What Is Digital Identity?

A digital identity is a unique, verifiable representation of an individual’s identity in the digital world, enabling secure online transactions and interactions.

In today’s rapidly transforming digital economy, many more transactions happen online. But that means that the risk of identity fraud is also rising. With identity theft occurring every 22 seconds in the U.S. and total losses estimated at $10.2 billion, establishing trust by verifying identity is becoming increasingly urgent.

Leaders and growth managers across sectors face a myriad of challenges when verifying the identities of users or prospective customers. For example, financial institutions must verify the identities of account holders to avoid fraudulent transfers and comply with Know Your Customer (KYC) and anti-money laundering (AML) rules. Businesses involved in eCommerce require identity verification to prevent imposters from making fraudulent purchases. In online gaming, companies must mitigate the risks of multiple account creation, money laundering, and identity fraud. So, in a digital-first world, how can companies effectively verify the identities of their customers?

The answer is by using digital identities. A digital identity can function like a government-issued ID for the online world. Not only can digital identities combat fraud, but they can also make our financial system more inclusive. Approximately 850 million people around the world have no legal way of proving their identity. This leaves them excluded from the financial system. By expanding access to legal identification, digital identities can help make the economy fairer and more accessible for a larger number of people.

Read on to discover how your organization can best implement digital identity solutions to prevent identity fraud and enhance your customer experience.

Digital Identity for Financial Services

Financial services is one industry where digital identity verification is essential to combating identity theft and fraud. The rising tide of financial crime has created a major burden for organizations – with financial institutions spending over $4.36 in expenses for every $1 lost to fraud. One of the most significant risks for financial organizations today happens when a bad actor takes control of a digital account that doesn’t belong to them. Account takeover fraud (ATO) like this costs businesses billions of dollars a year. The best way to prevent this type of fraud is to implement high-quality digital identity verification tools throughout the customer journey. From account opening to support services, digital identity verification protects both the financial institution and its customers. By implementing identity proofing at various stages instead of just at the point of transaction, financial institutions can greatly reduce the risk of fraud.

Digital Identity for Marketplaces

eCommerce marketplaces face the challenge of providing a seamless onboarding experience for new customers and sellers while mitigating the risks associated with fraudulent transactions. Trust, safety, and ease of onboarding are crucial factors for the financial stability and reputation of these platforms, as they directly impact user engagement and loyalty.

Digital identities can address these challenges by enabling fast and efficient identity proofing. This helps marketplaces to provide a secure and trustworthy environment and differentiate between legitimate customers and sellers, and fraudulent bots or automated accounts run by bad actors. By implementing digital identity tools, marketplaces can build online trust within their ecosystems, enhance user experience, reduce fraud, drive revenue, and increase customer loyalty.

Digital Identity for Online Gaming

To overcome identity verification challenges and comply with stringent federal and state regulations, the online gaming industry has implemented various Know Your Gamer (KYG) policies, such as age verification. Various states enforce minimum age requirements, legally restricting who is allowed to access online gaming platforms. Because these regulations differ according to geography, it is equally important for online gaming companies to be able to prove the location of their users.

In addition to regulatory compliance, verified digital identities are also essential to help combat fraud. In online gaming, fraud can occur via several avenues including account hacking, chargeback fraud, collusion, and virtual asset fraud. Fraudsters can also leverage technical exploits or use hacked devices to gain an unfair advantage over others.

Digital identity solutions can effectively address the challenges faced by the online gaming industry. By implementing a robust digital identity verification system, gaming platforms can seamlessly onboard legitimate users while preventing fraudsters and underage individuals from accessing their services. Digital identity solutions can also incorporate geolocation capabilities to confirm user locations, ensuring compliance with state-specific regulations.

Common Use Cases for Digital Identities

One of the most common applications of digital identities is in account opening. Digital identity verification involving photos of government-issued documents and facial recognition scans is often used for opening an online bank or financial service account. Another use case of digital identities is for age verification. To ensure compliance, companies must verify customers’ ages for activities like driving, renting, purchasing alcohol, or gambling.

Digital identities are also vital in situations where KYC regulations require identity proofing or to prevent fraud. Banks can use digital identities to achieve compliance and prevent fraudulent transactions. Digital identities are also required to prevent money laundering when high-risk transactions involve large amounts of money being moved.

The Challenges of Safeguarding Digital Identity

With the rise of identity theft, deep fakes, and Generative AI tools like ChatGPT, all our identities are more vulnerable than ever before.

What’s more, most people have already been impacted by a data breach in some way and millions of identity elements, such as Social Security numbers and passwords, are for sale on the dark web. This is why identity proofing in the digital world requires more than just a few pieces of data. Socure’s Sigma Fraud suite includes Entity Profilers that provide additional context by analyzing a user’s digital footprint. This means looking at their device history, behavior, ISP information, and geolocation data to provide a more dynamic and accurate picture of a user’s identity and coalesce that with verified data to tie a digital profile to a real user.

Challenges in Verifying Digital Identity and Why It’s Critical

Businesses face common obstacles when it comes to verifying digital identity, including:

• Balancing user experience with fraud prevention
• Adhering to evolving regulations and ensuring compliance
• Verifying thin-file populations
• Combatting sophisticated fraud, such as Generative AI attacks

Hard-pressed Chief Risk Officers (CROs) and fraud prevention leaders need consistent and reliable ways to overcome such challenges while effectively preventing fraud, ensuring regulatory compliance, and enhancing customer trust. This is why demand for robust digital identity solutions is on the rise. Valued at $27.51B in 2022, the digital identity solutions market is expected to grow at a rate of 17.2% over the next ten years, eventually reaching $116.07B by 2030.

As the methods for verifying digital identities continue to evolve, it’s also important to ensure that solutions become more inclusive, expanding access to basic financial services for all populations, and creating a fairer financial system. Read more about the evolution of digital identity in our eBook.

Best Practices for Implementing Digital Identity Solutions to Enhance Customer Experience

The best digital identity solution is not just about preventing fraud, it must also tick many other boxes, including:

User-friendliness

Users do not appreciate slow, awkward systems that make it harder to complete transactions. An effective digital identity solution should be able to balance streamlining customer onboarding and minimizing friction with combating fraud and reducing risk.

Inclusivity

Effective digital identity solutions should reduce bias-driven friction to empower credit-invisible populations, the underbanked, and marginalized populations to access financial products and services.

Flexibility

As fraud threats grow ever more sophisticated and prevalent, your digital identity solution needs to keep your business ahead of the evolving tactics of bad actors by proactively innovating new techniques and defenses. Flexibility is also required in the face of increasing regulations being adopted across multiple jurisdictions. The best digital identity solution is the one that actively turns compliance into a competitive advantage, instead of just responding to it.

The Future of Digital Identity

As the world becomes more digital, the need for secure and reliable digital identity solutions will only grow. Biometrics, such as facial recognition and fingerprint scanning, are likely to become more prevalent as they provide a higher level of security compared to traditional passwords. Decentralized identity systems and blockchain technology are also poised to transform how we think about digital identity verification. These technologies will enable individuals to control and manage their own digital identity without having to rely on any centralized authority.

Governments are increasingly digitizing services to enhance efficiency and security, emphasizing the need for trust in digital identity verification to encourage public engagement. Despite these efforts, a NextGov survey indicates that only 36% of Americans find government digital services intuitive, pointing to a need for a more seamless and inclusive digital identity strategy.

Socure’s Approach to Digital Identity Verification

Digital identities are the key to establishing trust in the modern online economy. Socure is leading the way in digital identity verification solutions that are both fast and highly effective. Socure’s identity tools incorporate machine learning to enable growth strategists and fraud prevention leaders to grow their customer base by automatically approving more good customers while establishing comprehensive defenses against fraud.

Lili, for example, used Socure’s identity verification platform to improve the company’s auto-approval process, enabling it to accurately identify and onboard “good” customers faster and reduce the risk of fraud.

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Are you ready to leverage efficient, seamless, and robust digital identity verification? If so, contact our experts for a consultation or arrange a demo of our digital identity solutions.