Web3 to move goal posts for ID verification

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The old identity verification frontier lives in a world of centralized services. When consumers want something, they have to go through an intermediary who, among other things, authenticates the consumer’s legitimacy, financial health, and other relevant characteristics.

The third iteration of the Internet, Web3, upends this paradigm. 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 the most discussed manifestations of Web 3 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, full control over how identity is expressed, seen, and verified rests with the consumer. They will decide which entities can “see” them, how many of them they can see, for what purposes and for how long. When this happens, all traditional intermediaries – including credit unions – will be forced to adapt their value propositions or risk losing their relevance.

Three Emerging Concepts to Investigate Now

To prepare for this eventuality, credit unions can begin to investigate and explore the following possibilities:

  • Evolution of authentication methods. Web1 primarily relied on passwords to access online experiences; Web2 added new methods, such as two-factor authentication and OAuth (e.g. “Sign in with Google”). Web3 techniques will likely rely on blockchain technology to admit users – or more realistically, their avatars – into virtual experiences. The use, storage and sharing of self-sovereign identity are rapidly evolving concepts to study.
  • Cryptocurrency transactions. Credit unions are already familiar with many of the gateways to cryptocurrency transactions through longstanding Know Your Customer (KYC) and other regulations related to the movement of money. That said, the coin is just one example of what is sure to be many crypto assets in the future. Already, we’re seeing NFTs gaining a substantial amount of activity, from the good guys and the bad guys alike.
  • Virtual experiences. In the metaverse, we are no longer in front of a screen; we are inside. It’s complex enough to protect member identities in a Web2 world. Fraudsters, scammers, and even well-meaning innovators who lack adequate data security and privacy controls continually pose 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 to action from Expedia

If Web3 seems too distant for resource allocation today, consider how fast things are moving. Many virtual concepts and systems that will support the metaverse have been democratized during the work and school lockdown. During the COVID-19 pandemic, credit union members have participated in this ecosystem more fully than anyone could have anticipated. Sometimes they did it safely; sometimes not. Identity data is extremely vulnerable in the wild lands of hybrid interaction.

While many of today’s nascent Web3 providers may be remembered like lightning in the virtual pan, others may become tomorrow’s Google or Amazon.

Researching and exploring these vendors and their technologies will be different within each credit union. However, the goal should be to be as tactile as possible. Sign up for a digital wallet and transact with cryptocurrency. Try a virtual reality headset and play with avatars. Engage legacy identity experts and self-taught metaverse developers to brainstorm early use cases and technologies your credit union could integrate now.

Whenever possible, involve members in your research. Members do not yet see their credit unions as obstructive intermediaries; they welcome financial advice and expect leadership. By exploring Web3 and engaging members in that exploration, confidence in a collective readiness for the next iteration of the Internet will undoubtedly increase. In a world where every possibility is within reach, every dream can be yours, and every fiction feels like reality, trust will become every credit union’s most valuable asset.

Al Pascual

Al Pascual Senior Vice President, Enterprise Risk Management Solutions Sontiq, a TransUnion company Nottingham, Maryland

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