In the beginning, the internet slowly grew into a wilderness inhabited by many individuals who hid behind a wall of computerized anonymity, and used that very inconspicuousness to run questionable (and sometimes, downright illegal) enterprises. In the early years, internet usage became fraught with danger. The next scam, hoax, or fraudulent attempts to get something from you was never farthest than a couple of misclicks away.
Many factors contributed to this virtual minefield. The very human trait of greed undoubtedly led to many a scammer’s payday as get-rich-quick schemes turned out to be just pigs in a poke. Loneliness and naivete broke many victim’s hearts (and banks) as online dating scams took hold. And the number 419 soon became a byword for online criminality (419 is the section of the Nigerian Criminal Code dealing with fraud.)
But if one looks closely at these types of scams (or any other), they all involve deception by an anonymous individual, or group. In a virtual land, one can never be sure of who’s at the other end of the data pipe.
At the very heart of most internet-related scams lies the issue of identity. In these situations, the perpetrator has the upper hand, as it’s relatively easy to impersonate others, and the victim is at a disadvantage, as it’s very hard to verify who we are really talking to. Today, most financial institutions have identity verification frameworks in place. Know-Your-Customer (KYC) and anti-money laundering (AML) probes go some way towards reducing fraud, but even so, it’s still all too easy to commit identity-based fraud.
Blockchain technology has emerged as a valuable asset in the armamentarium available to the financial industry against identity theft. Digital identifiers (DIDs), and especially, the concept of Self-sovereign identity (SSI) stand at the vanguard of the fight against financial fraud.
Self-sovereign identity (SSI) – A brief overview
We recently published a piece on the benefits of SSI for the enterprise. It’s an interesting article that expands on issues surrounding SSI, and how identity is one of the drivers of our lives.
But in just a short few words, the underpinning principle of SSI is that the individual should be the sole owner of their own identity data, without the intervention of third parties such as government agencies, service providers, educational institutions, etc., to manage, store, or share this data.
The Benefits Of SSI for banking and finance
The financial sector is a constant target for fraudulent activity, for obvious reasons. As custodians of wealth, the temptation for fraudsters to get their hands on the cookie jar is just too great. Because of this constant threat, banking and finance deploy some of the more robust anti-fraud frameworks currently available, and blockchain is now becoming an integral part of this strategy. But how can decentralized technology in the form of SSI help combat financial crime, and what are the most common use cases for SSI frameworks in finance?
In-branch, the process of opening a new bank account can take anywhere up to an hour or more, and that is assuming that all paperwork is in order. If any detail is questionable, incomplete, or altogether missing, the likelihood is that the process will extend by hours or days until whatever certificate or proof becomes available to the customer.
Digital credentials can turn this cumbersome process into a straightforward one. Because SSI centers around the individual’s control over their own personal information (which is immutable and immediately verifiable on the blockchain), opening a new bank account would take minutes.
Built-in SSI in regulatory compliance
Finance is one of the most tightly regulated industries out there. There is a wide array of rules and regulations that define how banking institutions are supposed to act. Customer charters, KYC, AML, and so on provide the regulatory basis that controls how financial institutions operate.
But all these guidelines are not fully integrated yet. There are gaps and cracks that might lead to fraudulent activity. By building in SSI principles, by digitizing the identity process, these gaps disappear.
Applying for a mortgage is a slow, time-consuming, and paperwork-heavy process. Yet, it is too easy to apply and obtain different mortgages under different identities. Cases of applicants use fake identities to apply for home loans are not uncommon. Again, the use of digital credentials, which are verifiably unique on the blockchain, would remove this risk.
There’s an old adage in the cybersecurity field that says that the user experience can be secure or convenient, but never both. Security is never absolute, and the more security measures there are, the more a customer has to access services. Digital identifiers and SSI frameworks can greatly simplify how businesses and customers interact with each other, since all the required information is digitally available on the chain. All a customer needs is an app in their smartphone to store and manage credentials, and share them at the tap of a button. There are many such solutions available across Europe and elsewhere. In the European continent, Europechain offers identity services through its My.D product, for example.