Digital Identity Market Size, Trends, Challenges and Drivers
The Identity Verification Market is expected to grow at a CAGR of 13.1% over the forecast period 2021 to 2026. The acceptance of digital payment methods is expected to improve post the COVID-19 outbreak and play a stronger role in the long term.
With cash being seen as a potential carrier for the virus, governments and regulatory bodies are discouraging its use. For instance, the use of cash in Britain was halved, following government-imposed lockdown. In the United Kingdom, due to the COVID-19 outbreak, FATF guidelines have enabled customers to send selfies, and email scanned ID documents as proof for identification.
- Adoption of solutions through stringent regulations and the need for compliance are influencing market growth. The regulatory authorities have now become more stringent toward KYC (Know Your Customer) and AML (Anti-money Laundering) compliance, among reporting entities
- With increasing online services, combined with smartphone penetration, verifying identities digitally are becoming crucial for both businesses and governments. The regulatory authorities are increasingly becoming stringent toward KYC and AML compliance among businesses, to control financial crime. FATF (Financial Action Task Force) increased the scope of reporting entities and recommended the member countries to oblige the legal professionals, art dealers, and virtual asset dealers to perform AML screening on their customers.
- The European Union launched the fifth AML directive under which the identity verification threshold for the prepaid card industry was reduced from EUR 250 to EUR 150. Additionally, the scope of AML regulations is further enhanced. Moreover, government bodies, worldwide, emphasize on creating stringent regulations to curb identity theft and make efforts, to get the global population under the legal identity umbrella. The UN and World Bank ID4D initiatives aim to provide everyone on the planet with a legal identity, by 2030.
- The growing number of financial frauds in businesses is influencing the rise of identity verification solutions for businesses. According to a survey by American Express in 2019, about 27% of the sales ended up in fraudulent transactions, influencing merchant decisions to deploy frictionless checkout systems. Moreover, around 69% of the merchants in the United States have spent a significant amount of time and money dealing with payment fraud.
- Identity theft is a major part of financial frauds that are challenging digital payment growth and adoption. Due to this, enterprises across the world are increasingly spending on solutions for identity verification. According to the Insurance Information Institute (III) report, 14.4 million identities were stolen in 2018, and about 3.3 million victims were liable for a financial penalty. Additionally, the report mentioned that over 40% of the stolen identities were used for the execution of credit card fraud.
- Moreover, enterprises across the world are increasingly spending on the digitization of their businesses, including their payment processes. According to a survey by Visa, over 80% of consumers mentioned digital-related benefits as motivating factors to shop. Due to such developments, SMEs are expected to be at the forefront of digital transformation, as they make up a large share of private sector businesses in the world. For example, according to the UK Parliament Business, Energy, and Industrial Strategy Committee, SMEs make up 99.9% of all private sector businesses in the United Kingdom and employ 16.3 million people or 60% of the UK’s private-sector workers.
- A growing trend in the identity verification space drives out previous industry standards, such as KBA and SSN verification, out of the picture, as they are considered insecure in the ever-changing technological environment. Equifax hack, which exposed 147.7 million Americans' personal information, stands as an example. Hence, businesses are looking for better solutions to perform identity authentication.
- Growing consumer propensity toward mobile payment solutions is further driving the market demand. According to the Mobile Economy Report of 2019, the mobile ecosystem generated USD 1.1 trillion in economic value, in 2018. Moreover, Asia-Pacific is expected to contribute toward the market growth, owing to the growing adoption of mobile payment solutions and the e-commerce market. For instance, over 583 million people used mobile payment in China in 2018, an increase of 10.7%, according to the China Internet Network Information Center (CNNIC).
New digital players, threats, and opp’s arise, as the distance of location and time between third parties, like buyers and sellers are the new standards. One of the most important drivers for the growth of the online business is the existence of a reliable and strong digital identity. This helps new players and incumbents (both public and private) to operate in an efficient and safe way.
There are a couple of worldwide initiatives regarding Digital Identity that will help in the upcoming years, to provide opportunities for 1.1B people to have their own digital identities and help them in acquiring better access to educational, health, and financial services. Here are a few of them:
- Commonwealth Digital Identity Initiative - An initiative with support from World Bank women and girls from marginalized.
- ID2020 Project - ID2020 is a public-private partnership dedicated to solving the challenges of identity for marginalized people through technology.
- ID4D - The UN and the World Bank also have their own identity initiative, Identification for Development (ID4D), which has a goal of providing everyone on the planet with a legal ID by 2030.
- eIDAS - European regulation for electronic identification and trusted services for electronic transactions.
The top 5 key trends that are moving things for trusted digital identity market in 2021 are:
1. More mobility and convenience
Implementing trusted digital IDs is a MUST, specifically when the number of people working remotely and using online services from the convenience of their own home is increasing with each day. A Gemalto research shows that 70% of these users would like to have trusted digital ID’s and around 66% of them answered that they will likely use their IDs when performing online transactions.
2. Greater demand for security and trust
Many users of online services claim that they fear fraud, phishing, and hacking which ends with their personal information being stolen or misused. So the demand for better security and trusted systems is increased.
3. New regulations
New regulations for personal data protection are enforced on companies this year, such as the General Data Protection Regulation for companies that serve citizens from the E.U. There is a new revision of the Payment Service Directive (PSD2) which is introduced by the European Commission allowing two new players in the financial market to appear: AISP (Account Information Service Provider) and PISP (Payment Initiation Service Provider). Trusted digital ID services will play a big role for the Account Service Providers.
4. The shift towards digital identification systems
There is a shift towards implementing different identification systems and their acceptance has been growing, due to the fact that users are resilient in connecting their social media profiles with personal bank accounts or other accounts connected with different assets.
One of the major Social Media Networks, Facebook, has recently acquired a company for identifying government-issued personal ID cards.
5. The technology
Private companies, government institutions as well as regulators search for solutions that enable clients and citizens to identify themselves.
For financial institutions, the identity issue plays an important role in business. Now it is really necessary for banks to create strong and trusted digital ID schemes that can support their knowledge and experience at verifying identities in the physical world. There are many challenges in order to adapt the analog world ID model to the digital one, such as lack of security, no interoperability, cyber attacks, a lack of user control over the data, etc. Both the business and the government sector need to be able to find solutions that protect users and keep people’s information private and secure.