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Feb 2022 | Fraud Prevention | Fraud

Connecting our digital and physical worlds

We live in an ever-changing world and the way we identify ourselves is continuously evolving. We need to accurately authenticate an individual’s identity whether that person is interacting with an organisation online, on mobile, or in the physical world.

In this guide we look at the challenges and opportunities surrounding digital identity, coupled with a look to what the future may hold. From changing consumer behaviour and preferences, to the role of regulation and technology. Understanding the evolution of digital identity is critical for businesses, especially as more and more of our lives are spent online and on mobile. The businesses who do will thrive, and the ones who don’t, will find it hard to compete.


What is digital identity, and why is it important?

According to McKinsey:

“Unlike a paper-based ID such as most driver’s licenses and passports, a digital ID can be authenticated remotely over digital channels.”

A digital identity is made up of the information that’s available about a person online, which connects their digital persona to them as a physical person. In contrast to the ID used in the physical world, such as a driving licence, the digital identity can include things like device information, location, and behavioural analytics such as their typical purchasing patterns. As well as personally identifiable information (PII) such as their full name, address, date of birth, passwords, PINs, security questions and biometric data.

Today, digital and physical identities are increasingly linked. A good example of this is the biometric passport, which uses biometric information to authenticate the identity of the passport holder, such as facial recognition, fingerprint recognition and iris recognition. In this example, the “digital identity” (also referred to as digital ID) is the biometric passport. Whereas the completion of the journey that might otherwise involve a physical step, for example, taking the passport into a branch can be described as “digitised ID”.

In our fast-moving digital world, the importance of digital identity is increasingly critical. Not only do businesses need to effectively authenticate individuals to ensure they are who they say they are, they also need to protect their business from fraud.

According to our research, consumer preferences for online security and fraud prevention methods have shifted towards invisible solutions, such as physical and behavioural biometrics, as well as PIN codes sent to devices. The trend seems to be towards more elegant, invisible and frictionless consumer recognition systems.

Infographic showing UK prefences of security with biometrics the most preferred

Our research shows that UK consumers are increasingly willing to share personal data with businesses they have a long-standing relationship with. Older consumers (40+) are more willing to share more types of personal data with trusted businesses; younger consumers are more willing to share biometric (physical and behavioural) data.

By incorporating the relevant authentication and fraud prevention procedures into every digital channel and life stage, businesses can build trust, improve retention levels, and create opportunities to win more customers in the digital marketplace.

Learn more about the digital identity evolution by downloading the full whitepaper

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Digital identity: What are the four key drivers and challenges?

Businesses are moving forward at a rapid pace, accelerated by the pandemic and the shift to digital. For many lenders, that means constantly trying to compete with agile FinTechs and new market disruptors such as Buy Now Pay Later (BNPL) service providers.

Understanding the drivers, challenges and opportunities of digital identity design will put you in a strong position to adapt to change in a fast-moving digital marketplace. The technology you implement now will enable you to adapt very quickly in the future, as the external landscape changes. From consumer trends and expectations, to regulation and the economy.

1. Regulation

Regulation is one of the main drivers behind customer recognition strategies, both in the UK and globally. The UK is home to robust Anti-Money Laundering (AML) and Know Your Customer (KYC) laws and regulations, overseen by the Financial Conduct Authority (FCA).

As digitisation speeds up the pace of change in the financial services industry, regulation is likely to evolve more rapidly too. Keeping pace with changing regulation is a challenge for businesses. However, the FCA’s innovative, risk-based approach also presents UK businesses with an opportunity to innovate new products and services in collaboration with the regulator. Businesses can also find guidance in sources such as the Good Practice Guide (GPG) 45 and JMLSG Guidance.

2. Friction versus risk

Introducing the right level of friction at the right time for the right individual is undoubtedly a challenge for businesses. As our research shows, one size doesn’t fit all. Different customers will have different preferences when it comes to what data they’re willing to share with you, and what kind of checks they favour. It also depends on their relationship with you, and where they are in the customer journey. Understanding this is key, alongside ensuring that the checks you introduce are appropriate for the level of risk involved.

It’s important for businesses to identify the right assurance level for the level of risk:

Infographic showing three assurance levels

You can read more about identifying the right assurance level and regional differences in our whitepaper.

3. Consumer trust

The rapid rise in digital activity has created new opportunities for fraudsters, exposing businesses and consumers to increased risks of fraud, identity theft and data breaches.

When it comes to digital identity solutions, matching consumer concerns will be critical in how willing they are to complete certain verification activities. In digital settings where reducing friction is the number one concern, two-factor authentication could be enough. In situations where fraud potential may rise, along with consumer privacy concerns, a multi-layered approach to identification will be needed, including biometric data for instance.

Globally, most countries have some kind of legislation in place around privacy, but the depth and breadth of regulation varies. Businesses need to work closely with trusted partners and suppliers to best understand how those requirements impact them, whilst keeping up to date as they evolve.

4. Fraud management

With more people than ever buying and transacting online, fraud prevention has become increasingly critical.

Businesses must embed fraud detection and prevention smoothly within their customer journeys. If businesses want to continue to meet customer expectations while upholding security standards in the digital marketplace, they need to redouble their efforts.

Our research shows a disconnect between businesses’ security measures and consumer preferences. Common techniques for businesses include using security questions and passwords, while consumers perceive more invisible forms of identity verification as more secure. Businesses need to optimise investment in authentication and fraud prevention solutions, by matching them to consumer demand.

Learn more about the digital identity evolution by downloading the full whitepaper

Read now

What is the opportunity from digital identity?

Investing in the right digital identity design could unlock a range of opportunities, supporting your competitiveness in an increasingly digital marketplace, including:

1. Financial inclusivity

Digital ID technology can enable consumers to access products and services online and on mobile, including essential services like banking, government benefits, education and healthcare. Research by the McKinsey Global Institute into the potential economic impact of digital ID, published in 2019, showed that countries implementing digital ID could unlock value equivalent to 3%-13% of GDP by 2030.

2. Improved customer experience

One of the biggest stories of the pandemic is how it’s accelerated digitalisation. It forced a sea-change in the way we live, work, play, spend, save and borrow. As a result, consumers have become more digitally savvy and expect a quick turnaround and seamless digital journeys – online and on mobile. To keep pace, businesses have rapidly transformed their operations to accommodate new digital services and onboarding capabilities, while fulfilling consumer expectations for fast, easy and secure interactions.

3. Better privacy protection

Digital ID technologies enable a person’s identity to be appropriately authenticated for a specific transaction, without sharing their personal information unnecessarily. For example, your digital ID could confirm you are aged over 18, without sharing your full date of birth.

Man sat at a window on phone

The future of digital identity

The digital identity landscape is fluid and evolving. It’s therefore important to build flexibility into digital identity solutions to adapt to cultural, technological and regulatory changes. Consumers want both security and ease of use, regulators want assurance that data is protected and used responsibly, and businesses are walking a tightrope to meet these often competing demands. It’s therefore imperative that organisations continue to evolve their identity management strategy in alignment with these shifting dynamics. The evolution of digital identity is a journey, not a destination.

You can read more about the future of identity in our whitepaper.

Recommendations

  • Judge the appropriate level of identity verification needed to fit your customer base and unique fraud risk types present per application or customer transaction.
  • One size doesn’t fit all – access controls must meet the levels of assurance needed on the identity of an individual while balancing the need for frictionless customer journeys.
  • A layered approach will protect you against the weakness of certain digital tools, while also enabling you to use each technology’s strengths.
  • Be prepared to adjust quickly to technological shifts – just a few years ago, fingerprint biometrics were considered niche, today the technology is ubiquitous in modern smartphones, readily used by consumers as a more convenient form of access.
  • Businesses need to design solutions that focus on inclusivity for all – to make sure the technology itself doesn’t become a barrier to access.

How Experian can help you keep pace and stay competitive

Experian has a proven track record in delivering solutions to protect businesses and their customers. We can help you build trusted relationships with legitimate customers at every touchpoint, with solutions that address risk and provide safeguards at every stage of the customer journey across industries.

Our fraud and identity solutions, delivered through our CrossCore platform, deliver a future-proof, fully-customisable way to modify your digital identity strategies quickly, identify fraud faster, improve compliance, and enhance the customer experience. Giving you a seamless way to complete all the checks needed to protect your business and your customers, optimise results via analytics and adapt your approach as the external landscape changes.

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