Defining Digital ID and What it Means for Canadian Financial Services

 
November 3, 2021

In an increasingly digital economy, the ability for people and enterprises to verify their identities online has become a pressing need.

There are approximately one billion people across the world who do not have access to legal identification documents, and billions more who do not have consistent access to online services. This significant gap in access has created a ripple effect that touches many important areas of modern life: from health care to financial services, adopting digital ID can help solve multiple issues around identity and verification. 

But what exactly is digital ID, and how can it be used in practical applications, especially within financial services?  

Digital ID, Defined

Currently, most people rely on official government documents and identifiers to prove that they are who they say they are. Passports, social insurance numbers, drivers’ licenses and health cards are just a few examples of the physical ID’s that allow us to uniquely identify ourselves.  

Digital ID provides the same level of confidence that comes with physical ID documents and also the convenience of what Interac calls “soft identities” – the online credentials we use (like passwords) to access online services such as social media, digital banking apps, email and more. 

According to Interac, in an ideal world, digital IDs will blend “the security of a passport or a driver’s license, and the ease-of-use of a social media login”. Digital IDs mask users’ sensitive personal information, often classifying them using a unique string of numbers instead of by first and last name, for example. Importantly, only the information that needs to be validated is shared. When providing a driver’s license to validate an age requirement, a person’s name, address and full birth date is exposed. In a digital ID scenario, it’s possible to provide a binary yes or no to validate the age requirement. 

Another layer of authentication that is typically included in digital ID is biometric data such as fingerprints, face, iris or palm scans, and even voiceprints. These are key elements as biometric data is difficult to replicate, adding to the trust inherent in a person’s digital ID.  

Unlike a physical ID that can be lost, stolen or counterfeited, or a soft ID that can be hacked, digital ID offers additional levels of security and assurance that are above what is typical of other methods of identification used today.

Close up of finger touching blue toned screen on tablet pc

Digital ID and Financial Services in Canada

Digital ID is already being deployed by governments and the financial services industry across the globe, and it is a concept that has been explored since the early days of the internet.  

In Canada, the federal government recently took steps to set the country’s direction to keep pace with the rapidly accelerating digital economy. In 2019, the Canadian Digital Charter was introduced as a means to invest in technology and grow online marketplaces, while keeping Canadians more secure by giving them additional say in how their data is stored and shared. 

Adopting digital ID is becoming a necessity as the Canadian government begins to mandate that all organizations offer greater data transparency to consumers and simplify their digital processes. Digital ID will also be a powerful enabler of open banking that is planned to begin rollout as early as January 2023 based on the Department of Finance’s report issued in August this year.  

Financial institutions in Canada have an opportunity to gain a first mover advantage with digital ID, leading the charge for widespread adoption across industries. Digital ID removes significant friction from online customer experiences and can help solve many pain points for banking customers and service providers.  

This is because financial service providers must abide by strict Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. The complex operating environment credit unions and banks already contend with offers many ideal use cases for how digital ID can be deployed in the real world.  

For example, imagine a new member that has never banked with you wants to open a new account. Digital ID reduces the barrier to entry to complete this task, eliminating the need for this person to visit a branch with all their physical documents to satisfy KYC requirements. They can open an account in minutes.  

Everything your institution needs to know to fulfil your regulatory obligations could be validated via their digital ID: who they are, where they live, their occupation and other relevant information like their credit history and what other institutions they deal with would be all readily available. This information would be  verified through trusted sources, giving your credit union or bank a high degree of confidence that this new member is who they say they are.  

Not only does this improve member experience, allowing this new member to easily open an account without ever having to interact with another person, digital ID offers greater assurance to financial institutions, reducing your costs, and overall risk and potential for online fraud because you have trust in the information provided for each and every customer that onboards digitally. 

In fact, Canadian consumers are seeking out digital services that are easy to use and highly secure, and there is already widespread market acceptance of key elements of digital ID, including the sharing of biometric data. A majority of Canadians are now accustomed to using their fingerprints to log into mobile apps and are using facial recognition technology to access their mobile phones every day.  

We are also seeing increased adoption and acceptance of digital verification methods with the recent rollout of vaccine passports and app based QR codes. This use of digital ID within the healthcare sector is likely to lead to broader acceptance within other areas as well.  

For example, according to PYMNTS71% of consumers would be comfortable uploading selfies, scanning their fingerprints, or providing their voiceprint to their bank. This is thanks to the high degree of trust Canadian financial institutions maintain with their customers, with 88% of Canadians trusting their bank to provide secure online services.

Woman sending a text message from her cell phone

Real World Applications of Digital ID

Some of the earliest use cases for digital ID in banking has been the incorporation of biometrics on ATM machines. Bradesco Banco in Brazil was an early adopter of this technology, installing palm vein readers on over 20,000 ATMs. Financial service providers in countries like Japan, Mexico and Poland have also adopted similar technologies, using fingerprint, finger-vein and palm vein capabilities on ATMs to successfully reduce fraud.  

TD Bank has long used their patented VoicePrint technology in their call centres to identify customers, allowing them to bypass the use of PINs, security questions and passwords when calling TD for customer service. TD also uses biometrics to authenticate users on their mobile banking app though facial recognition and fingerprints. 

According to TD, digital ID has the potential to allow financial institutions to perform “real-time validation of IDs matching government databases; cross-references with sanction lists; geolocation verification; biometric capabilities that use facial recognition to match consumers with photo IDs; credit bureau and social media data to confirm relationships between consumers and their businesses; and device identification to confirm that applicants are not bots”. 

The possibilities for deploying digital ID in an increasingly mobile-first and online world are seemingly endless, and something credit unions and banks should capitalize on to keep up with changing consumer expectations.  

What Does Digital ID Look Like in the Long Term? 

As we’ve illustrated, digital ID is already being deployed in interesting ways within the financial services industry. Financial institutions in Canada are already thinking about how they can use these technologies to benefit customers, protect their business and drive efficiency. 

But what does widespread adoption in this country look like?  

For one, a standardized approach to digital ID that enables interoperability needs to be developed that will allow participants from across industries to begin leveraging digital ID as part of their operations.  

Thankfully, the Digital ID and Authentication Council of Canada (DIACC) has established a Pan-Canadian Trust Framework to introduce a common set of standards and provide the framework to develop a robust, secure, scalable and privacy-enhancing digital identification and authentication ecosystem. 

In addition to this, the financial services industry as a whole needs to rally together and collaborate on finding new and innovative practical applications for digital ID. The industry also needs to continue to lobby and work with regulators on adapting restrictive paper-based requirements to digital formats.  

By focusing on these things, digital ID will continue to progress into a mainstream technology that creates broad-based benefits for individual consumers and businesses alike. 

Defining Digital ID and What it Means for Canadian Financial Services