When you open a bank account, you hand over your passport, driver’s licence, proof of address, and sometimes even your face on camera. So when governments announce plans for digital ID systems, it’s natural to think: “But my bank already does this — isn’t it the same thing?”
Not quite.
Although both processes involve identity verification, the ownership, purpose, and control of the data differ fundamentally. Let’s unpack how banks onboard customers today, how a government digital ID system would change that, and what happens to your personal data in each model.
How Banks Onboard Customers and Verify Identity
Step 1: Application
You start by applying online, through a mobile app, or in-branch. The bank collects your basic details — name, contact information, and sometimes an initial deposit.
Step 2: Identity Collection
The bank requests your identifying attributes and documents:
- Full name, date of birth, and address
- Government ID (passport, driver’s licence, national ID)
- Tax file or Social Security Number (SSN)
- Proof of address (utility bill, lease, or statement)
- Sometimes a selfie or short video for biometric verification
These are stored in the bank’s onboarding system, tagged to your application record.
Step 3: Identity Proofing (KYC and CDD)
Every bank must perform Know Your Customer (KYC) and Customer Due Diligence (CDD) checks. These involve verifying your ID and assessing risk before allowing you to transact.
Typical checks include:
- Document verification: checking if your ID is genuine, valid, and unaltered.
- Face matching: comparing your selfie to your ID photo.
- Sanctions and PEP screening: ensuring you’re not on restricted lists.
- Address validation: cross-referencing with data providers.
- Fraud and liveness tests: ensuring it’s a real person, not a spoof.
Some banks do this internally, while others outsource it to third-party verification providers like Onfido, Jumio, or IDnow. If anything looks suspicious, the case goes to a human reviewer for manual verification.
Step 4: Risk Scoring and Enhanced Due Diligence
The bank’s system automatically scores your risk level based on:
- Country of residence
- Type of account or product
- Transaction expectations
- Source of funds
- PEP or sanctions status
High-risk cases undergo additional checks or require further documentation.
Step 5: Account Creation
Once verification passes, the bank creates a core customer record with a unique internal ID. A secure login is issued or chosen by the user — typically a username or email, linked to a hashed password and multi-factor authentication (MFA) setup.
Step 6: Multi-Factor Authentication (MFA)
Banks enforce two-factor authentication to protect your account:
- SMS codes (still common but weaker)
- Authenticator apps (TOTP)
- Push notifications through the banking app
- Hardware tokens (FIDO2/WebAuthn)
- Biometric login (fingerprint or facial recognition)
The goal: strong, user-friendly security without unnecessary friction.
Step 7: Ongoing Monitoring
Even after onboarding, your account is continuously monitored for suspicious activity:
- Real-time AML (Anti-Money Laundering) transaction checks
- Behavioural and device fingerprinting
- Sanctions list updates and re-KYC triggers
If anomalies arise, the account may be frozen pending review.
What’s Stored in the Bank’s System
Banks keep structured identity and verification data in several linked databases. Common fields include:
Customer Table
- Customer ID (UUID)
- Legal and preferred name
- Date of birth, nationality, tax ID
- Address, email, phone
Identity Documents Table
- Document type, number, issuing country
- OCR data, image reference (encrypted)
- Verification provider, status, timestamp
Verification Table
- Risk score, KYC level, sanctions/PEP flags
- Verification method and reviewer notes
Authentication Table
- Username/email
- Password hash (bcrypt or Argon2)
- MFA methods
- Device fingerprints, login logs
Audit Logs
- Every access or change to PII is logged for compliance.
Security
- Data is encrypted in transit (TLS) and at rest (AES-256).
- Access is restricted through role-based controls and audits.
- Passwords are never stored in plain text — only salted hashes.
- Some banks tokenize ID numbers so only reference keys are visible internally.
Law Enforcement Requests and Oversight
Banks operate under strict legal frameworks. When law enforcement or government agencies request customer data, banks must:
- Verify the legitimacy of the order (subpoena, court order, regulator notice).
- Extract and disclose the relevant data.
- Maintain an audit trail of the request and release.
They can also be compelled to freeze or monitor accounts if a customer is under investigation. But — the bank, not the government, remains the data controller of your identity information.
Enter the Government Digital ID
Now let’s contrast that with a government digital ID model — an approach where identity verification and storage move from the private banking sector to a central public authority.
The Core Shift: Who Holds the Keys?
Under a government digital ID system, the government becomes the authoritative identity provider. It issues, verifies, and maintains a digital credential that individuals can use across multiple sectors — banking, healthcare, taxation, travel, and beyond.
Whereas today each bank verifies you separately, a digital ID creates a single reusable identity, verified once and accepted everywhere.
How a Digital ID System Works
- Government Enrollment
Citizens register directly with the government or authorized identity provider. They present official documents (passport, birth certificate, biometric scan). After verification, they’re issued a digital credential — usually stored in a digital wallet app or online identity portal. - Cryptographic Credentials
The digital ID is tied to a public/private key pair. It may include biometric protection (face, fingerprint). The credential can prove attributes (“over 18”, “Australian resident”) without revealing full details — using cryptographic proofs. - Banks as “Relying Parties”
When onboarding a customer, the bank doesn’t re-verify documents. Instead, it requests verification from the government digital ID system. The user consents via app or portal. The government sends back a signed assertion (like a JWT or verifiable credential). The bank trusts this signature as proof that the identity is verified. - Minimal Data Sharing
Only necessary data (e.g., name, DOB, address) is shared. Sensitive documents and biometrics stay within the government’s system. The bank keeps a verification token, timestamp, and “Level of Assurance” rating. - Authentication and Login
Instead of bank-specific passwords, users may log in via their digital ID using: government login redirect (e.g., myGovID, EU eIDAS wallet), mobile wallet authentication, or biometrics tied to the credential. MFA is handled by the digital ID framework itself. - Audit and Consent
Both government and bank record the verification event. The user’s consent and attributes shared are logged for compliance.
Examples Around the World
| Country | System | Integration Level |
|---|---|---|
| Australia | myGovID / Digital ID Bill 2024 | Federated login model, optional use for banks |
| European Union | EU Digital Identity Wallet (eIDAS 2.0) | Unified framework for all member states |
| UK | One Login for Government | Early stage; limited banking integration |
| Singapore | Singpass | Mature and widely used by banks |
| Canada | Verified.Me | Hybrid model with bank–government cooperation |
Benefits of Digital ID
- Single source of truth: verified once, reused anywhere.
- Faster onboarding: no repeated KYC checks across banks.
- Higher accuracy: reduces identity fraud and document tampering.
- Customer control: in theory, you choose when and with whom to share your data.
- Regulatory efficiency: consistent verification standards across industries.
Risks and Trade-offs
While convenient, digital IDs introduce new power dynamics.
- Centralized data: all identity verifications route through the state — creating a unified log of who you are, where you verified, and when.
- System dependency: if the government ID system fails or is compromised, access to services (including banking) could be disrupted.
- Surveillance potential: linking financial, health, and social data gives the state and private partners a complete view of individual behaviour.
- Security and liability: if the credential is compromised, who is responsible — the user, the bank, or the government?
- Reduced autonomy for institutions: banks become passive consumers of government identity data rather than independent verifiers.
What Banks Still Control in a Digital ID World
Even with government-issued credentials, banks still:
- Maintain account and transaction data.
- Conduct AML and fraud monitoring.
- Store verification receipts (timestamp, verification level, ID reference).
- Manage ongoing customer relationships and communications.
- Handle financial regulation under banking law.
But the identity verification layer — the process of proving you are who you say you are — shifts decisively toward government custody.
Is a Digital ID the Same as a Bank Collecting Your ID?
At first glance, yes — both involve showing your identity and being verified. But under the hood, the models are entirely different.
| Aspect | Bank ID Collection | Government Digital ID |
|---|---|---|
| Who verifies? | The bank or its third-party provider | The government or accredited issuer |
| Who stores the data? | The bank (encrypted internal system) | The government (central or federated system) |
| Where is it used? | Only at that bank | Reusable across many sectors |
| Who controls access? | The bank controls its database | The government controls issuance and access |
| Privacy model | Multiple private silos | Centralized but federated model |
| Law enforcement access | Case-by-case bank disclosure | Direct or automated access through government systems |
| Risk of linkage | Low (separate databases) | High (central identity key links everything) |
A Shift from Distributed Trust to Centralized Trust
The current system is distributed — thousands of banks, each holding fragments of verified identity. The digital ID vision is centralized or federated — one government-approved identity that everyone must trust.
In practical terms:
- Fewer onboarding steps, but more interconnection between your digital life.
- Easier for you — but also easier for institutions and authorities to coordinate data.
That’s why the shift is as much political and societal as it is technical.
Final Thoughts
Banks today already collect your ID, verify it, and secure it under strict regulation. A government digital ID, however, changes the architecture of trust itself. It moves verification — and by extension, authority — from private financial institutions to the state.
The trade-off is convenience for centralization.
If designed transparently, with user consent, decentralised verification logs, and strong privacy laws, digital IDs can simplify life and reduce fraud. But if implemented without robust safeguards, they can become a universal key linking your financial, medical, and personal data into a single system.
So the next time you hear “Digital ID is nothing new — banks already have your ID,” remember: it’s not about what is collected — it’s about who controls it, how it’s verified, and where it connects next.
