Banks and financial services institutions have the ability to manage digital identities in the metaverse, potentially leveraging modern cryptography to do so. However, they must ensure that they are prepared to manage the risks associated with the adoption of any new technology.
There is not yet an effective way to implement a general-purpose digital identity, without which the metaverse could not function. This is currently the missing ingredient in the equation, said digital financial services adviser David GW Birch, speaking at Huawei’s Intelligent Finance Summit 2022, held this week in Singapore.
Citing the definition of FinancialTimesDavid GW Birch said the metaverse was a set of shared virtual worlds that people could navigate through their digital assets and digital identities – or “economic avatars”, as the reality scientist put it. Virtual Jaron Lanier.
Manage identities
If physical objects can be reused – through tokens – and exist in virtual worlds, an effective way to manage identities and social references must be found.
David GW Birch saw the lack of a global digital identity that would be recognized wherever the individual is. He indicated that banks were potential players who could play a leading role in this area and that these financial services institutions already had experience with know-your-customer (KYC) processes. These processes are adopted by banks around the world to verify a customer’s identity and transactions, as well as to assess the risks of illegal practices, such as money laundering.
With their KYC expertise, financial services institutions could then apply modern cryptography to bridge the digital identity gap, he said. UK-based David GW Birch is also a partner at 1414 Ventures, a US-based fund that invests in early-stage start-ups in the digital identity market.
He added that a winning strategy in the metaverse would also include digital wallets, which he said are at the heart of three key elements of the metaverse: virtual worlds, Web 3.0 and digital identity.
As wallets now primarily contain identity-related data, they have moved into virtual space to support the metaverse. Being part of the digital wallet ecosystem would therefore be a key strategy for banks, he added. He noted that financial services institutions, backed by an established reputation in the physical realm, would have the distinctive trait to facilitate this.
Digitization carries multiple risks
With the involvement of any new technology, however, comes potential challenges that banks must manage. Speaking at the summit, Vincent Loy, Deputy Chief Technology Officer at the Monetary Authority of Singapore (MAS), said adopting emerging technology comes with some uncertainty and a risk that it will not work as expected.
Financial services institutions need time to understand the technology and ensure they can manage the risks that come with it, Vincent Loy said, noting that it was one of the main risks he was worried about. as a regulator of the sector.
Early adopters are usually the first to face design flaws and other unforeseen implementation challenges, he added. While that doesn’t mean banks shouldn’t be innovative and take advantage of new technologies, he stressed the need to be able to mitigate potential risks.
He also pointed to legacy systems as another area of serious risk to the industry. These systems support critical workloads but are expensive to maintain, he said, adding that they also lack documentation and have unknown vulnerabilities. Also, they depend on employees who may no longer be part of the organization in the future.
The cybersecurity challenge
Cybersecurity also remains a major challenge for the industry due to a growing attack surface, said Vincent Roy.
Third-party attacks, in particular, are of concern as financial services institutions increasingly use free software and open standards, he said, noting that it was neither economically viable nor realistic. for these organizations to use only internal products and services.
Along with the benefits it offers, adopting cloud services also comes with potential risks that need to be managed, he added.
He urged financial services institutions to be mindful of managing digitalization-related technology risks as they navigate a complex and rapidly changing external environment. He also highlighted the need for organizations in the financial services and technology sectors to engage with regulators to better understand the various challenges and imagine potential solutions.
At the summit, Huawei urged the financial sector to “rebuild its core competitiveness” as global markets undergo digital transformation and focus on sustainable development. To do so, the Chinese tech giant identified key challenges that the industry is expected to face, including the ability to process massive volumes of real-time data, deliver an “end-to-end” user experience, and manage complex networks and multi-cloud environments.
Jason Cao, Huawei’s general manager for global digital finance, said the vendor seeks to facilitate these challenges by enabling its industry customers to achieve “smarter, greener finance based on better connections, intelligence stronger and more scenarios”. It’s about delivering converged data platforms, customer engagement apps, and hybrid and multi-cloud architectures to make cross-cloud management easier and deliver more agility, Jason Cao said.
Source: ZDNet.com