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Few things are more important to banks and financial institutions than knowing that the person who opens an account is who they say they are. Identity checks are vital to, among other things, prevent criminals and terrorists from using financial products or services to store and move around their money, and ensure that people are eligible for the accounts they are opening.

However, the challenge of carrying out these checks is increasing as people have moved to banking online. As Marie-Sophie Bellot, Marketing & Strategy manager for digital ID, public security and identity at leading identity technology firm IDEMIA explains, meeting customer expectations for online financial services while also satisfying regulations around identity fraud and money laundering is “more and more demanding” – and the number of digital banking users is set to grow by more than 50% to 3.6 billion between 2020 to 2024, according to figures from Juniper Research.

“We see more and more people using digital tools to perform daily financial activities – and on the other side, people from the financial services sector need to comply with more and more demanding regulations,” she says. “If we look at the market growth in digital banking, it’s important to equip the financial sector with a secure and convenient digital ID tool to enable the customer to onboard in a safe and secure environment.”

And it is not just private sector banking institutions where that security is crucial. Government entities – most specifically central banks – also have an interest in ensuring that remote ‘know your customer’ (KYC) identity checks are as robust online as they would be in person as it contributes to greater trust, security and stability in the financial system. Central banks also want systems to be robust internationally so that other countries rate their financial system as secure enough to approve cross-border trade – and to make sure that the increasing range of central bank digital currencies are only purchased by those who are eligible to purchase them.

However, building these assurances within the current systems, and maintaining them at the highest level of security is a daily challenge and, as Bellot notes, multiple banks in different countries have received fines in recent years due to failures in their KYC processes.

This is where IDEMIA’s identity technologies can help both government and the private sector create the secure digital ID systems they need.

Using IDEMIA’s IDway solutions, central banks can issue financial digital IDs for citizens, which can be part of state-issued digital IDs, or separate from them, based on the national databases or ID documents. Once in place, these IDs can be made available across financial services to verify individuals with the highest level of trust.

This ‘root of trust’ backed financial digital ID can then be used to check applications to open bank accounts or apply for loans, providing near-instant verification. It also makes it easy to check eligibility against, for example, sanctions lists, even when – as happened in sanctions deployed following Russia’s invasion of Ukraine – eligibility changes overnight.

As well as providing increased security across the financial sector, financial digital IDs have other benefits for central banks, which often have boosting national economies and promoting financial inclusion as part of their missions.

Indeed, helping to improve financial inclusion is one of financial digital IDs’ key qualities as – once an individual has their ID – they can access financial services with ease throughout their lifetime. With the verification in place, digital financial services can also be provided in remote locations that more traditional banks don’t often reach.

Such is the case in what is the world’s largest national digital ID project, the Aadhaar scheme in India. Aadhaar, which translates as base or foundation, was launched in 2009, and now forms the cornerstone of the Indian state. Almost all the adult population has a 12-digit unique identity number that ties up with digital service provision across the country. A host of government services can be accessed through the ID, such as government pensions and benefits, and – crucially – it is also linked to bank accounts, meaning it acts like a kind of financial digital ID.

IDEMIA’s identity technology is at the heart of Aadhaar, and Bellot highlights that the link to bank accounts has proven crucial during the response to the coronavirus pandemic, when traditional in-person collection of welfare payments had to be curtailed.

“During the lockdown period with COVID-19, it enabled the government to easily distribute different benefits directly to people’s bank accounts because the government was able to ensure it was the right person who was benefitting from the different aids,” she says.

Being able to distribute payments securely in such difficult circumstances is a shining example of why digital identities matter.

Bellot says that discussions are ongoing with governments and central banks around the world on the potential of financial digital IDs. So, what should governments consider if they plan to implement one?

Bellot names two key priorities. “First, the inclusiveness is key – showing that all your population will be able to benefit from it,” she says.

“Second, the framework needs to be clear. Digital identity is a tool and governments need to ensure there is a legal framework that enables people to understand the data management of their digital identity. A digital identity programme only works if people believe in it – both citizens and service providers. So you need to ensure that all the ecosystem is confident and has trust in the solution that you want to implement.”

As well as reflecting IDEMIA’s work in India, these lessons come from developing digital IDs for public services in countries as disparate as Chile, France and Colombia – some of which could be extended to include financial digital IDs in future.

But meeting these two principles is “not something that you do in a couple of months”. Governments need to be prepared in order to get the right infrastructure and communication in place.

“We should not underestimate the power of communication to make people aware that a civil mobile ID wallet is coming – how it works, and what the use cases will be [for public services],” she says. How the identity will be used, and what for, also helps determine what information citizens need to provide to receive one.

But – as the Aadhaar example in India shows – financial digital ID opens up options for more inclusive economies.

“It has enabled people to have easy access to financial services,” Bellot notes. “It enables individuals to be an economic player within the country – even if you live remotely. You are able to transact, you are able to get a job, you are able to receive money from this job, you are able to do all these kinds of elements from one ID. These are the advantages.”