Sibos 2022: How to avoid a digital identity crisis

In an increasingly blurred reality, the way we manage identity (or identities) and the interaction with networks, financial or otherwise, is becoming increasingly essential.

Bianca Lopes speaking at Sibos 2022

The current identity and regulatory environment presents an opportunity to reforge identity as it pertains to financial services and technologies, says Bianca Lopes, an economist, mathematician and serial entrepreneur, in her wide-ranging talk at Sibos 2022, “From Metaverses to wallets: How to avoid an identity crisis”.

In a dynamic and pointed presentation to a room full of suits, Lopes made the case why banks, regulators and financial institutions should be paying attention to digital identity – “It’s a big market, you can make a lot of money”.

Aside from the market opportunities, identity matters, Lopes says, because it is the foundation of payments, banking, “open anything”. Despite spending the past decade hoovering up mountains of data about customers and users, “a lot of us have lost the touch of being present”.

Nonetheless, we have built up the “largest asset class humanity has ever seen. We weren’t ready for it. We were told by everybody, ‘gather the data, because you might be the Facebook of financial services’, and everybody was trying to be Facebook. And if you ask me, now Facebook doesn’t even want to be Facebook.”

How did I get here?

Lopes mapped the journey banks and financial institutions have travelled as they moved from purely physical locations all the way through to the mixed realities we have today. Importantly, these institutions failed to build identity into their increasingly non-physical, digital structures.

In the real world, you have an architecture which means you can recognise people, Lopes says. “If I locked some doors here, we’d all know each other fast enough. We’ll be able to recognise each other and there will be a trust system. But that evolved, data came along,” Lopes says.

Remote services, call centres, digital transformation, Banking-as-a-Service (BaaS) have all led to siloed “zero knowledge, zero trust architectures”, and now we need to know, who is in this silo? “And that’s how we started stacking up data,” Lopes says. “We sit on a pool of data, and it’s started to look like a swamp.” Now, it’s a liability with GDPR and digital considerations front of mind.

“The interesting part about not including an identity being part of how you build the walls, is actually the opportunity you’ve missed.”

To drive home her point on the missed opportunities surrounding identity in financial services, Lopes relates how when it comes to know your customer (KYC), for banks and financial institutions to know that you are really you, they’ve always authenticated against the same thing.

“Every time somebody logs in, you ask them the same question. And then the same question. And then the same question. How many times did you miss an opportunity to learn context?”

The f word

One word; fraud. “We talk about fintech versus banks versus crypto versus whatever, but we have made a lot of people rich trying to fix fraud,” Lopes says. She points out that 2-5% of global GDP is lost through money laundering every day. That’s up to $2 trillion. “It’s embarrassing.”

For those who still put identity near the bottom of their list of priorities, Lopes asks, “do you care about who’s going to own what, who is going to have the right of custody?”

Clients, treasury departments, commercial banking clients, private clients or investment clients, all the brands they serve, they’re all moving towards the metaverse, and in the metaverse, identity is everything. “This is going to shake value structures,” Lopes says. “This is going to make principal conversations take place and make you rethink and understand the role of ownership.”

Lopes looked at non-fungible tokens (NFTs), an aspect of the metaverse that “connects to identity and its core”, viewing them through a prism of data collection; one of the largest collections of data out there, Lopes adds.

NFTs are essentially an access token, and different standards on the Ethereum blockchain allow for different use cases ranging from full “one-to-one” ownership to lending and borrowing these tokens, which in turn allow for things such as loyalty programmes.

“Identity was always supposed to be about who you knew, and who fundamentally had access,” Lopes says.

Other aspects of the metaverse that manage identity include decentralised identifiers (DIDs), which allow for the concept of self-sovereignty and provide key attributes of an individual.

“You’re going to have to build a world where my trust is your trust, a world where I know that you are the same verified level of ‘hey, you’re cool’. How do you build this verifiable world where you can actually provide value identities everywhere we look? And I literally mean everywhere.”

ReFi

Lopes says the role of finance is to build incentive structures. ReFi, or regenerative finance, is one such attempt. “The world’s actually on fire, people are dying and we’re sitting around talking about unicorns.”

One of the ways that the finance industry can engage immediately is by looking at building interoperable standards around carbon credits, “legitimising some of the conversation that’s already building the trillion-dollar market”.

“Getting all cranky about DeFi and saying everything that is decentralised is evil is not the answer. It might be the easiest answer, to criticise what we don’t understand. That’s what we did to identity. We have such an opportunity to change and create a common language and framework.”