US bill would propel digital identity standards for financial transactions

September 11, 2020.

U.S. lawmakers aim to improve online security and resolve a chokepoint in banking through digital IDs, submitting a bill backed by a coalition representing finance and technology companies such as , and .

The Improving Digital Identity Act of 2020, introduced Friday with bipartisan support, would create standards and protocols for establishing and verifying user identities online, for both public and private organizations, and support states in upgrading ID distribution to include digital credentials.

The bill was sponsored by House Reps. Bill Foster, D-Ill., John Katko, R-N.Y., Jim Langevin, D-R.I., and Barry Loudermilk, R-Ga., who noted that the pandemic is making online banking more of a necessity for many Americans.

“As the range of online services continues to expand, the most authoritative form of ID remains the decidedly analog driver’s license,” said Langevin.

The Better Identity Coalition, which has championed the legislation, noted that 16.7 million Americans had their identities stolen in 2017, and that Americans have lost $77 million in fraud related to the COVID-19 pandemic. In addition to the companies already mentioned, the group is backed by Discover, MassMutual Financial, Aetna, PNC Bank, and Microsoft, among others.

“The bill recognizes that at the end of the day, the only authoritative issuer of identity is government —and that government has a role to play in closing the gaps that are allowing criminals and fraudsters to leverage stolen identity data to prey on millions of Americans each year,” said Jeremy Grant, coordinator of the Better Identity Coalition. 

The analog methods of verification can create a bottleneck for financial institutions, according to Grant, who added that “Many high-value transactions are still stuck in the paper world, thanks in part to the challenges with figuring out who is who online,” and that to bring these transactions online, “we need to sort out the identity layer.”

A separate coalition of banks and financial companies, mostly in Europe, are pursuing a technological fix to this issue, using blockchain-based equivalents to major currencies. That effort, however, is more intended for company-to-company transactions, whereas this legislation is meant to reach consumers, including those who might not have a state ID or social security card.

The bill could be a boon to finance companies in another way. As financial services seep into more aspects of life through various fintech initiatives, such as phone- and car-based payment systems, there could be growing interest in customers allowing banks to share data with other companies, referred to as “open banking.” 

“Open banking is creating a need for more sophisticated identity solutions, as banks and fintech firms alike seek to enable consumers to authorize access to certain data or permissions in their accounts on a granular level, and enable consumers to revoke access at any time,” said Grant.