Global: Digital IDs Pave the Way for Enhanced Financial Inclusion in the U.S., Say Experts

To build a more inclusive financial system, effective methods for verifying identities and preventing fraud are essential. At a recent event hosted by the Aspen Institute Financial Security Program (Aspen FSP), government officials and private sector experts discussed the pivotal role of digital identity in the financial landscape and examined the current state of identity management in the United States, with a particular focus on the growing adoption of mobile driving licenses (mDLs).

Held on July 9th, the discussions brought together a diverse group of participants, including U.S. Congressman and former scientist Bill Foster, representatives from financial companies like Visa and Plaid, and experts from McKinsey Global Institute and the National Institute of Standards and Technology (NIST).

While the conversation around digital identity often centers on its importance for financial inclusion, Jeremy Grant, Managing Director at the Washington-based law firm Venable LLP, pointed out a more fundamental issue: many Americans lack any form of ID, digital or otherwise.

The U.S. has been hesitant to adopt a national ID card, with concerns about surveillance and privacy cutting across political lines. However, the COVID-19 pandemic has exposed the vulnerabilities in the U.S. approach to identity management. Congressman Foster noted that billions of dollars were lost to fraud during the pandemic, highlighting the urgent need for a more robust identity verification system.

Foster emphasized that while private firms will play a significant role in developing digital IDs, the government must provide a reliable list of legally traceable citizens. “The U.S. government is unique in not having a comprehensive list of its members, which contributes to billions of dollars in identity fraud that is less prevalent in other countries,” he said.

Ariel Kennan, Senior Director at the Digital Benefits Network hosted by Georgetown University, pointed out that outdated government technology is a root cause of the increase in identity fraud within social benefits systems. Government agencies have relied on insecure identity-proofing methods, such as knowledge-based verification, and while there has been a shift towards biometrics, this approach has introduced new challenges.

In the financial sector, banks have made strides in building new technology infrastructures and identity management platforms, but fraud remains a persistent issue. Brian Russell, CEO of fintech advisory firm DaVinci Partners Consulting, noted that banks are adopting solutions like behavioral biometrics and selfie IDs to address these gaps. However, he stressed that there is no “silver bullet” for fraud prevention, and continuous progress is necessary.

Russell also highlighted the challenges banks face as regulated entities, particularly in using third-party verified credentials. He emphasized the need for government intervention and support to develop infrastructure that can validate these credentials. “We need government support, verifiable credentials, and more tools to tackle these challenges,” Russell said.

One promising solution is the use of mobile driving licenses (mDLs). NIST has been collaborating with financial companies to explore the application of digital identity in remote account opening, including Know Your Customer (KYC) processes. They are also investigating the use of mDLs in federal government services, benefit programs, and healthcare, all of which operate under different regulations and standards.

Ryan Galluzzo, NIST’s identity program lead, explained that while the technical aspects of mDLs are complex, they represent just one part of the broader challenge of adoption. NIST’s role includes educating regulators, compliance teams, and users to ensure they understand the benefits and capabilities of these credentials.

As more aspects of daily life, from financial transactions to government services, become digitized, the need to digitize identities becomes increasingly urgent. Jen Taylor, President of fintech company Plaid, emphasized the importance of collaboration among technologists, businesses, policymakers, and consumers to ensure digital IDs are secure, user-friendly, and well-regulated.

“Fighting fraud is a team effort,” said Taylor. “To stay ahead of fraudsters, we need to bring together unique perspectives, information, and capabilities from all stakeholders.”