The digital identity crisis in the United States
A national digital identity framework is essential to unlock fair financial technology.
When the COVID-19 pandemic hit the United States, the United States Congress quickly approved the CARES Law to – among others –to send Emergency âeconomic impact paymentsâ to struggling Americans. However, millions of people had to expect for months to cash the physical checks that arrived in the mail, and millions more never received their stimulus payments at all.
A first version of the CARES law included a provision to create âdigital dollarsâ issued by the Federal Reserve to expedite the delivery of future large-scale government-to-person payments. But creating a digital currency alone would not solve the challenge of delivering government assistance to individual citizens. The Internal Revenue Service (IRS) would also need a digital infrastructure to verify the identity of people receiving payments before the agency could implement a more efficient and secure method of transferring payments. To this end, the Secretary of the Treasury Janet Yellen recently Note that âjust as we need responsible innovation, we also need equitable innovation; tools that can help bring the benefits of the modern financial system and IT to more people. â¦ The same digital ID technology that protects against money laundering can also help us reach more people. “
A visit to the Department of Motor Vehicles in any state would show that the United States currently has an outdated identity system. In addition, social security numbers are not suitable as a universal identification tool. They lack a digital connection and, due to their misuse as a login, have been violated on a massive scale. The cost of identity fraud to society is high. In 2020 alone, identity fraud Cost Americans are worth about $ 56 billion, of which about 49 million consumers have been victimized. the REAL ID Act of 2005 was perhaps the most recent national identification policy, but 99 million Americans still don’t to have Identification in accordance with REAL ID 15 years after the promulgation of the law.
In general, identity verification rules and requirements vary from entity to entity, resulting in repetitive and fragmented processes for end users and costly for service providers. Financial service offerings are based on the ability of providers to execute Know your customer (KYC) due diligence and comply with anti-money laundering regulations (AML). Funders often meet their KYC requirements by collecting information from customers when they create new accounts. But verifying this information poses challenges without a single source to confirm a customer’s identity.
A digital ID that can be authenticated remotely is essential for access, inclusion, participation and innovation in a digital economy. The promise of many technological innovations, whether in the form of financial services, transportation or education, can be enhanced by digital ID solutions. These solutions can consist of combinations of attributes ranging from biometrics, behaviors and issued credentials.
A digital ID framework has many complexities. The building blocks of a cohesive identity system in the United States should address unique aspects of the country’s federalist system, challenge privacy and security considerations, and the role of the private sector.
Although some government and industrial sectors efforts are underway, a more comprehensive federal effort would help coordinate and facilitate what should be considered public infrastructure. A mix of public and private actors manage the components necessary for identity verification in the United States, which are subject to a series of legal requirements at the state and federal levels. By bringing together key players from the public and private sectors, the federal government could help stimulate needed standards, privacy, innovation and consumer choice.
The following four design principles are essential for a robust digital identity framework:
First, privacy protection must be at the center of a digital identity framework. Information should only be shared and used under the explicit direction and consent of consumers. This basic principle has been at the heart of most global digital identity programs and initiatives, including Singapore’s. National digital identity project, the Business Roundtable’s proposal in 2019, and the Better Identity Coalition’s digital identity policy plan.
Second, a strong digital identity framework should avoid the creation of centralized ‘honeypots’ of information that could easily be subject to cyber attacks or misuse. In addition, centralization would be incompatible with opposition in the United States to centralized control of national identity data. Instead, federal models that allow uniform access to information across all identity verification and authentication systems should underpin the US approach.
Third, digital identity solutions would benefit API access to government-held data that can increase the speed and accuracy of identity confirmation. Quiet efforts have been made to create such APIs, including an IRS revenue audit initiative– but agencies need to extend them further to ensure a more comprehensive and coordinated approach between agencies at national and federal levels.
Finally, privacy, security, interoperability and authentication standards should be designed to foster an open and innovative environment, in which private sector stakeholders could compete to improve consumer choice and ensure a secure environment. equitable access for all, without widening the digital divide. A national digital identity framework should allow technological innovations in tokenization, biometrics and other authorization methods in development. Providers should not be able to lock consumers into their services, and information should not be trapped in siled ecosystems.
On the contrary, open standards – perhaps Free by organizations such as the National Institute of Standards and Technology (NIST) – should drive a dynamic digital identity framework that advances consumer interests and operates within the market structure. NIST has been active in this space. In 2016, he awarded six pilot grants totaling $ 15 million to a combination of public and private sector entities to develop trusted identities that allow more secure access to online services. One of the projects aimed to improve access by offering a digital driver’s license accessible through a mobile app in Colorado, Idaho, Maryland and Washington, DC.
While these selective efforts are positive, we suggest that a federal agency, like the US Department of Treasury or Commerce – or even the White House – leads a more comprehensive initiative.
A forward-looking digital identity framework is needed to support a robust and inclusive economic infrastructure. It is important to anchor national efforts around common principles and coordinate disparate efforts, which could include: sharing information from specific initiatives; research and promotion of standards; organize information and education campaigns to promote adoption; accommodation technical prints or other events that capitalize on private sector innovation; and recommend specific legislative or regulatory changes. A national framework can help organize and catalyze an otherwise fragmented digital identity effort, subject to challenges of collective action.
The importance of this effort cannot be overstated. As we emerge from the COVID-19 pandemic, we have the opportunity to rebuild the economy by reshaping our identity framework in a way that gives us access to better and more equitable financial technological innovations.
This essay is part of a series of 11 parts, entitled Regulation in the age of FinTech.