Whenever blockchain technology is mentioned, there is a natural tendency to associate it only with cryptocurrencies. This is undoubtedly the most visible face of this technology, but in reality it goes far beyond its use for mining, exchange, or storage of crypto-assets. I even believe that new forms of use will emerge in the future. Focusing on the banking sector, the use of blockchain technology allows a major disruption in its current way of functioning, especially in the evolution from the current centralized (and closed) systems to a set of fully decentralized systems, whose security is based, above all, on its transparency and the possibility of validation, complying with all applicable privacy requirements. We are talking about its use in smart contracts, payment systems, trading and investment systems, loyalty programs or digital identity management systems. However, as a highly regulated industry for banking organizations to fully adopt this new technology they will have to wait for the regulation to evolve in that direction.

On the other hand, it is already possible today for the banking sector and its organizations to adopt the use of digital identity to allow the contracting of its offer in a fully digital and remote way, i.e. without the need for the user to go to a physical bank. Although not yet based on blockchain, this scenario is already foreseen in the applicable regulations and is, for me, one of the great disruptors of this sector in the last decade. The possibility of digitalizing its offer opens up a whole new market in the digital world to the banking industry in general, mostly taken advantage of by the so-called challenger banks, which may even go beyond the borders of their traditional market - usually their country of establishment. Digital identities allow the establishment of a fast, simple, transparent and reliable relationship between a user and a banking institution, allowing scenarios for opening an account, contracting credit, updating data, among others, in a totally digital and remote way. These digital scenarios are even more transparent than their equivalent in the physical world, since they are customized for each user, simplify access to information, and take the pressure off finishing them quickly and in loco, in front of another person. In other words, they provide more time for everyone to review all documentation and make informed decisions, leading to increased trust between people and organizations.

Back to the future, we can expect the world of digital identities to evolve towards decentralized management based on blockchain technology, but instead of just paying attention to the technology that will be used we should be concerned with the model of provision of those same identities. In the physical world, for example, an identity is always associated with a citizen and, as such, the management of that identity belongs to the state/government of that citizen. There are then several ways of verifying this identity, some physical and others digital. I am of the opinion that the model for digital identities should be exactly the same. The management itself should belong to the States / governments of each citizen, such as the Digital Mobile Key in Portugal or the eID in Estonia, leaving it up to companies to create platforms for verification of these identities.

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This article is part of Nova SBE Digital Experience Lab's annual cycle of reflection on technology, business, and sustainability. To receive more news about the events and articles that the Digital Experience Lab is organizing, subscribe to our monthly newsletter.

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Published in 
18/11/2022
 in the area of 
Digital & Technology

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