Our senior associate of the IP, Tech and Data Group, Antonia Nudman, talked to El Mercurio newspaper about the importance and the need of having a digital identity for the financial sector in Chile, addressing possible implementation models.
Considered an essential enabler for the development of the country and its integration with the world, having a unified digital identification system is no longer an advantage but a necessity, especially for the implementation of the Open Finance System, which requires solid, auditable and reliable authentication mechanisms.
Last year, a public-private roundtable was formed to lay the groundwork for the development of a digital identity strategy.
The Digital Government Secretariat, in coordination with the Civil Registry, the Ministry of Economy and the Cybersecurity Agency, are working to make Chile one of the regional leaders in this area by 2030.
On July 3, it will be a year since Law 21.678 was published in the Official Gazette, which establishes Internet access as a public telecommunications service, and seeks to provide the State with the tools and powers to guarantee digital connectivity as a basic right for all citizens.
On the other hand, there is high expectation in the market for the publication of Annex No. 3 of the general regulation that will govern the Open Finance System (SFA), contained in Title III of the Fintech Law (21,521), which will provide the technical specifications necessary for the operation of the SFA in terms of the development of APIs (interfaces), security, infrastructure and user experience, among others.
However, in order to carry out its task with greater reliability, a final link is missing in both areas: digital identity. In Chile, the different actors recognize that this is a key issue, but at the same time it is a recent phenomenon for most countries.
Digital identity seeks to implement a secure system so that citizens can manage and share their personal data and digital documents in a controlled manner, avoiding impersonation, fraud and theft.
There are multiple ways to advance in the architecture of a digital identity, but its main characteristics are ‘that it must be robust, guarantee legal certainty and allow traceability. We are digital citizens, we need a new medium that allows us to recognize ourselves as human, that is, to differentiate ourselves from artificial intelligence (AI) and, then, to know by age ranges what we can access’, says Senator Kenneth Pugh.
Having a digital identity is ‘an essential enabler for the development and growth of Chile and its integration with the rest of the countries’, says José Inostroza, director of the Digital Government Secretariat of the Ministry of Finance (SGD).
Public-private roundtable
Inostroza says that during the past year, the government led a public-private roundtable made up of experts from industry, academia, civil society and the public sector, with the aim of developing a digital identity strategy. Essentially, it was agreed that the SGD should advance in a leading role, in coordination with the Civil Registry, the Ministry of Economy and the National Cybersecurity Agency (ANCI), so that Chile can become one of the regional leaders in this area by 2030.
In the immediate future, he adds, the focus should be on the reliability and security of digital identity systems. However, ‘Chile currently has a National Cybersecurity Agency, and soon a personal data agency, which will contribute to generate solid security standards and conditions in the country’, he stresses.
Claudio Ordóñez, director of Cybersecurity at PwC Chile, emphasizes that the digital identity model has to ‘comply with personal data protection standards, as well as the authorization in the use of data. This allows to avoid frauds, by having a better identification of people’.
At the level of the companies in the sector, there is consensus that this issue cannot be handled separately between the State and the private sector. For Fernando Araya, CEO and co-founder of Tenpo, ‘this is not a political cause or an initiative that should be divided between the public and private sectors. To see it that way would be a mistake. The objective is clear and shared: to protect people, reduce fraud and identity theft, and allow everyone, when interacting with both the State and private institutions, to have more secure and reliable mechanisms’.
Financial benefits
Currently, in the financial sector, each institution manages the digital identity of its customers. Although financial portability exists, it does not function as a digital identity system.
Therefore, Antonia Nudman, senior associate of Albagli Zaliasnik’s IP, Tech and Data Group, states that ‘having a digital identity in Chile is no longer an advantage but has become a necessity, especially for the financial sector. International regulations now demand solid, auditable and reliable authentication mechanisms’.
We are talking about a tool that speeds up financial inclusion, reduces the operational cost of the banking system and enables more efficient business models in the traditional industry (banking) and in the emerging industry (fintechs),’ explains Nicolás Deino, executive director for the Financial Industry at Accenture Chile.
In his opinion, ‘an ecosystem with a single digital identity allows scaling financial services with greater precision, reducing the risk of fraud and generating trust in highly regulated environments. This translates into operational efficiency and new revenue streams for banks, fintechs and insurers, allowing for an improved user experience’.
In fact, Araya elaborates that the Fintech Law fosters competition and financial innovation and its proper functioning requires, for example, identifying customers in a secure and reliable way, as well as complying with obligations to prevent money laundering and terrorist financing. All of which, under updated regulations, would ensure the same standard of security for all industry participants.
Senator Pugh goes further. He argues that before the Fintech Act, which contains the Open Finance System, goes fully into effect, ‘digital identity has to be in place, and that is an issue we need to agree on and, if necessary, adjust the dates to have a robust digital identity’.
The most challenging thing, says Inostroza, ‘is that the establishment of a robust digital identity system gives much more confidence to companies and clients in the financial sector. Without going any further, the Financial Market Commission, the Association of Banks and Financial Institutions and the Financial Retail Association were very active voices in the elaboration of the digital identity strategy’, he says.
Benchmarks to watch
When it comes to recommending which is the best model to follow in Chile, experts warn that there is not much diversity in the world, but there are some advanced areas and countries, such as the European Union, Australia, Canada, Estonia and Brazil.
Senator Pugh believes that Chile should follow a robust digital identity system with multiple authentication factors, where it is decided whether to have a centralized or distributed digital identity. In the former, it is the government that provides all citizens with a digital identity and, in the latter, there is a private body that operates a digital wallet, allowing citizens to access public and private services online.
Nudman says that the construction of a solid digital identity for financial uses can follow different models. A centralized one, as proposed by the senator, where the State (through the Civil Registry and the SGD) issues and manages the credentials completely. A decentralized one, in which private actors issue the credentials and third parties verify them. And a hybrid form, where the State acts as a verifier or intermediary between the one who issues the identity and the one who validates it.
Meanwhile, Deino bets on ‘moving forward with a hybrid model, which combines state robustness with the scalability of the private world, as Canada does with solutions such as Org Book. The key is to design an identity that is useful for businesses, secure for citizens and flexible to integrate into a rapidly evolving financial system’.
For Ordóñez, ‘the best practice is to build it from the physical identity you already have. In Chile, the identity card is an instrument used and valid in most public and private services. This, together with the Clave Única, can be the basis on which to add attributes so that the digital identity is a better way to identify citizens’.
A robust system that protects people, reduces fraud and identity theft and allows interaction with both the State and private institutions must be achieved.
Although there are not many models to follow in the world, the systems applied in the European Union, Australia, Canada, Estonia and Brazil stand out.
