Credit unions adopt blockchain as the first step for digital ID
There are many contenders working towards developing a universal digital ID system and away from static passwords. A group of credit unions is ready to see if its blockchain-based approach can serve a wider market.
CULedger on Jan 18 is scheduled to demonstrate MyCUID with a more general public rollout scheduled for the second half of 2019. CULedger has been testing the system with a half dozen member credit unions' internal staff. Friday's demonstration will be be public, and plays a role in CULedger's attempt to build participation in its ID initiative.
MyCUID uses distributed ledger technology that allows credit unions to detect fraud and support self-sovereign identity, or a decentralized user-controlled authentication that can enable access to apps, programs, buildings, triggers for financial transactions, and other uses.
“We’re taking a siloed model of identity and flipping it upside down,” said Julie Esser, chief engagement officer at CULedger, who contends the static and top-down nature of passwords has contributed to the abundance of data breaches over the past few years.
Distributed ledgers traditionally underpinned cryptocurrency, though the technology has evolved to much broader use to execute cross-border payments and manage security risk. CULedger hopes the mainstreaming of distributed ledgers will make the the technology more amenable to digital ID strategies, where it has already picked up early momentum.
Beyond general authentication, CULedger hopes to use MyCUID to create a smooth experience for data exchange, risk management, the smart contracts that automatically perform transactions when certain conditions are met, the execution of financial services, AML and other regulatory compliance, payments and myriad other functions.
At launch, MyCUID has 39 investors, 27 of which are credit unions; the others are mostly credit union service organizations and credit union-related associations. That makes the total number of credit unions involved about 50.
The addressable global market is much larger, with a potential network of 89,000 credit unions globally with 260 million members. CULedger is paying particular attention to cross-border payments, which already use distributed ledgers to remove third parties such as correspondent banks from payment processing, in building MyCUID.
Making the addressable market tangible is key for CULedger. These credit unions will have to participate in the ID project, which will include a fee structure that has yet to be determined.
And CULedger hopes to use that huge base, when and if it does participate, to attract other partners, enabling the ID to be transferable outside of credit unions. The idea behind digital ID is to create a single point of authentication for users that can open doors well beyond their bank or financial institution.
There are literally hundreds of sovereign identity projects underway globally, so bringing a track record of success and a large cross-border user base will be key. The marketplace for identity innovation is large and the need is generally agreed upon, but the parties behind most of the large projects bring their existing proprietary goals with them.
"We’re seeing a number of experiments with federated identity management — some blockchain based, some not, some production-ready, some still conceptual — and with good reason, since identity verification and authentication is a big issue in this day and age of rampant data breaches," said Julie Conroy, a research director at Aite.
Since credit unions are nonprofit, a large network of institutions can play a role in attracting partners. And for the credit unions, a digital ID system is of little use it it can't be used in a lot of places.
“Scale is a big thing,” Esser said. “Usability is another. Members have to be able to use this outside of credit unions, so we’re talking to a lot of verticals.”
The biggest Achilles heel in most of the digital identity projects thus far is they require consumers to actively opt in and enroll, according to Conroy. "While consumers give lip service to worrying about security, in practice we see that few are willing to substantially change behavior patterns to mitigate their risk," Conroy said.