Credit unions' distributed ledger evolves into a platform

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Credit unions are working to turn a distributed ledger-based identity project into a platform for payments and financial services.

CULedger, which has existed for about a year, had its first board meeting last week and is on path to launch a digital ID system by early next year, followed by payments, lending and other financial services. CULedger is working on the same sort of system as the bank-led R3 distributed ledger and Ripple. These organizations use a form of the technology that supports cryptocurrency to decentralize everything from stock trades to remittances to international e-commerce payments, cutting out fee-extracting third parties such as correspondent banks.

The difference with CULedger is credit unions have always operated like a blockchain — the distributed ledger technology developed for bitcoin — even before anyone knew what that meant. It hopes that the credit union culture will help it avoid the complications and slow pace of bank-led distributed ledger projects.

That culture takes much of the complexity out of a broad project, contends Julie Esser, chief engagement officer of CULedger. "We don't have banks fighting for their special interests; we come at it as an entire industry," Esser said.

As nonprofits, credit union customers can often use branches of other credit unions; and they share technology through credit union service organizations. Banks sometimes enter collaborative agreements, such as the Zelle payments app, to simplify processing and interoperability, but cooperation is much more in the DNA of the credit union industry.

CULedger's first major project is MyCUID, an identity management system designed to give consumers more control over identity protection.

CULedger, which is working on several proofs-of-concept for its identity and transaction system, is on pace to pre-sign 1 million members by the end of the year with a full deployment in 2019. CULedger has a total of 32 credit unions and investors, and has partnered with Mountain West Credit Union Association, Credit Union National Association and Big Innovation Group. The addressable market for the group is about 230 million credit union consumers globally, according to the World Council of Credit Unions.

"The identity in our system is self-sovereign. It's not an identity that a consumer gives to an organization, with the consumer not knowing what happens to that ID once he or she presents it," Esser said.

This distributed ledger-powered identity will support myriad payment types, such as P2P, e-commerce, cross-border payments and recurring transactions that are decentralized over CULedger's distributed ledger. CULedger is not interested in cryptocurrencies, but will instead use a permissioned ledger. Other initiatives, such as R3, also use permissioned ledgers, which differ from the public ledgers that support bitcoin and other cryptocurrencies.

To reflect its focus CULedger went as far as to change its name — it was once called CUBlockchain. The change is meant to indicate a broader purpose. "We're not doing to allow just anyone to participate," Esser said.

Distributed ledgers are emerging as an alternative to a password-driven identity system because the decentralized structure of the distributed ledger makes it easier to locate tampering. In addition to bypassing third parties to process transactions, this also could increase confidence in digital payments.

"Identity assertion and authentication is actually a solid, valuable case for blockchain technology," said Avivah Litan, a vice president at Gartner. Digital identity and access services are siloed, forcing service providers to hoard user information — a habit that could lead to data breaches and privacy issues, she added.

Blockchain enables users to self-provision identity records and manage their own identity and privacy, Litan said.

"This design keeps data private and out of central data repositories where data can be breached and stolen," she said.

Litan said technology and authentication managers should experiment with blockchain-based self-provisioned decentralized identity services that keep end-user data private in order to reduce enterprise exposure to personally identifiable information and potential data breaches.

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