The case for an open loop identity system

Lessons for identity from real-time payments and mobile wallets

Ask anyone in the digital identity world, and invariably they will say that identifying someone to do a transaction is complicated. Anyone who thinks you can present a mobile wallet and bingo, you are verified to transact, is the equivalent of saying a swan glides but forgetting about the legs paddling away underneath. It is time to stop the pretence and talk about how the swan’s legs are a vital and integral part of an identity ecosystem.

The payments landscape offers a deep pool of knowledge that those of us designing the identity ecosystem can learn from. One of the lessons comes from the cashless payments model that hooks into everyday financial transactions, offering convenience, speed, and transparency so that cashless-by-default is now normalised in many parts of the world.

The rails of instant payments, Real-Time Payments or RTP, developed from disruptive events, including the pandemic and consumer behavioural changes. Moving parallel to these rails are mobile payment wallets. Both methodologies have significant upsides: RTP is the instant gratification of payments, while mobile wallets offer convenience encapsulated.

RTP is still a work in progress in some parts of the world; FedNowSM in the USA expects to launch its instant payments service in July 2023. However, initiatives such as UPI (Unified Payments Interface) in India and Pix in Brazil have been providing platforms for RTP since 2016 and 2020, respectively. In addition, standards such as ISO 20022 ensure that interoperability and cross-border transactions are supported.

Having it large with open loops and wallets

Importantly for our conversation, RTP can be a closed loop or an open loop. Open Loop RTP is interoperable across enrolled financial providers, whereas closed loop systems are tied to a single provider. Notably, for closed-loop systems, both ends of the transaction, i.e., the retailer and the consumer, need to have an account; with open-loop RTP, an account is optional.

Moving alongside these rails are the mobile wallets for payments. Mobile wallets for payments have had slow growth to date but are finding their feet in certain regions.

The takeaway from the RTP payment rails and the convenience of mobile wallets is that they are not mutually exclusive. Indeed, folks from PwC see RTP and mobile wallets as being symbiotic.

This last statement brings me to how an open-loop concept, alongside mobile wallets, is highly applicable and will empower the digital identity ecosystem.

The open loop identity ecosystem

The cashless society is analogous to virtual transactions of all sorts; this is especially true for the tasks we do that need identifying data. In the context of the open loop identity ecosystem, transactions do not need our actual identity; it is not our identity as such; instead, virtual evidence is required to complete a transaction. This virtual evidence, just like the analogue, payments, must be presented across various services, retailers, government portals, and so on. The potential for virtual identity presentation is as vast as the payments ecosystem.

Digital wallets in the identity arena are analogous to mobile payment wallets: the wallet contains verified information to allow people to present data to perform transactions. This transaction may be a payment, but it may also be a key to open a virtual door, such as I am over 18, so let me enter your online brewery.

Like the open loop RTP payment rails, a virtual identity transaction should have the option to be open. The technology needed to provide these open rails is analogous to the concept of RTP. And like a digital identity wallet, a virtual identity transaction should be convenient and under user control.

An open loop bridge is a better, more flexible way for consumers and citizens to bring the identity wallet to the ecosystem stakeholders via the person holding the wallet. This open ecosystem requires a ‘network layer to provide the rails needed to bridge the gap between data formats, protocols, and security, and that can connect each part of a complex identity ecosystem. The result is a powerful, interoperable, malleable, and extensible system that can deliver trusted transactions that don’t necessarily follow the money but that do follow the data.

What is an open loop identity network layer?

Vendors in the payments arena can teach the identity space a lot. They have discovered that interoperability and flexibility improve customer and retailer experiences. This same philosophy is behind the design of Avoco’s network layer. We took the design remit of the open loop payment rails and applied them to create an open loop identity network layer. The architecture of the open loop network layer is its secret sauce. This network layer can pull data and information from multiple sources, including verification services, banks, government data, open health data, and wallets (of all types) that can be used to provide verified or unverified data. Significantly, the behaviour of the system can be dynamically modified in line with and in response to these data sources. The open loop approach ensures that the transaction is based on the following:

• What data is chosen and from where? Or,
• If these data require augmentation using verification services or,
• If additional sources of data are needed to build up a comprehensive profile of the individual performing a transaction.

This uplift and augmentation are an empowering part of an open loop approach to an identity ecosystem and facilitates systems to work towards a wide variety of use cases, both internal enterprise and citizen and consumer use cases for identity-led services.

Watch this space for an announcement of a real-world case study.

Is an open loop system a way forward for citizenID?

Governments and vendors have tried for many years to deliver digital services for all by generating an identity that feels it can offer the weight of assurance governments need. However, citizen identity is arguably one of the most complicated identity systems to get right; the system must make all the people happy all the time. Static identities, such as wallets, have their place, but so do other identity services; add to this the need to protect identity data, sprinkle in some anti-fraud capability, a side order of verification and bingo, you have the potential for a Health Robinson-esque identity nightmare. But people need choices, and this ‘ecosystem in waiting’ must be serviced to provide those choices. This is where an open loop concept of identity fits within government.

The idea of an open loop identity network layer was birthed from the challenges of citizen ID undertaken by Avoco over several projects, including Verify. Folks such as Cheryl Stevens at DWP inspired us with the idea of a ‘pantry’ approach to attribute collection and presentation. The open loop model of identity provides governments with the flexibility needed to build relationships, not create static identity. An identity network based on the open loop identity concept can relieve onboarding headaches across government services, deliver multi-protocol support, ensure security and privacy, and provide the data needed to assure a transaction is OK to perform – all allowing for the myriad of user journeys and use cases that governments must handle.

If you’d like to know more about how you can deliver identity using an open loop network layer, contact us – details are on our home page