The economic benefits from streamlining cross-border transactions are massive — and decentralized identity provides the digitally transformative infrastructure to do so.
By Trevor Butterworth and Tim Spring
According to the European central bank, global cross-border payments are expected to increase from 190 trillion USD in 2023 to 290 trillion USD by 2030 as global commerce becomes more digitally integrated.
Yet in practice, cross border payments are complex and difficult for businesses to execute and often punishing for individuals. Currency conversion rates, fees, and regulatory compliance all conspire to slow down and increase the cost of payments in real time; and for remittances — people sending money from one country to another (typically a foreign worker sending money to relatives) — these fees are brutal. According to the World Bank, the average cost of sending a remittance is 6.65% of the amount sent, rising to 8.37% for Sub-Saharan Africa.
As a recent World Bank report notes, “In more than 60 countries, remittances account for 3 percent or more of the Gross Domestic Product (GDP), and small/fragile states are more heavily dependent on remittances. As such, it is critical that both remittance senders and receivers have access to a multitude of payment methods and channels in order to deliver and receive remittances in an affordable and fast manner.”
Even a modest 1 percentage point reduction in fees, says the European Central Bank’s Fabio Panetta, “would leave those most in need with USD 6 billion in their pockets every year.”
Everyone’s looking for better solutions, with the goal of making cross border payments cheaper, faster, more flexible, and more secure. Here’s how we believe Decentralized identity and Verifiable Credentials can deliver those solutions, fast.
- Validating account ownership and status
Identity fraud is the specter haunting all financial transactions. The key benefit of a Verifiable Credential solution is cryptographic trust: If you trust the source of a Verifiable Credential, you can trust the contents, and immediately act on the data.
Verifiable Credentials enable people or organizations to hold data about themselves, such as the financial account data required to meet “know your customer” and AML requirements. Verifiable Credentials enable people to share and reuse that data in a way that doesn’t require checking in with the original issuer of the information or storing the same data in order to cross check it.
Authentication is seamless because the origin of the credential is instantly verifiable through cryptography. The information in a credential is digitally signed so that any alteration will be instantly detected. And the credential is bound to the person and their device and their digital wallet both by cryptography and biometrics so you can know that it is the rightful owner is presenting their information. The credential can also be programmed to expire or it can be revoked depending on whether its terms of use have been violated.
Verifiable Credentials are capable of delivering “government-grade” digital identities that can be bound to biometrics (see 4 below) and verified using simple software anywhere and at any time.
- Know Your Customer’s Biometrics (KYCB).
Biometrics are increasingly being incorporated into payments so that you can “pay with your face.” But the rapid rise of generative AI-driven biometric fraud threatens to derail confidence in conventional biometric authentication. Biometric theft represents a much higher existential risk to people than account or password theft. Similarly, the need to store personal biometric data in order to verify it represents a much higher privacy and security risk to all parties involved.
This is where Verifiable Credential technology comes to the rescue. By submitting an authenticated biometric template from a trusted credential provider while performing a liveness check, a relying party has a simple, reliable way to cross check that the person really is the face in front the camera — and without the relying party having to store any biometric data or change their biometric infrastructure.
This “bring your own validated biometrics” approach is driving seamless digital travel, enabling people to seamlessly cross borders. This kind of “government-grade” digital identity is ideal for payments, domestic and international.
- Cross-border technical interoperability
Decentralized identity both simplifies the architecture and workflows for sharing data. The first is accomplished by eliminating the need for direct integrations. If you trust the issuer of a credential (Bank A), you can trust the information in the credential, and connect the verifying software to internal systems through an API. This makes data portable and immediately actionable.
Second, it is easy to establish governance rules for how information in a credential is processed. This is because a) there’s a global specification for these governance rules, and b) the rules are encoded in machine-readable files propagated to issuers, holders, and verifiers alike.
In other words, a governance authority can publish a list of trusted credential issuers in a file and send it to every organization with verifying software. A merchant in a village with a mobile verifier on their phone is able to immediately authenticate whether a credential presented has come from a trusted organization. The file can be rapidly updated and, as it is cached, it can be configured to handle offline verification.
While the technical complexities of cross border transactions are not to be underestimated, decentralized identity — and specifically, decentralized ecosystem governance — can radically simplify workflows needed to deliver efficient, cost-effective real-time payments.
- Seamless, connected experiences
When you combine Verifiable Credentials with a powerful communications protocol such as DIDComm (Decentralized Identifier Communications), you get even more flexibility. DIDComm enables two powerful features.
First, it is the engine that enables parties to mutually authenticate each other before exchanging any data.
The second is that it allows a mobile device to operate as if it had a very powerful API for data exchange, one that is much more secure than any conventional API. This is groundbreaking, as the inability (for a variety of technical reasons) of mobile phones to use APIs has limited their functionality.
When these two features combine, we have a very powerful way to integrate services in a seamless, secure way. For example, a fintech AI could be permissioned to access and analyze account data in real time.
But the point is that it makes it easy to permission and process any kind of complex workflow between parties; it turns digital wallets and their owners into verifiable data platforms.
- Platformless infrastructural transformation
Verifiable Credentials are not a platform. They are not stand-alone systems that replace existing infrastructure; they are, rather, a set of tools you drop into existing systems. Just as a catalytic converter renders harmful emissions less harmful, Verifiable Credentials make the digital data you already have verifiable, portable, private, and secure — and they do so without this data being stored or controlled by the tech developer.
This is critical for data privacy compliance, transparency, and trust. It is the key to why decentralized identity can scale to, and interoperate as, cost-effective global digital infrastructure accessible to all.
The challenge
The travel sector is rapidly transitioning to decentralized identity and “government-grade” digital identities in order to deliver streamlined and more secure customer experiences as global air passenger numbers are set to double in the near future. Airlines and airports get it.
For finance, the challenge is first, to understand how powerful this technology is and how easily it can be deployed to manage the complex tangle of regulatory and technical challenges across multiple stakeholders; second, to then make the policy decisions to allow implementation.
In this, the technology is, in many ways, the easy bit; it’s the talking and coordinating that’s hard.
But there is an incentive for everyone to align around: reducing the cost of cross border remittances are a Sustainable Development Goal (SDG10) — and the clock is ticking on 2030. The savings are considerable; the impact of these savings, life transforming. The time to implement Verifiable Credentials has never been better.
We can do it; we can do it quickly. Contact the Indicio team to get started here.
