The idea of a digital ID system is, slowly and belatedly, gaining traction in the UK.
For many years, a handful of outriders and advocates for digital ID technologies have struggled to focus public attention on their potential benefits. The prospect of greater security against fraud, modernised public services and more efficient customer journeys was frequently drowned out by an (often sensationalist) focus on privacy concerns.
But popular opinion is slowly coming round to recognising the benefits of a digital ID. People’s changing relationship with their money will have played a major role in this shift.
Our financial services landscape has become increasingly fragmented. Where people and businesses previously had one bank account and debit card, today they have multiple. That means more time spent going through onerous onboarding processes. Combined with a greater regulatory burden, it means ballooning compliance processes and costs for financial institutions. And it means that no one bank or financial services provider has a holistic view of their customers’ needs, leading to ill-informed decisions and potentially higher costs for consumers.
At the same time, fraud is on the rise. In 2023, over 1.2 million incidents of fraud were committed in the UK — equivalent to nearly two fraudulent acts every minute. AI and deepfakes threaten to make scams even more sophisticated and scalable. The siloed nature of our financial services ecosystem, the absence of a single source of truth to prove that somebody is who they claim to be, is an added head-start that the fraudsters certainly don’t need. But it is one they will happily exploit.
It is therefore a very welcome development to see new legislation making its way through Parliament, which will establish the statutory footing for a personal digital ID system. Once that bill becomes law, over 50 pre-approved providers are ready to move forward with an authorised digital ID for individuals. That could transform how you register to vote, interact with the NHS or store your driving license – to name just a few applications.
However, this must be only a first step in a wider transformation. Digital ID can be a major driver behind the UK’s evolution into a secure, seamless, smart-data digital economy. With the Government laser-focused on the twin priorities of driving economic growth and running public services more efficiently, digital ID might be the closest thing to a silver bullet available.
It is in the area of financial services where digital ID can go much further still – as highlighted by two landmark reports released this month.
A paper released today by the City of London Corporation, produced in collaboration with EY, details how a national digital verification service, used to authorise individual consumers when using financial products and services, could unlock £4.8 billion in tangible benefits by the end of the decade.
It follows hot on the heels of a report released earlier this month by the Centre for Finance, Innovation and Technology (CFIT), which explored how the introduction of Digital Company ID could help fight economic crime and mitigate the annual £6.8 billion cost of fraud to the UK economy.
The release of these two reports in quick succession – one on a digital ID for individuals, the other on Digital Company ID – is no accident. It is critical that consumer and company verification services are developed in tandem. Whether fraud is committed by a business or an individual, or against a business or individual, it is all part of the same interconnected web of economic crime. Digital Company ID and personal digital ID are equally important — if one technology lags behind the other, bad actors will inevitably target the weaker link.
While the UK slowly comes round to the prize on offer from digital ID, we are in enormous danger of being left behind by our international competitors. Other markets and jurisdictions are simply much further progressed and moving exponentially faster than the UK.
When I speak to fintechs and financial services firms operating in major fintech hubs overseas, the concept of a digital ID is commonplace. They are already moving onto the next set of use cases that will improve consumer experience, digitise public services and unlock growth. Estonia, Sweden and India are examples of countries that have adopted public-sector models. Canada and Norway have both made progress with private-sector solutions.
The window for the UK to avoid being left behind is closing fast. As indicated by the Financial Conduct Authority’s (FCA), its new five-year strategy – published today – will focus on four key pillars: economic growth and innovation, financial crime, consumer resilience and more efficient, effective regulation. Digital verification cuts across the first three of these areas in particular – as Nikhil Rathi, the FCA’s chief executive, highlighted recently when identifying action on digital ID as an example of how financial regulations can be aligned with the UK’s growth agenda.
Global technological competition is intensifying. Digital ID is a crucial battleground. The UK has a choice between setting global standards or belatedly adopting other countries’ models. If we are to safeguard the UK’s reputation as a safe and forward-thinking place to do business, then the latter option is not a viable approach.
As the Government looks for economic growth and to harness the best of our financial services firms and technology companies, we must focus on serving our individuals and businesses across the UK with the best financial outcomes available to them. Embracing digital ID will turbo-charge that journey. Fintechs, banks and technology firms stand ready to develop the best solutions to drive this innovation. The time to act is now.
