Fintech: We must vote yes to digital identities and make it a human right

Getting a digital identity seems to pose both technological and social problems. Why is that?

AB: Absolutely. Technologically speaking, digital identities are controversial because digital identities only work if they cannot be supplanted, and allow individuals to perform multiple activities in the digital domain. Socially, they are controversial because the value of a digital identity is entirely dependent on the access to technology of people — thus poor societies are less likely to enjoy their benefits.

Digital identities change the rules of the game for Fintech too, in terms of client identification, KYC regulations, cross-border payments and financial transactions. The utopia for digital identities would see everyone possessing one and all our financial transactions, bank accounts, insurance policies and trading accounts consolidated under a single app or system. The technology would improve customer experience, but also force financial institutions to redefine their business models.

The difficulty of adding the technology to the architecture of the internet has also been a factor in digital identities becoming mainstream too, hasn’t it?

CM: Yes. The internet doesn’t know who you are. There’s that famous cartoon of a dog on the internet pretending to be a human that exemplifies it so well… Why is that all changing now? New technologies like blockchain are allowing us to issue digital entities using public infrastructure and to decentralize that identity through blockchain ledgers.

In the same way every person will have an identity, every object will have a digital ID using our same software. With your digital indentity you can control your car, the lock to your home: in this new model, when you buy a car you – as opposed to the manufacturer – control that identity.

An estimated one trillion things will be connected to the internet by 2030; the more things become connected to the internet, the more important it will be for you to have your own digital identity.

You’ve said ‘digital identity havens are the new tax havens’. What do you mean by that?

CM: Countries like the British Virgin Islands, Gibraltar and Bermuda are converting themselves into identity providers as tax havens are no longer popular. Take Estonia: it’s the only country in the world that has made digital identity a product. You pay $35 and you are a digital citizen without being Estonian by nationality.

Big countries like the US, France and Italy will take longer because they are sovereign thinkers. Their attitude is “You have to have a passport before you exist”. So, as centralized countries, they will take longer to issue digital identities. Switzerland’s issue is that while it is decentralized, every canton wants to do things differently.

AB: I would add that in the Estonian model, the whole system is centralized by the government but it is protected from the outside by blockchain – the X-road. So Estonia’s system is not entirely blockchain.

How has COVID-19 accelerated the digital identity process?

CM: As it stands, you can add your test result and your vaccination information into our App. We are working with IATA (The International Air Transport Association), Lufthansa and the Seychelles government to create faster access for people, be it into countries or concerts, by having their digital identity and your vaccination identity within the one App. Countries need to open their economies and, with the App, we are providing a new type of ticket for entry.

But we must enact the current phase properly, by which I mean people need to have very clear what is happening. Because if we don’t, the risk is we create a surveillance society. We can see it happening in China. Countries will be able to abuse their citizens, and it will be very difficult to escape from.

This interview was carried out by former IMD MBA students Stephanie Hurry and Matteo Conti.