According to MarketsandMarkets, the global digital identity solutions market value stood at $27.9 bln in 2022 and is expected to grow to $70.7 bln by 2027. This growth can be explained by the increasing digitalization of services, rising cybersecurity concerns, regulatory compliance requirements, user convenience, technological advancements, and global digital transformation initiatives.
Let’s figure out what digital identity is, what benefits these solutions bring to the financial sector, and how to implement them in fintech.
What is Digital Identity?
Digital identity refers to the electronic representation of a person or entity’s identity, which is used to establish trust and enable secure and seamless financial transactions in digital environments. Digital identity includes a combination of personal information, such as name, date of birth, address, and identification documents, such as passports, driver’s licenses, and government-issued IDs. The use of digital identity is expanding across various industries as businesses recognize the need for secure and reliable identification and authentication mechanisms in the digital era.
According to Forbes, e-commerce sales are predicted to increase by 10.4% in 2023. With the rise of online transactions, digital identity has become a critical component of financial services as it allows institutions to enhance security and provide seamless customer experiences. In Fintech, it can be used in a variety of ways, such as verifying the identity of customers when opening new accounts or making transactions, providing access to financial products and services, and preventing identity theft and other forms of fraud.
What Are Digital Identity Solutions?
Digital identity solutions typically encompass a combination of technologies, processes, and standards that work together to ensure the integrity, privacy, and security of digital identities. They include:
Biometric authentication
This involves using a person’s unique physical characteristics, such as fingerprints, facial recognition, and voice recognition, to verify their identity.
Multi-factor authentication (MFA)
This involves requiring users to provide two or more forms of identification, such as a password and a one-time code sent to their phone, to verify their identity.
Digital certificates
These are electronic credentials that are issued to individuals or organizations, verifying their identity and providing encryption for secure online transactions.
Blockchain-based identity verification
This involves using distributed ledger technology to store and verify identity information, providing a secure and decentralized approach to digital identity.
Identity and access management (IAM) solutions
These are software tools that manage user authentication and access to digital resources, ensuring that only authorized users can access sensitive information or perform certain actions.
Self-sovereign identity (SSI)
This is a decentralized approach to digital identity where individuals have control over their own identity information and can share it securely and selectively with others.
What Advantages Do Digital Identity Solutions Offer to the Financial Market?
Digital identity solutions offer several advantages to fintech companies, empowering them to deliver secure and efficient financial services in the digital landscape. Some key advantages include:
Enhanced Security
Digital identity solutions provide robust security measures, such as multi-factor authentication, biometrics, and encryption techniques. These technologies help protect fintech companies and their customers against identity theft, fraudulent activities, and unauthorized access to financial accounts. By implementing strong digital identity solutions, financial institutions can establish trust and confidence among their customers. According to a survey conducted by Cisco, 65% of consumers are willing to share personal information with businesses if they are assured that their data is secure.
Streamlined Customer Onboarding
Fintech companies often rely on digital channels for customer acquisition. Digital identity solutions enable streamlined and frictionless customer onboarding processes by automating identity verification and reducing the need for manual document submission. This allows the financial market participants to onboard customers quickly, enhance customer experience, and reduce abandonment rates during the registration process. A Forrester Research study found that 11% of US adults abandoned an online purchase due to the website asking for too much information.
Regulatory Compliance
Fintech businesses operate in a highly regulated environment, with requirements such as KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. Digital identity solutions facilitate compliance by verifying customer identities, conducting due diligence checks, and maintaining audit trails. These solutions help financial companies meet regulatory obligations, minimize compliance risks, and avoid penalties or reputational damage.
Improved User Experience
KPMG found that digital identity solutions enable a seamless and user-friendly experience for fintech customers. By eliminating the need for complex passwords or repetitive authentication processes, customers can access financial services quickly and conveniently. This improved user experience increases customer satisfaction, encourages loyalty, and promotes customer retention.
Cost Efficiency
Traditional identity verification processes in the financial industry can be time-consuming, resource-intensive, and costly. Digital identity solutions automate and streamline these processes, reducing manual intervention, paperwork, and associated operational costs. Fintech companies can achieve cost efficiencies, scale their operations more effectively, and allocate resources to other critical areas. In a survey conducted by Deloitte, 78% of respondents reported that automation had saved costs in their organizations.
Fraud Prevention
Fintech companies face the constant challenge of preventing fraud and ensuring the security of financial transactions. They lose $51 mln due to fraudulent activities every year. Digital identity solutions employ advanced technologies and real-time monitoring capabilities to detect and prevent fraudulent activities. By leveraging these solutions, fintech companies can mitigate the risk of financial losses, protect their customers, and maintain a secure financial ecosystem.
Seamless Integration
Digital identity solutions are designed to integrate with existing fintech platforms, systems, and APIs. This facilitates the seamless integration of identity verification and authentication processes within the fintech company’s infrastructure. Fintech companies can leverage these solutions without significant disruptions to their existing operations.
Is It Easy to Implement Digital Identity Solutions in FinTech?
Implementing digital identity solutions can be a complex and challenging process, but the level of difficulty can vary depending on the specific solution and its intended use case.
One of the main challenges in implementing digital identity solutions is ensuring the security and privacy of user data. Digital identities typically involve the collection and storage of sensitive personal information, such as names, dates of birth, and government-issued identification numbers, which must be protected from unauthorized access and misuse. According to the 2020 Cost of a Data Breach Report by IBM, the average cost of a data breach was $3.86 million, highlighting the financial impact of inadequate data security measures.
Another challenge is ensuring interoperability and compatibility with existing systems and technologies. Many organizations and systems have different requirements and standards for digital identity verification, which can make it difficult to develop a solution that works for all stakeholders. According to Gartner, global spending on information security products and services is projected to reach over $188.3 bln in 2023, indicating the importance businesses place on protecting user data.
Furthermore, digital identity solutions must be user-friendly and accessible to all users, including those who may not have access to modern technology or who have limited technical skills. This requires careful consideration of user experience and interface design, as well as support for multiple languages and accessibility features.
Digital Identity Solutions in Fintech: Examples
Let’s look at some digital identity solutions that are available in the market and commonly used in the fintech industry:
Onfido
Onfido provides digital identity verification solutions using AI-powered document verification, facial biometrics, and fraud detection techniques. Their platform offers identity verification services for customer onboarding, KYC compliance, and ongoing identity checks.
Jumio
Jumio offers digital identity verification and authentication solutions using AI, machine learning, and computer vision technologies. Their platform provides identity verification services through document scanning, facial recognition, and liveness detection to ensure the authenticity of user identities.
Trulioo
Trulioo offers a global identity verification platform called GlobalGateway that helps businesses verify the identities of their customers. They provide access to over 500 data sources worldwide, enabling KYC and AML compliance.
Signicat
Signicat offers identity verification and authentication solutions for digital onboarding, electronic signing, and secure access to services. Their platform supports a range of identity verification methods, including document verification, biometrics, and national eIDs.
IDnow
IDnow provides remote identity verification solutions that use video identification, AI-based biometrics, and eID integration. Their platform offers a seamless and secure way to verify customer identities and comply with regulatory requirements.
Socure
Socure offers an identity verification and fraud prevention platform that leverages machine learning and AI to assess the risk and authenticity of user identities. Their solutions help businesses verify customers in real-time, reduce fraud, and enhance the user experience.
Bottom Line
So, digital identity is important in financial services because it helps ensure the security and integrity of online transactions, protects against fraud, and helps fintech businesses comply with regulatory requirements. Digital identity solutions offer financial institutions advantages in terms of security, customer onboarding, regulatory compliance, user experience, cost efficiency, fraud prevention, and seamless integration. These advantages enable fintech companies to thrive in the digital age and build customer trust while delivering innovative financial services.
Implementing digital identity solutions in fintech requires a comprehensive understanding of the technical, legal, and social aspects of identity management, as well as collaboration and coordination among stakeholders. It’s also worth noting that the landscape of these products is continuously evolving, and new providers and technologies emerge over time. Fintech companies should explore these and other solutions to find the ones that best fit their specific needs and requirements.
If you have any questions regarding digital identity solutions, the Elinext team will be glad to provide you with comprehensive information about their development and implementation. Our specialists have broad experience in creating various products for the financial and banking industries.
