Preparing for the evolution of portable identities in finance

Nova Team

Portable identity has been a holy grail for the entire financial services industry, but is hard to translate into real world applications.

Today when businesses onboard into banks, subscribe to funds, or interact with crypto custodians, they have to provide background information about their business, including where they were formed and who owns the company.

This information is important because financial institutions need to manage risk. There is risk around government requirements and internal risk to make sure these organizations are not working with fraudulent actors.

To manage this risk, financial institutions collect detailed information to know who their customers are, what they did in the past, and what their future risk might be. But unlike individuals who have photo identification, businesses don't have ID cards. There is no centralized or decentralized repository of this information, so businesses today are required to provide the same information every time. In addition to collecting this information manually, verifying this information is also handled manually— creating complex compliance processes and frequently overwhelming internal resources.

These collection and verification processes create an environment that is inefficient and fragmented. The goal of a portable identity network is to build a better connected ecosystem and provide a way for businesses to keep track of their information in one place and provide it to everyone.

What are the benefits of portable identities?

Businesses and organizations save time

With portable identities, businesses won’t have to repeatedly verify themselves with separate organizations unless things change, according to Sunil Sharma, Senior Director of Product at Circle. “It takes us a long time to verify the businesses, the stakeholders, managing the screening and reviewing sanctions. We want to make it easy for these businesses to move money and work with other businesses,” Sharma said. “Portable identities reduce friction in the ecosystem and makes the flow of money seem more fluid and liquid.”

Businesses also gain independence and ownership of their data with a portable identity. Today, if a businesses works with ten different financial institutions, they’ll have to separately change their information ten different times. A portable identity allows the business to update information in one place and feed it out to other institutions automatically.

Financial institutions get consistent and accurate information

For financial institutions that receive and process this information, portable identities provide a faster and more consistent way to validate their customers, according to Boaz Avital, Head of Product at Anchorage. This helps institutions move through their processes and serve their customers faster. “It requires a lot more than just an ID that an institution has to provide to a bank like ours,” Avital noted. “There are many documents. Not all of them are cut and dry to understand this business that's onboarding onto us. We try to make that as easy and as white glove as we possibly can when we're interacting with these institutions.”

For investment syndicates and clubs, the ability to reuse identity information creates a more cohesive experience, especially when dealing with a large volume of businesses, according to Will Papper at Syndicate. “By default,  it's very difficult to reuse that information across organizations,” Papper added. “Allowing a user to just enter something once and giving approval to reuse it every time is really powerful.”

Who handles liability with a portable identity?

With an interconnected network of portable identities, what organization or entity handles the liability for the identity’s accuracy and validation?

It’s important to establish that this type of network would create a centralized repository where businesses’ information can be consistently captured. But the financial institutions reviewing the information will still be responsible for verifying identities because of various regulatory reasons and different risk profiles.

What does the future look like with portable identities?

Building a portable identity network unlocks many discussions on how identity data will be used and the concept of a spectrum of reputation. With more consistent inputs and more institutions validating identities on the network, the network will get more signals on the legitimacy of a business, which supports the evolution to accepting one single networked identity.

From a reputation standpoint, different institutions will be looking for different validation points, which may mean that there will be different reputation systems. A portable identity network is meant to aggregate multiple signals about a business, including the type of customers the business has, who has ownership in the company, or where funds come from.

Having multiple signals helps a financial institution make better decisions that will compound to a better onboarding experience over time.

Looking to improve your onboarding experience and consistently capture information? Nova helps organizations streamline their operations with digital workflows and centralized compliance.