Digital identity is the sum of online information on an individual. This can be any form of data associated with a person’s name – be it date of birth, address, email, or even social media posts and interactions. As such, digital identity can be thought
of as an online avatar, representing the spheres of one’s personal and professional life.
The components of digital identity
For the financial services industry, digital identities can be used to make assumptions about consumers. From the preferences they have, the likelihood they will be interested in specific products can be extrapolated. The value of such data to marketing,
sales, and customer experience teams is hard to overestimate.
But how exactly is a digital identity comprised? There are two key categories of data: identifiers or authentication, and data points or attributes.
Identifiers include elements such as usernames, passwords, Internet Protocol (IP) addresses, and so on. Attributes tend to be more personal, for instance purchasing behavior, transaction history, search activity, et cetera. When combined, all these factors
create a precise – and often predictive – model of a consumer.
The advantages of digital identity
Adam Preis, global strategist, Ping Identity,
believes digital identity will play a “pivotal role” in drawing up the blueprint for financial services’ ongoing competitiveness – this ultimately leading to greater customer satisfaction and choice.
“By embracing digital identity as a strategic asset, financial institutions can not only survive but thrive in the digital era. As Darwinian principles suggest, adaptation and evolution are key to ensuring success in the digital financial age.”
Digital identity may also have a role to play in moving us closer to the United Nations’ third Sustainable Development Goal (SDG) of
financial inclusion, thus “improving health and wellbeing” globally.
This may sound like a lot to live up to, but Donica Venter, marketing coordinator, Traderoot, points out that digital identity is already
promoting financial access in Africa:
“By simplifying the account opening process digital identity allows financial institutions to reach unbanked individuals and expand their customer base.”
Additionally, it “reduces the costs associated with customer onboarding, making it economically viable for financial service providers to serve low-income individuals. This newfound access to financial services empowers individuals to save, make payments,
access credit, and engage in other economic activities that were previously out of reach.”
The deployments of digital identity serves to benefit the ecosystem as a whole, too – accelerating the financial services sector toward Digital Operational Resilience Act (DORA)
readiness, notes Preis.
After all, “at a helicopter-level, DORA places obligations on providers to establish strong cybersecurity and business recovery strategies, build up comprehensive detection/rapid response capabilities, develop the means to withstand disruptions caused by
common cybersecurity attacks, while securing their TPP/third-party ICT ecosystems.” On all counts, digital identity verification provides support.
Some privacy issues
For banks, a lot is resting on their ability to
verify a digital identity. Effective authentication ensures they are dealing with the individuals they intend to. There are many ways digital verification occurs, including through biometrics, encryption, presentation of confidential information or objects,
such as cards. This is a technological frontier of financial services that is always on the move, and – in theory – becoming increasingly secure.
Security is ever more important in the wake on Web3’s emergence. According to Finextra article, ‘An outlook on emerging technologies, alternative
finance and digital identity’, “Web3 offers a new way for users to interact with digital assets, which requires the need for improved digital identity ownership and verification processes. Considering the pace of development, the potential need for digital
identity and privacy services to become a utility in our future economy must be considered.”
The price of failing to build adequate verification measures includes identity theft for consumers, a loss of reputation for institutions, and increased regulatory scrutiny or fines.
The future of digital identity
At
EBAday 2024 in Lisbon, David Birch described digital identity – along with digital money and assets – as “the future of banking”. However, such innovations will only be embraced if there is more standardisation around the way digital identity is managed
and protected. Systems such as biometric authentication and multifactor authentication must be more widely rolled out – always with an eye on privacy, convenience, and security.
To learn more about the latest verification methods, read Finextra’s article, ‘How to verify a digital identity’.