Streamlining Payments with digital ID: How banks, businesses and consumers can win

Banks and corporates face the same key problem online as consumers – reliably overcoming anonymity. Solving this problem causes friction, frustrating consumers and denying revenue to businesses and financial institutions. Here’s how digital ID can help prevent this.

The existing ID verification processes used by many banks and e-commerce providers deliver security when they transact with consumers.

They can also create unnecessary friction, detracting from user experiences and ultimately serving as a potential deterrent to a customer accessing a service or buying a product.

However, the flexibility, security and reliability of digital ID services overcomes this issue. They can create a significant opportunity for both the streamlining of existing services and the delivery of new ones.

This opportunity offers substantial benefits around market integrity, efficiency, security, financial stability and inclusion. The scale of the value it can unlock is potentially vast: a 2019 study by the consultancy firm McKinsey calculated that digital ID services could unlock economic value equal to 3% of the UK’s GDP by 2030. (For reference, the UK’s GDP is currently around £2.58 trillion GBP.) 

This article explores the impact streamlining the payments process can have for all parties to a transaction – Banks, businesses, consumers.

Digital ID reduces customer leakage

Seamless customer journeys are no longer ‘nice to have’. Whether buying a product or opening a bank account, consumers now expect a minimum of friction – but existing user verification services take on average up to two minutes to complete. Some outliers can take more than five minutes – not exactly living up to the spirit of the instantaneous digital economy.

This is a powerful disincentive to complete a transaction. In the UK, as many as 10% of carts are abandoned during the most stringent verification processes, with a further 10% of sales failing due to lack of user familiarity with the procedures.

Streamlining the authentication process by cutting down on documentation and reducing the burden facing consumers with digital ID can therefore preserve revenues on a large, bottom-line shifting scale.

Digital ID cuts costs associated with fraud and security

In the 12 months to November 2022, UK businesses reported that identity theft had cost them an average of £398,520 GBP each. Payments fraud cost businesses £780 million GBP in 2020 alone, and identity theft is estimated to cost the UK economy £1.7 billion GBP a year. 

In response to this threat, in 2021 UK businesses invested £976 million GBP in cyber security, with identity validation a key pillar across all digital industries.

This is a huge amount of money to spend on services that actively discourage consumers.

Digital ID services smooth customer journeys, improve security and trust, reduce the vulnerabilities and insertion points malicious actors can exploit and – ultimately – make fraud more difficult. This means in turn that they can again preserve revenues and free up capital for deployment elsewhere.

At a time where the energy crisis and cost of living dominate every day decisions, smart decisions on where to invest money and resource never mattered more.

Digital ID facilitates the expansion of open banking services

Open banking represents the true arrival of the digital revolution to consumer financial services, allowing financial institutions to share data with user consent and offer consolidated access to information, products and services. In creating secure infrastructure for the sharing of data via APIs, open banking has delivered the framework for the next generation of financial provision.

However, the full benefits of these capabilities can’t be delivered without secure and reliable solutions for users to prove their identities.

Consumers can be wary of the security of the challenger institutions in the space, or they may be ring-fenced into a particular ecosystem by legacy providers.

In providing for viable universal identity authentication applicable to a wide variety of providers, digital ID services can serve as the gateway for users to access the growing number of new financial options available.

No more direct debit drag

To give just one example, setting up a direct debit mandate is inconvenient and time- consuming, with consumers often required to switch awkwardly between platforms or interfaces. A digital ID service offers these customers a way of proving their identity with data that is already verified by their bank, opening up the possibility of a ‘single serving’ registration that saves them time and makes them more likely to complete the transaction.

Digital ID enables ‘SCA everywhere’

Strong Customer Authentication (SCA) has been a requirement under the EU’s second Payment Services Directive (PSD2) in the UK since September 2021 (or January 2021 in the EEA).

This regulation added to the checks banks are required to make to confirm a consumer’s identity at checkout for an online payment – in practice this usually means they are required to produce two forms of ID. However, it can also be inconsistent in practice, with some e-commerce transactions out of scope of the regulation and others fully exempt.

Digital ID’s role in streamlining digital payments tidies up these inconsistencies, providing financial institutions with reliable paths to delivering SCA with greater regularity and predictability, and cutting down on ambiguities that can confuse consumers.

Digital ID can serve as the bedrock for new services

If we expand our scope beyond digital ID services’ proven use case in payments, we quickly see the broad range of new capabilities the technology can deliver to an extensive range of industries and add more value to existing customer relationships in a company’s ecosystem.

Reliable online age verification has as many use cases as there are products or services unsuitable for minors – not to mention parents concerned about their welfare. Digital IDs can become consolidated solutions for granting access to offices, hotels, and other locations where individual passes have previously been required.

They allow for the drafting and signing of legal contracts digitally, more accurate consumer assessment for insurance or loans, and for peer-to-peer transactions to be conducted with more trust, speed and flexibility. Car rentals, access to government or health services, paying taxes, DBS checks, checking in for air travelC– the list of possible applications goes on.

So, as we’ve seen, the full potential of digital ID is not limited to e-commerce. With an appetite for innovation and creativity among decision makers, a wide spectrum of industries and services stand to benefit from the technology.

How bank-assured digital ID supports these benefits

As trusted holders of vast amounts of their customers’ personal and financial data, and operating as the central nodes of the digital retail ecosystem, banks are central to delivering to consumers the full benefits of digital ID verification.

Given the high degree of regulation by the government, FCA and other bodies – and the powerful reputational incentive to preserve the integrity of their customers’ information – safety is already baked in as a priority in their services. A third party provider like OneID delivers a platform that can serve as a conduit between consumers, merchants and banks and facilitates the secure use of this data for ID verification to the benefit of all three.

Consumers can have confidence in the process as their data does not leave their bank’s domain, and they do not need to contribute any additional private details. Given no apps need be downloaded, no forms filled out, and no photos or documents need be uploaded, customers can also enjoy a radically streamlined – and therefore markedly faster - experience.