Wallets & Digital IDs: The New Bedrock for Financial Services

September 1, 2021

Wallets, much like the physical one in your pocket or purse represent how you will store digital assets in the future. They’re the gateway for transacting with systems that ultimately hold your value and allow you to spend what is yours. Just like opening your wallet today to see how much cash you have, your digital wallet should do the same.

Thinking about it as this basic function is critical. Although there exists much complexity underneath to communicate with blockchains a wallet should be secure, easy to use, and compliant with regulation. It’s the core interface for the world’s economy. Compared to today’s interfaces it should be the equivalent of logging into your bank’s mobile or web application.

This is why the world needs a standard blockchain wallet protocol or interface. As an open source platform it would allow financial institutions and FinTechs the core building block for providing a service. Brands could all build on a single tool their own differentiators through UX or user experience while simultaneously allowing their development teams the ability to pull in features only when ready or willing.

Following open source models, each brand building a new feature on the core platform would have the ability to contribute back to the core platform furthering the financial system’s pace of technology adoption. Regulatory bodies in this case can be an innovation boon as bounties or rewards for furthering the ecosystem can be awarded for new work. Because the work would be in a single codebase, regulatory bodies also have incentive for doing so as it reduces the complexity of auditing one off technologies.

Furthering the need of reducing regulatory complexity, the wallet is the tool that allows access to broader financial markets. Because of this, the regulators of the codebase would be in control of what assets are available for usage on a brand by brand basis. Although many assets may become available across all domains due to the open source support, this authority would ultimately allow brands the ability to prove regulatory compliance is in place before assets could be transacted on each interface.

However, once an asset is approved for the entire ecosystem the regulatory hurdle for accepting individual brands remains small as each brand is, again, utilizing the exact same way of accessing and storing assets. When new innovations in the industry are introduced as a new blockchain platform, all brands are then in the same boat when lobbying for the regulatory body to support its addition.

This effectively reduces the overhead of becoming a “bank account” to near zero operational overhead. As the blockchains platforms themselves are the “bank” FinTechs and legacy financial brands merely become a DevOps operation supporting the security aspects of accessing accounts globally. Customer support would center around people having access to the account.

Global Identity Management: A Government Digital Identity is Critical

Because of the architecture of blockchain, your account is available everywhere. A wallet’s brand may be your specific access point to the blockchain but every service also using the blockchain has access as well. No matter if you bank with Chase or Citi, you could sign in to either but have access to the same information if both wallets enabled support of said assets. This is why having a common identification is vital. It’s linked not only to each brand but the actual blockchain themselves.

The most likely scenario here for global identity comes in the form of your government ID as it’s the highest systematic form most people in the world identify with. It allows regulatory bodies to pinpoint all assets to a single person regardless of which brand’s financial products are in use.

This, too, would also be an open source product needed to be built and controlled by a regulatory body. It’s the key product that would allow for control and auditability of a user’s assets. Although a brand would control its own assets available, it would ultimately be this ID that controls the acceptance of a given user’s ability to hold an asset.

This is a boon for innovation as each asset’s ability to be tied to an ID would mean it has been vetted for compliance globally. Instead of brand’s individually seeking regulatory approval for each asset offered and having its own regulatory compliance structure, it would instead fall on the governing body. This furthers my above remarks on allowing brands to pull in only what they need and leaving the heavy work for industry lobbyists to support.

This opens the door for vast amounts of automation capabilities. Looking at tax filing a company such as TurboTax would use the government ID and instantly have access to all financial information. In the shorter term, they would be able to use their business logic on top of the information to allow taxes to be filed. However, in the longer term the same business logic or tax logic could become its own government software product. This would enable real-time tax reporting, returns and penalties. The same bounty structure could be applied allowing even more FinTech innovation to occur in its own iterative innovation process.

Plaid, a service many financial institutions use to link bank accounts, would also become obsolete in this model. As people become connected directly via blockchain, a government digital ID would tell brand’s services what information is available and connected to. There would no longer be a need for an intermediary such as this. However, they could reinvent themselves as being a managed service for the open source government ID. Brand’s would pay for their service which allows the digital ID to be tied to each brand’s services.

Looking, again, at a wallet as being a “bank account” the ID service would be how you would access said account. As a managed service provider Plaid would be responsible for each Brand’s log on to access accounts. The issue here is that much like when AWS or Google Cloud goes offline, so would the ability to access accounts. For smaller FinTechs not looking to build this capability themselves, Plaid would be a viable option. However, larger brands may wish to host the open source government ID service themselves to mitigate risks of downtime and own end to end consumer support around accessing accounts.