In preparation for IDology’s 7th Annual Fraud Report, we’ve been sorting through a large amount of data. Here’s one of the most interesting statistics to come from our research: Ninety-six percent (96%) of companies that responded to our survey indicated that identity verification can be a strategic differentiator. More companies in the US are competing to provide a fast, easy onboarding experience for their users while simultaneously mitigating fraud. To bring this into a broader global context, a recent report from the McKinsey Global Institute (MGI) adds that superior identity verification (IDV) can be a strategic macro goal to unlock economic value worldwide.
To be considered “good,” an identity must be unique, digitally verified and authenticated, configured with the user’s knowledge, and allow user access to personal data while maintaining security.
MGI reports that nearly 1 billion people lack a legally recognized form of identification. Furthermore, for the remaining 6.6 billion people who possess a form of identification, only half can use it to gain access to today’s digital ecosystems.
The MGI report acknowledges that the use of digital identities varies by country. Consequently, certain countries have more to gain than others from the adoption of digital identities. Assuming high usage rates of digital identities, the report authors predict an average 3% increase in gross domestic product for advanced economies and 13% for developing economies.
When it comes to consumers, the MGI report notes that digital identities can help accomplish the following:
- Streamline registration and authentication
- Secure digital payments
- Facilitate e-know-your-customer (e-KYC) for financial services
From a broader corporate standpoint, the most significant sources of value associated with the widespread use of digital identities include:
- Time and cost savings. High-assurance identities, which the report defines as digital IDs that meet both government and private-sector institutions’ standards for initial registration and subsequent acceptance for a multitude of uses, could reduce the costs of the customer onboarding process by as much as 90% and reduce the time to complete the process to minutes or, in some cases, seconds. IDology’s most recent fraud report shows that balancing fraud prevention and customer friction is a significant concern—a number-one challenge for 66% of survey respondents, in fact—so streamlining the IDV process is important. Progressively higher levels of digital identity usage would also drive down the cost of offering digital services.
- Fraud prevention. Despite making significant improvements in their fraud defenses, companies the world over continue to experience large fraud losses. In fact, Javelin Strategy reported that new account fraud cost consumers $3.4 billion in 2018, a marked increase from the $3 billion in losses reported in 2017. Even in countries known for their advanced economies and steady technological innovation, there’s still room for improvement in how companies fight fraud. Digital identity verification has the potential to be an important part of those efforts.
- Increased sales of goods and services. Streamlined digital identity verification remains critical to the adoption of new products and services. Consumers often abandon financial applications due to difficulties they encounter during the registration process, with MGI reporting an abandonment rate of 25% for consumers in the United Kingdom. IDology’s Second Annual Consumer Digital Identity Study indicates a slightly higher abandonment rate: 37%, or approximately 83 million adult consumers. Therefore, any effort that increases the use of high-assurance identities can also help remove friction from the onboarding process and help capture new streams of revenue.
- Greater employment and labor productivity. Among other uses, digital identities can help streamline employee verification processes and facilitate contracts for nontraditional workers. Furthermore, in a tight labor market, a fast, simple employee verification process can help organizations fill open positions more quickly, resulting in higher productivity.
While the rates of identification usage vary by country, even in advanced economies such as the United States, consumers continue to encounter overly convoluted processes and technology designed to vet their identities. More broadly, with 1 billion people lacking identification, and billions more lacking the means to employ a digital identity, there’s still much for the public and private sector to address when it comes to digital identification and achieving inclusive growth on a global scale.
To learn more about the customer identification challenges fintech companies encounter on a global scale, download this study on the subject GBG commissioned from research firm Forrester.