4 Criteria for Great vLEI Use Cases
Authors: Yanisa Sunanchaiyakarn & Nuttawut Kongsuwan, Finema Co. Ltd.
As we enter the era of generative AI, the risk of identity theft for both individuals and organizations is escalating. A recent case in Hong Kong highlights this threat, where an office was deceived into transferring $25 million after a video call with a deepfake CFO and colleagues. As advances in AI erode trust, it becomes apparent that a robust digital identity solution for organizations is urgently needed.
In the past few years, the verifiable Legal Entity Identifier (vLEI) framework has emerged as one of the most promising solutions to this global crisis. The vLEI framework offers one of the most secure and trustworthy digital organization identity management to date and potentially revolutionizes digital business transactions worldwide.
Since vLEI is also still in its infancy, there is a significant challenge for the community to overcome its adoption hurdle. In this article, we propose 4 pragmatic criteria for identifying fair, good, and great use cases for vLEI from the adoptability perspective. These criteria are by no means rigid rules set in stone but serve as a useful mental model for pioneers and early adopters exploring vLEI use cases.
The 4 Criteria
We have identified 4 criteria for good and great vLEI use cases:
- Use cases that involve organization-to-organization transactions
- Use cases that involve cross-border transactions
- Use cases that are highly regulated
- Use cases that have open ecosystems
1. Org-to-Org
The first criterion for viable vLEI use cases is that they involve organization-to-organization (Org-to-Org) transactions. This includes business-to-business (B2B), business-to-government (B2G), and government-to-government (G2G) use cases. This is because org-to-org transactions often involve significant monetary value, which far outweighs the initial friction associated with adopting vLEI.
2. Cross-Border
Cross-border transactions often face challenges in identifying and verifying clients, suppliers, or partners across different countries, leading to significant perceived risks. The vLEI framework is ideal for addressing these challenges as it is specifically designed for international use. It can potentially streamline the cross-border identification and verification processes, mitigating risks and improving efficiency.
3. Highly Regulated
Highly regulated use cases are subject to strict requirements and standards, where non-compliance can result in severe penalties or legal consequences. As a result, these use cases often require extensive due diligence of business partners, including Know Your Customer (KYC), Anti-Money Laundering (AML), and Countering the Financing of Terrorism (CFT) checks.
The process of obtaining vLEI for organizations and their representatives involves robust identity verification that is more stringent than those often conducted in the financial sector. As a result, vLEI, which is built on the global LEI system, can help streamline the due diligence process, significantly reducing compliance costs.
4. Open Ecosystems
The final criterion for viable vLEI use cases is that they operate within open ecosystems, allowing the addition of organizations whose identities are not known in advance. Onboarding a new organization to the ecosystem often incurs significant cost, time, and effort. vLEI allows these onboarding costs to be offloaded to a third party, specifically a qualified vLEI issuer (QVI), which ensures that the organization and its representatives have undergone strict identity verification.
Fair, Good, and Great Use Cases
Great Use Cases
Great use cases are those that satisfy all 4 criteria, making them ideal candidates that could benefit from integrating vLEI into their workflows.
A prime example of a great use case is trade finance. It typically involves organizations (criterion 1) which are often located in different countries (criterion 2). Trade finance is also highly regulated, with financiers subject to AML and CFT requirements (criterion 3). The trade finance ecosystem is open, allowing any company worldwide to initiate trades and apply for, e.g., a letter of credit (criterion 4).
Good Use Cases
Good use cases are those that satisfy 3 out of the 4 criteria. We consider these use cases worth pursuing.
An example of a good use case is the financial reporting of banking institutions in Europe to the European Banking Authority (EBA). This exemplifies a B2G scenario (criterion 1), encompassing banks across multiple European countries (criterion 2) that operate within a highly regulated environment (criterion 3). What makes this use case simply good rather than great in our criteria is that European banks are already known entities within the closed ecosystem supervised by the EBA.
Fair Use Cases
Fair use cases are those that satisfy two or fewer criteria. While they may be a feasible use case for vLEI, we consider them a low-potential candidate. We argue that fair use cases will become viable once vLEI has achieved widespread adoption. For instance, organizations that already possess vLEI for stronger use cases might contemplate applying it to these fair use cases.
An example of a use case we consider “fair” for vLEI is an HR platform. Such a platform is used internally between employers and employees (not org-to-org) and is also not highly regulated. Typically, employees and employers have alternative means to verify each other, diminishing the necessity for vLEI in this context.
Conclusion
While vLEI holds significant potential to transform global business operations, it currently faces a challenge known as the “cold start problem,” where there are not enough holders and use cases to foster exponential growth in the ecosystem. Pioneers and early adopters are encouraged to prioritize exploring high-potential use cases.
Do you agree with our criteria? Are there additional criteria we should consider adding to the list? We welcome your feedback and invite you to contact us at contact@enauthn.id.
