BY JULIE ESSER
chief engagement officer of CULedger
Credit unions have long held the position of promoting social change through responsible financial services. As the financial industry becomes more globalized, credit unions have an opportunity to expand their horizons and play an important role in creating products and services that have a global impact. Every time a person or object connects to the digital world, they contribute to the explosive growth of a new shared global environment. These opportunities and benefits from new digital tools, data and infrastructures also usher in new challenges. One of the important questions society must ask itself is how to manage a digital global environment. In order to create a sustainable, inclusive and trustworthy digital world, credit unions have an important role in helping to achieve six key global outcomes. Those outcomes are access and adoption; responsible digital transformation; fit for purpose, informed governance; secure and resilient people, processes and practices; user-centric, interoperable digital identities and, finally, trustworthy data innovation.
Access and adoption
One of the first global outcomes credit unions should have a part in achieving is global access and adoption of mobile or internet-based devices, so that all people can access and use the internet. At the moment, as much as 45 percent of the global population does not have access to the internet. In order to create a true global digital environment, this world internet penetration rate must rise significantly. One factor that could prove promising in increasing this rate is the fact that smartphone usage is high, and continues to climb. According to TechCrunch, currently, there are 6.1 billion smartphones in use, and could quickly overtake the current global population of 7.6 billion.
For credit unions and participants in the credit union industry, it is crucial to use and create tools for a wide variety of channels so that members have important account functionality wherever they go. Members have expressed a growing demand for greater account access and more functionality across different devices, particularly mobile. Credit unions have a significant role in this mission to improve access and adoption, particularly because creating better financial inclusion lies at the heart of credit unions’ purpose in the financial industry. Some of the ways credit unions can help accomplish this goal of better access are through improved online and digital offerings. Offering members the tools to open accounts online and online loan applications is an important first step. Improving online business banking offerings and mobile tools for both consumer and business members will also help. However, credit union adoption is only one side of this issue. Because of the role of eligibility and prequalification requirements for potential members, the industry limits the impact of credit unions’ adoption because of consumers’ lack of access in the first place. Know your customer requirements are particularly challenging to meet without the right forms of digital identity, which cannot come without global access to consumers. Creating a universal form of digital identity is an important next step after improving global internet access.
Responsible digital transformation
The next step in creating a digital world is to promote responsible digital transformation. This can be achieved when business, government and civil society leaders act responsibly and competently to usher in a sustainable digital transformation. As a part of this transformation, credit union leaders need to create the changes necessary to provide consumers access to their financial information wherever and whenever. Credit unions face internal challenges to this goal through the cost and ease of integration and adoption of new tools that promote increased access. They must also be sure to consider how to create this transformation responsibly, since new products and services must be self-sustaining to add value to members and the credit union. The second half of these challenges is external and relates to education around digital interactions. As much as possible, credit unions should help members feel safe and secure interacting across all channels through disclosures. Credit unions can also provide information on how members can protect themselves from dangerous online activity.
Fit for purpose, informed governance
In the pursuit of a true digital ecosystem, global, regional, national policies must be informed by evidence and well-equipped to deal with the transnational nature of digital connectivity. Currently, net neutrality is a major concern in this pursuit of transnational digital connectivity. Many experts have expressed a concern that the major providers in the internet industry have total control over access. These providers also have the ability to charge high premiums for higher speed, which means that the internet is no longer a level playing field. On the political side, consumers are rightly concerned that decision-makers are ill-informed. During hearings about the Cambridge Atlantica Facebook scandal, lawmakers asked questions that showed a distinct lack of understanding related to how the social media platform worked and the issue at hand. Consumers should be concerned, because if the governing bodies responsible for data privacy are uninformed, more scandals are likely to follow. When the demographics of governing bodies do not reflect the users of the same technology, consumers should take steps to change how emerging technology is regulated. Education related to new technology is also crucial for informed governance. Finally, if governing bodies intend to enforce regulations related to risk and data security, there should be an even playing field across industries. For example, the regulations for protecting personal identifiable information should be the same, whether the organization is a social media platform, a search engine, a bank, a credit union or a merchant.
Secure and resilient people, processes and practices-
Similar to the objective of cultivating informed bodies of government, in a digital world, all individuals, institutions and infrastructure will be resilient to vulnerabilities created by digital connectivity. The rapid pace of technological development is one of the largest sources of vulnerabilities, especially since regulatory efforts to reduce security risks have been slow to keep up. Additionally, hackers frequently outpace the security measures implemented in new types of technology. For example, as self-driving cars and smart home appliances become more prevalent, the manufacturers have become aware of the vulnerabilities inherent in these devices and build in security measures. Recently, studies have shown that off-the-shelf devices that include baby monitors, home security cameras, doorbells and thermostats were easily hacked by researchers testing their vulnerabilities. Consumers and credit unions must educate themselves about these security risks and remain aware of which devices are most vulnerable. It is important to note that incorruptible digital channels, such as distributed ledger solutions remain resilient to hackers.
User-centric, interoperable digital identities
In this ideal digital world, people can access and use inclusive, trusted digital identity regimes that enhance their social and economic well-being in a variety of ways. In particular, digital identity can further both social and economic well-being by providing a source of identification for previously undocumented individuals. More than two billion consumers do not have a relationship with a traditional financial institution of any kind, which credit unions should find extremely concerning. Without documented identities, people are unable to enter into a relationship with a financial institution. One billion of those consumers without a financial institution are unable to engage in traditional banking activities because they do not have a documented identity, such as a birth certificate, to establish that financial relationship. The solution to establishing these individuals’ identities in digital interactions is through self-sovereign forms of identification. Self-sovereign identity is a type of portable digital identity that is truly owned by the individual and can never be taken away. This form of identification does not depend on any central authority and is nearly impossible for hackers to steal or corrupt. In a situation in which a previously undocumented person is looking to establish an identity, a user can rely on socialized trust through the form of social verification or confirming an individual’s identity through their social contacts. Self-sovereign identity through distributed ledger technology can easily safeguard against impersonation fraud.
Trustworthy data innovation
As credit unions and members take their place in the digital global environment, they should strive to create a world in which individuals and institutions can share data in ways that create social and economic value while respecting the privacy of fellow digital citizens. In this digital world, individuals and organizations have come to value distributed ledger technology because of its ability to protect privacy and trust. With data stored in decentralized locations, it is invulnerable to corruption or hacking without perfectly executed, simultaneous breaches in more than half of a large number of distributed ledger nodes or hubs. As many organizations have painfully learned, when breaches occur, consumers quickly lose trust. For example, before the Cambridge Atlantica Facebook data breach, 77 percent of users with accounts trusted the social media platform; after the breach that number dropped to 24 percent. Because of credit unions’ strong brand association with trust, this community in particular should be concerned about protecting that reputation. Without a powerful means to safeguard that reputation, credit unions could easily lose the battle to megabanks. These large financial institutions have the advantage of large territories, competitive products and extensive security resources, such as vast compliance and fraud departments.
In this new global environment built on digital interactions, credit unions have an important role in developing the tools necessary for a robust digital identity infrastructure. These six qualities are ideals the industry should use as standards when participating in the ongoing digital transformation driving toward global digital identities. Credit unions can play a significant part in achieving each of these six objectives, whether offering more access to members through improved digital experiences from multiple types of devices, or offering education to members about how to protect their sensitive information through responsible digital interactions. Through digital innovations, the world is becoming a smaller place and members have the chance to interact globally, which ushers in new opportunities and risks. At the heart of these transformations, credit unions can remain at the forefront of this transformation by creating self-sovereign, universal digital identity solutions for members.
Julie Esser is chief engagement officer of CULedger, a CUSO that enables credit unions to enhance their digital strategy by bringing innovative distributed ledger applications to the market. For more information, please visit culedger.com.