Thought Leadership

The OBIE Op-Ed: the role of digital identity in promoting access to financial services

The OBIE is a unique repository of insight, expertise, and experience gained from having brought the open banking programme to life in the UK. We are pleased to make this thought leadership available to the broader open banking ecosystem, as part of a new, regular, ‘The OBIE Op-Ed’ series.

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The role of digital identity in promoting access to financial services in the UK, by Fiona Hamilton, Head of Standards at the Open Banking Implementation Entity (OBIE).  

Digital identity has long been a policy puzzle which the UK, both Government and industry, have tried to piece together. The ability to determine an individual’s identity remotely and securely has arguably become ever more critical against a backdrop of rising digital fraud. But what exactly constitutes a ‘digital identity’, why is it important, and what efforts have already been made to establish the infrastructure, standards and common framework that underpins this policy objective? This blog sets out some of the reasons why adopting a consolidated approach to digital identity policy may provide the path forward to safer and more secure financial access for all UK citizens.  

Covid-19 Trends 

Covid-19 has brought a range of unprecedented challenges to our day-to-day lives, and while social distancing has driven change in all sectors of society, it has impacted the financial services sector and consumer retail banking in ways never seen before. A study by the consumer choice brand Which? found that more than 500 bank branches have closed in UK towns since the start of the pandemic, this is despite the Financial Conduct Authority (FCA) urging banks to ease cuts during COVID-19. As a result, we have seen an acceleration of the existing trend towards digitisation within financial services. For example, six million people downloaded a banking app for the very first time, during the first month of lockdown – which equates to 12% of the UK’s adult population. 

Further evidence of the pandemic serving as a catalyst towards digital adoption is evidenced by the 40% of consumers across France, Germany and the UK who claim it has changed the way they bank. To support this digital revolution in financial services, is the concept of open banking, whereby individuals can permit regulated third parties to access their data through API’s (Application Programming Interfaces). This in turn unlocks better, more personalised products, which in turn can then improve the overall effectiveness of the UK’s banking sector.  

One aspect within financial services which stands to gain from the real-time sharing of customer data is remote identity verification over digital channels. Indeed, creating a robust digital identity which offers customers the flexibility to share their identity attributes may go some way towards countering the rising tide in digital fraud, which according to Onfido’s recent Fraud 2020 Report increased by 40% during the COVID-19 Pandemic. 

 What is digital identity and why is it important? 

To understand the concept of a digital identity and its relevance to financial services, we must return to first principles. Our identity refers to any number of attributes that relate to a person. For example, on our birth certificates these may include identifiers such as our name, date and place of birth. This becomes our ‘legal identity’. However, over time we are also imbued with Government-issued forms of identity, for example a passport or driver’s license (which also qualify as photo-id). Added to this we may also require a ‘proof of address’- a form of identification often issued by a trusted institution such as a bank.  

It is using these forms of identification which predicate much of our access to financial services, and it is in this context where traditionally paper-based forms of identity can be replaced in a digitised world. This is especially important given there are still 1.3 million people in the UK without a bank account. Indeed, in written evidence to the Treasury Select Committee’s Consumer Access to Financial Services publication, on the potential barriers to opening a bank account, the FCA mentioned “consumers may have difficulty proving their identity, for example, those with no permanent address or who move often, those who do not have a passport or driving licence or UK paper utility bills in their name”.  

It may therefore be suggested that a digital identity (or improving digitised forms of identity) may reduce the friction inherent in accessing financial services, driving UK efforts towards enhancing financial inclusion.    

Digital identity in the UK 

In the UK, several initiatives have been launched on digital identity, and it may be said that we are approaching an inflection point when it comes to digital identity policy in the UK. Successive Governments have examined the clear benefits of introducing a digital identity. Indeed, in this area the UK’s journey can perhaps be characterised as a series of false starts.  

The most notable step on this journey, was the Government’s plan for an identity verification programme that would have allowed UK citizens to access public services through one ‘Government gateway’ known as ‘Verify’. However, its rollout which was originally intended to reach 25 million users by the end of 2020, is due to be scrapped after eight years of operation.  

Now, a new ‘first’ step on the UK’s journey to digital identity is beginning with the recently published Department for Digital, Culture, Media and Sport (DCMS)  paper on “UK digital identity and attributes trust framework”. In response to last year’s Digital Identity: Call for Evidence, the UK Government sought to create a clear framework of rules which show what ‘ good’ digital identities look like; establish a governance and oversight function to own these rules; and develop proposals which remove the legislative blockers to the use of secure digital identities. The DCMS Trust Framework has been billed as the first ‘working version’ of this broader vision, and is further central to the Government Digital Service’s work to develop a new cross-government single sign-on and identity assurance solution. 

Alongside this are the pioneering recommendations in the Kalifa Review and fresh impetus provided by the Government’s original consultation response on digital identity. Indeed, the Kalifa Review’s first recommendation acknowledges the UK must “deliver a digital finance package that creates a new regulatory framework for emerging technology”, where digital identity should play a central role in the future-proofing of our public infrastructure. The benefits are clear, according to a recent report from McKinsey, which predicted that the adoption of digital identity could unlock economic value equivalent to 3 per cent of GDP in the UK by 2030.  

Calls to action 

Building on the DCMS Trust Framework, and Kalifa Review, the UK Government has clearly put digital identity back at the heart of policymaking. And whilst we continue to see international jurisdictions forge ahead on digital identity – such as the usage of ‘Bank ID’ across much of Scandinavia, which have seen penetration rates of over 80 per cent – without coordinated action the UK may potentially risk falling behind.  

We look forward to working with the financial services sector as it looks to develop innovative open banking-driven solutions that complement the broader use of digital identity in the economy. The Government has a key role to play in making this a reality as it guides the UK towards an economy where digital identity verification becomes the norm. To do so, the Government must: 

  • Remain focused on developing a trusted digital identity framework in the UK and promote its widespread adoption across the economy. 
  • Build on existing experience in the sharing of customer data – such as that developed by open banking – ensuring common standards and authentication methods; and 
  • Develop a robust trust framework and liability model, alongside a dedicated oversight body.