The advent of digital IDs, which offer a robust solution for verifying consumers’ legitimacy, is meeting the challenge of establishing trustworthy online interactions and securing financial services head-on. Digital IDs can streamline user access while upholding critical security protocols, addressing the crucial need for uncomplicated, protected digital financial engagements.
In today’s era of online transactions and purely digital interactions, establishing trust is crucial when engaging in business or accessing various services. The question then arises: how do we verify the authenticity of the other party or even confirm their human identity?
Identity is a complex concept encompassing physical traits, demographic details, social attributes, preferences, and beliefs. From something as official as your passport number to something as personal as your preferred grocery store, each detail contributes to the distinctiveness of your identity.
Our digital identities comprise a collection of unique, inherent data, distinguishing us as individual users from everyone else.
But how significant is this in the digital realm?
“Knowing who is accessing the services and, at the same time, the user knowing that it is the right and authentic service provider is essential for any type of business and even for services that may not have a direct monetary value,” says Jukka Yliuntinen, Head of Digital Payment Solutions at Giesecke+Devrient (G+D).
In the fintech industry, where services are connected to financial assets and delivered through digital platforms, it’s essential to possess a digital identity system that is not only strong and safe but also user-friendly.
“Digital identity may not be considered a service of its own, but it is an extremely important enabler for fintech innovation and services, and with the growing volume of fraud and increasing awareness of data privacy, the role of digital identity will be even more important,” Yliuntinen says.
A Balancing Act
Identity forms the foundation of any digital system. Organisations must understand at least a facet of customers’ identity, if not a precise identification of who they are.
“A digital ID system simplifies user interactions and makes it simpler for users to choose alternatives, as well as providing a way for individuals to prove who they are to any organisation, not only financials,” says John Erik Setsaas, Director of Innovation in the Financial Crime Prevention unit at Tietoevry Banking.
Financial service providers face stringent Anti-Money Laundering (AML) obligations, extending to numerous other services. Generally, the repetitive process of registering for new services and supplying detailed information each time has become a tiresome task for many of us.
“A consistent UX, both for signing up, signing in, and signing documents across services, is part of improving the user journey,” Setsaas.
When the Digital ID concept is well designed and executed, it provides customer satisfaction, and, in the best case, it can be an even differentiator. Users are more prone than ever to easy-to-use services with the least friction.
“Consumers are more prone than ever to easy-to-use services with the least friction. When KYC with onboarding is done fluently, for example, enabled from your home using a digital channel and then applying the created digital identity with biometrics, you are on par with customer expectations,” Yliuntinen says.
Yet, this ease of use must uphold the essential security measures, as financial services, including fintech offerings, are obligated to safeguard financial assets. Should there be any weaknesses in digital identity management, the repercussions could be drastic, leading to severe outcomes from identity theft.
“Therefore, good customer experience needs to be balanced with security and some ‘positive friction’, for example, in terms of having an additional step in the payment acceptance process can be useful,” Yliuntinen adds.
Live Presence Battle Fraudsters
Digital IDs can be set up in various forms, and within financial services, they need to offer strong reliability for everyone involved. Using usernames and passwords may not be the best way, as poorly implemented digital IDs result in loss of business, a bad reputation, and unhappy customers.
The financial service sector has typically well-implemented security, including KYC processes that result in a strong digital identity.
“For the fintech sector, digital onboarding is quite commonplace already. When thoroughly designed and implemented, it provides a digital identity that can be used securely for any further services, whether payment transactions or logins to services,” Yliuntinen says.
National eIDs, which facilitate entry to accounts and can be used to secure credit cards or loans, are becoming a prime target for fraudsters.
“The greater the value obtainable via a single eID, the more enticing it becomes for those intent on committing fraud,” Setsaas explains.
According to him, BankID is frequently targeted by scams, such as imposters claiming to be from banks or law enforcement, tricking victims into transferring money to “safe” accounts, using BankID for fraudulent confirmations, and leading to the loss of funds.
“Despite violating terms and conditions, over 20% of individuals admit sharing their BankID details. Since people often aren’t careful with their PINs and passwords, it could be easy to use their information to take out a loan pretending to be them,” Setsaas says.
To avoid fraudsters, Tietoevry has introduced a ‘live presence’ feature that requires people to verify their identity with a facial scan for sensitive transactions. This scan is matched against a securely stored reference image. Relying on a mobile device’s biometrics isn’t secure because the data collection is outside their supervision.
Limitless Opportunities
Digital services, including Digital IDs, are evolving to offer better accessibility for diverse customers and democratise financial services, such as the visually impaired, who may use voice commands instead of traditional graphical interfaces.
By incorporating such inclusive features, Digital ID supports secure remote access and simpler digital onboarding and improves the overall user experience for all customers.
“The leading enablement is user movement. We see many related services using this to improve their services, such as becoming a verified user on an online marketplace,” Setsaas says.
Digital identity solutions and technologies can provide limitless opportunities and room for innovations.
“Having digital identification that provides digital signing capability makes it easy to perform such tasks by simply providing your fingerprint or any other authenticator. Another area where further innovation can occur is when the basic digital identity (such as name, address, and age) can be added with new attributes, such as one’s creditworthiness or other financial status,” Yliuntinen explains.
While most digital ID solutions can be easily incorporated into business operations, the pay-per-transaction cost may pose a financial challenge. Additionally, the digital ID provider’s ability to track login times could be a concern, depending on the level of trust involved.
Consequently, many fintechs opt to independently verify identities using technology that scans official documents like passports or driver’s licenses and employs selfie-based liveness detection for robust user verification.
“Even though the user experience is somewhat worse than using a digital ID, it is not a big showstopper for signing up new users. Future authentications will be done within the fintech app, typically using local biometrics for convenience. Many neo-banks are good examples of this. This also works for any nationality of identity document, if it has NFC, making it a global solution, and no need to integrate with many digital IDs,” Setsaas says.
The Trust Frontier
Setting up a Digital ID system is a multifaceted endeavour that involves technical challenges, establishing relationships, managing risks, and negotiating liabilities with different stakeholders.
It is crucial to ensure a robust foundation by strongly verifying the user or entity from the outset.
“This is why, e.g., governmental-level identities, whether physical or digital, require one-time face-to-face meetings where identity can be proven and used in different channels afterwards. Beyond the solid KYC process, it is important that digital identity is secure, especially in the financial sector, as your brand is very much about trust,” Yliuntinen says.
Most financial sector organisations have developed digital identification solutions, which usually apply only to this single service provider.
National digital identity schemes are gaining momentum and are already well established in many countries, providing an excellent opportunity for fintech and other actors to use such common infrastructure.
“This enables cost savings on digital identity infrastructure and larger reach as digital identity is acknowledged in multiple businesses and public and private sectors,” says Yliuntinen, and points to the self-sovereign identity (SSI) concept where identity holder can self-manage what type of identity information will be shared in different environments is very much preferred model and gradually being applied.
“To fully benefit from SSI and make it a reality, the whole ecosystem must be applied. Beyond the financial service sector and public authorities, multiple other activities are ongoing in the field of digital identity, spanning from big techs to payment schemes, and fintechs may need to consider which of these initiatives will provide the best value for them in terms of cost, reach, security, and user experience,” Yliuntinen concludes.