Decentralized digital ID: A future B2B opportunity engine in LatAm?

Decentralized digital ID could generate a wealth of opportunities for B2B technology services providers in Latin America, BNamericas was told.

Among vendors in the decentralized digital ID vanguard is Microsoft, whose distributed ledger-powered solution has been piloted in the UK and Asia and could debut in Latin America soon.

Globally, decentralized digital ID is in diapers but touted as a self-sovereign identity solution that will give people control back over the data they share and support access to formal financial services by providing more reliable information for KYC and AML processes – a relevant use in Latin America, where around half of the adult population remains outside the formal financial system, according to the World Bank’s 2018 Findex survey.

With the solution, an ID holder has a digital wallet that contains credentials proving their identity from multiple issuers, such as a government agency or an employer – not the likes of PDF scans or data. A validating entity, such as a bank, can verify these credentials against a distributed ledger. This, proponents say, gives people the power to share, safely, what they want, with who they want, and for as long as they want. 

Global security firm VU – founded in Argentina – has been a Microsoft regional partner since 2016 and is collaborating with the tech giant in the digital ID sphere.

“I think there will be infinite opportunities, a lot of demand to integrate with existing platforms on the part of companies that want to use these services,” said Juan Pablo Sanfuentes, Chile country manager at VU told BNamericas. “Opportunities to partner, demonstrate the technology, deploy it ...”

On the general potential for decentralized digital ID, Sanfuentes said Latin America was fertile ground, citing the high level of smartphone penetration in the region.

“I think there’s a wealth of opportunities here, because we’re not just talking about banking services, we’re talking about any remote interaction, such as booking a medical appointment,” he said. “The potential is huge.”

Sanfuentes said shared clients of VU and Microsoft were advancing along the avenue: “Work is underway in Latin America to be able to develop the models so that this operates in client countries.”

One potential use case is identity verification in the financial services industry. VU is a trailblazer, having worked with Argentina’s national ID registry Renaper and the country’s first digital bank, Wilobank, to provide a biometrics-based security mechanism for the lender’s digital onboarding process.

REGULATIONS

Regionally, a major question concerns associated data protection legislation. A regulatory framework that, for example, establishes people are owners of their data could potentially fuel the development of decentralized digital ID ecosystems but is not necessarily a requisite step. Indeed, in the sphere of open banking, regulation can drive the development of such models by ordering financial institutions to share client data on request – but, in some instances, private sector lenders and technology partners have already started constructing their own.

Indeed, Sanfuentes said regulations constituted a potential bottleneck, citing as an example Chile’s data protection bill which remains in congress after being submitted several years ago, but that the solution could nevertheless gain traction and snowball if a private sector player devises an innovative way to leverage it.

“There could be an entrepreneur, or an innovative use case, that launches; there are various associated examples of this,” he said.

One of the initial hurdles to clear, however, is ensuring the interoperability of systems and platforms.

“Without doubt, one of the challenges is ensuring this is standardized regionally, globally, in a way that we have one single way of validating interactions with citizens,” Sanfuentes said. “That is no small feat to achieve.”

Once this first stage has been completed, building ecosystems should be relatively straightforward as demand compels entities to sign up.

“This should happen quite quickly,” Sanfuentes said, adding that decentralized digital ID was the future.

In a report, regional development bank IDB said user-friendly solutions – delivered by either the public or private sector – were required to achieve broad adoption. It said that the technology can "solve many existing privacy issues but can also create new ones," urging developers to use decentralized ledgers and blockchain to store only proofs, not sensitive data and documents.

Picture credit: Mauro PIMENTEL/AFP