security, efficiency and UX. All of which amplifies security, diminishes fraud, simplifies onboarding and facilitates financial inclusion, all while serving as the trust backbone of the digital economy.

As we venture further into the realms of AI, IoT and programmable payments, DI will underpin new use cases, from machine-to-machine payments to personalised financial services. As financial transactions increasingly move online, the need for robust digital identity solutions will transition from being beneficial to critical for efficient payments.

Watch this space.