Banks and financial services institutions have opportunities to manage digital identities in the metaverse, and possibly take advantage of modern cryptography to do so. However, they must ensure that they are prepared to manage the risks that come with adopting any new technology.
An effective way to implement a general-purpose digital identity without which the metaverse cannot function has yet to emerge. This is the currently missing element in the equation, said digital financial services consultant David JW Burch, who was speaking at the Huawei Smart Finance 2022 Summit held this week in Singapore.
Quoting Finance In the Times’ definition, Birch said the metaverse is a set of shared virtual worlds in which people can navigate their digital assets and digital identity – or “economic avatars,” as virtual reality specialist Jaron Lanier has coined it.
While physical objects can be redirected – via tokens – and exist in virtual worlds, an efficient way to manage social identities and credentials is needed.
Birch notes that there is no universal digital identity It was recognized no matter where the individual was. Pointing to banks as potential players that could lead in this field, he said that these financial services institutions already have expertise in know-your-customer (KYC) processes. They are adopted by banks around the world to verify a customer’s identity and transactions as well as assess the risks of illegal practices, such as money laundering,
With their experience in KYC, financial services institutions can apply modern coding To bridge the digital identity gap. Based in the UK, Birch is also an investment partner in 1414 Ventures, a US-based fund that invests in early-stage startups in the digital identity market.
He added that winning Strategy in Metaverse It will also include digital wallets, which he said are central to three major components in the metaverse – virtual worlds, Web 3.0, and digital identity.
With wallets now containing mostly identity and credential data, those had to move into the virtual space to support the metaverse. He said that being part of the digital wallet ecosystem would be an important strategy for banks.
He noted that financial services institutions, backed by a solid reputation in the physical realm, would have the advantage of differentiation to facilitate this.
Digitization carries multiple risks
However, the involvement of any new technology came with potential challenges that banks would have to manage.
Speaking at the summit, Vincent Lowe, assistant managing director of technology at the Monetary Authority of Singapore (MAS), said the adoption of emerging technology came with a measure of uncertainty and an opportunity that it would not work as expected.
Lowe said financial services institutions needed time to understand the technology and ensure they could handle the risks that come with it, noting that this was among the main risks he was concerned about as an industry regulator.
He said early adopters were usually the first to encounter design flaws and other unexpected implementation challenges. While this did not mean that banks should not be innovative and take advantage of new technology, it did emphasize the need to be able to mitigate potential risks.
He also referred to legacy regulations as another area that poses serious risks to the sector. These systems support critical workloads but are costly to maintain, he said, adding that they also lack documentation and carry unknown vulnerabilities. Additionally, they were dependent on employees who might not be with the organization in the future.
Third Party Attacksin particular, in connection with the use of financial services institutions open source software Open standards have increased, he said, noting that it was neither economically feasible nor realistic for these organizations to use only internal products and services.
Besides the benefits it offers, the adoption of cloud services has also come with potential risks that must be managed.
He urged financial services institutions to be keen on managing the technological risks that come with digitization, as they navigate a complex and fast-moving external environment,
He also stressed the need for organizations in both the financial services and technology sectors to engage with regulators to better understand different challenges and come up with 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 has identified key challenges the industry will need to address, including the ability to process massive amounts of data in real time, deliver an “end-to-end” user experience, and manage complex networks and multi-cloud environments.
Jason Kao, CEO of Huawei’s Global Digital Finance, said the vendor is looking to facilitate this by enabling its customers in the sector to build “smarter, greener finance based on better communications, stronger intelligence, and more scenarios.” These include providing converged data platforms, customer interaction applications, and hybrid and multi-cloud architectures to facilitate management across the cloud and offer more flexibility, Kao said.