Web3 to Move the Goal Posts for ID Verification
The third iteration of the internet will force CUs to adapt their value propositions or risk being rendered irrelevant.
The old frontier of identity verification lives in a world of centralized services. When consumers want something, they must go through an intermediary that, among other things, authenticates the consumer’s legitimacy, financial health and other relevant characteristics.
The third iteration of the internet, Web3, is turning this paradigm on its head. Characterized by open-source technology, Web3 will leverage blockchain architecture to make the internet trustless and permissionless. Or, in less technical terms, free and open.
One of Web 3’s most frequently discussed manifestations is the metaverse, in which virtual reality platforms built on the principles of decentralization give consumers direct access to whatever they want. What does this have to do with banking? In the metaverse, total control over how identity is expressed, seen and verified belongs to the consumer. They will decide which entities get to “see” them, how much of them they get to see, for what purposes and for how long. When this happens, all legacy intermediaries – including credit unions – will be forced to adapt their value propositions or risk being rendered irrelevant.
Three Emerging Concept to Investigate Now
To prepare for this eventuality, credit unions can begin studying and exploring the following possibilities:
- Evolving authentication methods. Web1 relied mainly on passwords for access to online experiences; Web2 added new methods, such as two-factor authentication and OAuth (e.g., “Sign in with Google”). Web3 techniques are likely to rely on blockchain technology to admit users – or more realistically, their avatars – into virtual experiences. Self-sovereign identity use, storage and sharing are fast-evolving concepts to investigate.
- Cryptocurrency transactions. Credit unions already know many of the on-ramps to cryptocurrency transactions thanks to long-standing Know Your Customer (KYC) and other regulations related to the movement of money. That said, currency is but one example of what are sure to be many crypto assets in the future. Already, we’re seeing NFTs earn a substantial amount of activity, from good and bad guys alike.
- Virtual experiences. In the metaverse, we’re no longer at a screen; we’re in it. It’s complex enough to guard members’ identities in a Web2 world. Fraudsters, scammers and even well-intentioned innovators that lack adequate data security and privacy controls are continuously posing new threats to personally identifiable information (PII). Layer on Web3’s self-sovereign identities and the need for next-level education and hyper-personalized protection becomes clear.
Web3 Acceleration Calls for Expediated Action
If Web3 seems too far in the distance for the allocation of resources today, consider how quickly things are moving. Many of the virtual concepts and systems that will stand up the metaverse were democratized during work and school lockdown. During the COVID-19 pandemic, credit union members participated in that ecosystem more fully than anyone could have anticipated. Sometimes they did so safely; sometimes not. Identity data is extremely vulnerable in the untamed lands of hybrid interaction.
While it’s true many of today’s fledgling Web3 providers may be remembered as flashes in the virtual pan, others may become tomorrow’s Google or Amazon.
Studying and exploring those providers and their technologies will look different within each credit union. However, the goal should be to get as tactile as possible. Sign up for a digital wallet and transact with cryptocurrency. Try on a virtual reality headset and play around with avatars. Pull in legacy identity experts and self-taught metaverse developers to brainstorm early use cases and technologies your credit union might integrate now.
When possible, involve members in your research. Members do not yet see their credit unions as obstructive intermediaries; they welcome financial guidance and expect leadership. By exploring Web3 and engaging members in that exploration, trust in a collective readiness for the next iteration of the internet will undoubtedly grow. In a world where every possibility is at your fingertips, every dream can be yours and every fiction resembles reality, trust will become every credit union’s most valuable asset.
Al Pascual SVP, Enterprise Risk Solutions Sontiq, a TransUnion company Nottingham, Md.