The idea of a universal, tamper-proof digital identity becomes increasingly relevant in the face of political, economic and other uncertainties around the world. Massive groups of the global population are undocumented nowadays with numbers growing at a blink of an eye. In fact, some estimates suggest that there are more than 232 million undocumented migrants internationally.
Since many of those people do not have a formal identification document at the new place of residence, they are often victimized and hold a disadvantageous position in the financial system and beyond. Digital identity will not only give undocumented people a chance for financial inclusion in new places but bears a range of other important benefits for businesses and governments.
So, why exactly do we need to move forward, towards widespread implementation of digital identity solutions? This month, WEF made an attempt to answer that question listing the key modern trends strengthening the need in digital identity systems in the financial services industry.
Increasing transaction volumes & complexity
With rapidly growing access to the Internet, increased connectivity, massive international e-commerce and digitization of services overall, the number of identity-dependent transactions is growing through the increased use of the digital channel. Moreover, “transactions increasingly involve very disparate entities without previously established relationships,”, leading to the necessity to securely establish trust between parties in an efficient manner.
Modern FinTech startups shed international barriers with their platforms, bringing in customers from around the world. In the future, the complexity of the ecosystem will only increase and require a unified way to identify and authorize access and transactions between businesses and individuals from around the world.
Rising customer expectations
With the rapid adoption of advanced tech-powered solutions across industries, over time, it becomes more difficult to remain relevant in a rapidly-changing environment and meet rising customer expectations. The problem is especially severe in the financial services industry where solutions from PayPal, Venmo and Google are just killing it for banks.
The harsh reality is that customers nowadays expect “seamless, omnichannel service delivery and will migrate to services that offer the best customer experience.” Seamless payments experience, whether with P2P payments or in commerce, is one of the most important experiences with a solution.
More stringent regulatory requirements
Regulatory requirements in the financial services industry can be a real pain. The governments show no mercy to institutions that do not comply with security standards. Institutions, in turn, are forced to pass it along to the end-user, engaging with them in a cumbersome task of identity information collection. Add to that highly varying regulatory environments in international markets and it's Mission: Impossible in real life.
“Regulators are demanding increased transparency around transactions, meaning that FIs require greater granularity and accuracy in the identity information that they capture and are increasingly being held liable for inaccurate or missing identity information.”
Increasing speed of financial & reputational damage
“Bad actors in financial systems are increasingly sophisticated in the technology and tools that they use to conduct an illicit activity, increasing their ability to quickly cause financial and reputational damage by exploiting weak identity systems.”
Indeed, even with the ever-advancing cybersecurity solutions, online fraud does not seem to be stepping back at all. In fact, the value of fraudulent activities is expected to reach $7 billion by 2020. By that time, cybersecurity is expected to become one of the hottest industries.
Recent stories of data breaches that have occurred with major players across industries have left a bad aftertaste and made users extra cautious about sharing personal information. If previously we used to automatically hit the “Accept” button with long lines of data points we give access to, now is the time to take an extra minute to actually read what you are giving away. It is especially important when it comes to authorization of payments and access to financial data.