As digital interactions become more commonplace, credit unions search for a solution involving digital identification. Unlike identifying members in physical settings, digital identification remains challenging because of a lack of standardization across various digital channels. Members and credit unions alike are increasingly concerned by the fact that digital identity theft is growing. Sadly, digital data breaches are on the rise across multiple industries and have exposed the most sensitive consumer data to hackers.
The solution to protecting members’ identities in digital interactions is through self-sovereign forms of identification. Self-sovereign identity is a type of portable digital identity. This form of identification does not depend on any central authority and is nearly impossible for hackers to steal or corrupt.
A Problem as Old as the Internet
Digital identity has been a problem since the dawn of the internet and still remains challenging today. Even after 30 years, credit union members still have no way to present digital credentials to prove their online identities the same way they are able to do in the physical world. In the physical world, credit union members can use government issued identification forms for all transactions that require photo identification. However, there is nothing like a driver’s license or passport that members can use for transactions online. Proving one’s identification online has primarily been restricted to biometric methods, such as passwords and challenge questions, which are both susceptible to fraud.
Standardizing Digital Identity
To verify a digital credential, credit unions must solve two problems. First, they need to standardize the format. Members can use government issued photo identification, such as driver’s licenses, universally to confirm their identities for in-branch transactions. Branch staff members recognize the format and validity of this identification form because driver’s licenses are widely used and difficult to duplicate fraudulently. When members use digital credentials, they are “read” by a machine, so these identification forms need to be in a digital format that machines can understand. The second problem is verifying the source and integrity of digital credentials. Individuals trust driver’s licenses as identification forms because they originate from state DMVs, which are independent, trustworthy sources.
Credit unions can solve the problem around digital, self-sovereign identity by replacing trust in humans with mathematics. Blockchain or distributed ledger technology removes the emphasis on biometric digital identification and replaces it with an incorruptible source. Because of the structure of distributed ledger technology—relying on scattered nodes, instead of a centralized location—this technology is ideal to serve as a decentralized “self-service” registry for public keys, which would serve as digital identification for members. By decentralizing identification, credit unions can enable true self-sovereign identity—a lifetime portable digital identity for any person, organization or thing that can never be taken away.
Many credit unions are rightfully concerned about the ubiquity of fraud through digital channels, whether through call centers, or during online or mobile banking transactions. The digital identity crisis will only grow more challenging as new digital channels develop and physical transactions in branches become less common. While many credit unions may be concerned about investing in new technology, distributed ledger technology holds the answer to solving the digital identity crisis. Distributed ledger technology can provide members an incorruptible source of self-sovereign identity in the form of identification keys. By taking advantage of distributed ledger technologies, credit unions can improve their brands and become the most trusted financial services providers to their valued members.
Julie Esser is chief engagement officer of CULedger, a CUSO that enables credit unions to enhance their digital strategy by bringing innovative distributed ledger applications to the market.