Why The Move To A Cashless Economy Could Bring On A Global Identity Crisis
October 16, 2020
Glenn Larson is the Vice President of Engineering at Acuant and a member of the Forbes Technology Council, an invitation-only community for world-class CIOs, CTOs and technology executives. Read his article for the Forbes Technology Council below, or find the original here.
Lockdowns and social distancing in the time of Covid-19 have brought a dramatic decline in the use of cash. Withdrawals from cash machines are down, and card payments are up. Link, which runs 70,000 ATM machines in England, predicted that cash would be used in just 10% of all transactions as consumers do more online shopping and avoid bills and coins for fear of contracting the disease.
Will the trend last? It seems probable. In fact, the pandemic could ultimately bring about the end of cash as a form of payment.
This raises an important issue: the vital need to create and maintain trusted identities in an increasingly digitized world. After all, behind every digital transaction is an identity, and the easiest way to prevent fraud is to determine whether that identity is true in real time.
For merchants, every transaction depends on one question: “Can I trust that this customer really is who they say they are?”
However, the answer to that question remains elusive. The existing processes in place for verifying and protecting identity are tied to outdated financial systems and aren’t designed to support a cashless, digitized society.
Will Some Be Left Out?
People don’t just shop online; they now conduct all sorts of financial transactions online — from opening a new bank account to filing taxes to buying a new home. For most, it’s a straightforward process.
However, as we increasingly move to digital transactions, what does that mean for underrepresented populations — groups like the unbanked and underbanked? Will they be out of luck in a cashless world simply because they don’t have the means of identifying themselves?
The World Bank estimates that 1.7 billion adults currently lack access to a formal financial system because they don’t have a valid ID, they face geographic obstacles, or they have low financial and technological literacy. In the U.S., 22% of adults are either unbanked or underbanked, according to the Federal Reserve.
All these people rely on cash to survive. But if cash goes extinct, where does that leave them?
The U.S. MOBILE Act of 2017 — short for Making Online Banking Initiation Legal and Easy — sought to address this problem by authorizing financial institutions “to record personal information from a scan, copy or image of an individual’s driver’s license or personal identification card … for the purpose of verifying the identity of the individual.”
However, the act doesn’t go far enough. Many states have their own laws that explicitly prohibit the scanning of encoded information on IDs, which makes it almost impossible for large numbers of banks and credit unions to offer online account opening. The result is that many unbanked consumers — especially those in rural communities who do not have easy access to a bank branch — end up abandoning the digital process altogether, thus further increasing their reliance on cash.
Governments Get Involved
The U.S. government is also realizing the need for more advanced identity verification methods and is getting serious about upgrading its digital identity infrastructure. The House recently introduced a bill intended to make it easier and more secure for Americans to prove they are who they say they are online.
The Improving Digital Identity Act of 2020 is focused on shoring up America’s digital identity system and ushering in new and better ways to prove digital identity, enabling Americans to securely conduct all kinds of digital transactions — whether it’s shopping, opening a bank account or potentially even voting online.
EU leaders, for their part, recently called on the European Commission to develop a public electronic identification system (e-ID) that would provide EU residents with access to cross-border digital services and give them greater control over their online identity and data.
Kenya, meanwhile, has created the first national ID program in Africa, which aims to make it easier for citizens to securely access government services online. India is also in the process of rolling out a biometrics-based digital ID system for government services.
Still, more needs to be done. New models of measuring risk and verifying identities, along with greater education on the topic, are required to make it possible to offer new types of trusted services online.
• Create new verification systems for the online world. For unbanked, underbanked and other consumers new to the digital world, it’s nearly impossible to receive credit if you have no history of credit with financial institutions. The challenge becomes how you assign a value to risk without a financial history. Across the fintech industry, new ways of establishing identity are taking place. This includes methods that analyze alternative forms of consumer data such as mobile phone records, biometrics and email history. By merging new fintech approaches with legacy financial systems, new models of risk can be established that address all types of consumer groups and provide a better methodology for identity verification for today’s world.
• Ramp up education efforts around identity solutions. Even though consumers are flocking to digital services, many don’t pay attention to their digital identity or understand the critical role it can play in keeping them safe online. It’s amazing the amount of information that many consumers will offer up online without first ensuring that strong identity protocols are in place. Consumers are unwittingly putting their digital identities at risk because they don’t understand that safer methods exist. That’s why they need to be informed about new identity solutions and how to best use them.
Government and industry can partner here to educate consumers and businesses and drive next-generation identity management approaches that promote better identity outcomes — and create a safer, more secure internet.
As the world continues rapidly down the path of digital transformation, there is a greater need than ever for digital identities. Whether it is shopping online, conducting banking transactions or engaging with government services, next-generation digital identity solutions can provide all consumers and businesses with safe, seamless and digital experiences that make transactions of all kinds easier and more secure.