Digital commerce has been growing steadily in recent years and explosively in the past few months thanks to the pandemic, and that’s made the ability to verify someone’s online identity even more crucial.
But as Trulioo Chief Operating Officer Zac Cohen told Karen Webster, identity verification faces two big problems that at a quick glance look to be separate but are actually two sides of the same (virtual) coin.
Cohen calls one side of the coin “access,” involving the fact that roughly 2 billion people around the world can’t participate in the digital economy because they lack the ability to identify themselves via traditional means. He said people in the developed world enjoy such easy access to things like birth certificates and passports that they fail to recognize that literally billions of people lack that access and are effectively locked out of the digital marketplace.
The other side of the coin involves the massive upsurge in the digital economy, particularly in recent months as the pandemic has turned many consumer transactions into digital ones.
In many cases, merchants are leaping into managing a much higher level of online sales than ever before, using existing tools and trying to “slap on a one-size-fits-all approach” to verifying identities and avoiding fraud. But according to Cohen, the surge in eCommerce means that the one-size-fits-all strategy often doesn’t work, failing to find fraudsters while locking out too many good customers.
“There is a decrease in the efficacy of traditional means that need to be considered,” Cohen told Webster. “We have to leverage all the new data points in a portable, accessible and secure way. The depth of that verification has to be determined by varying levels of risk. The industry as a whole requires continuous disruption, and that comes from those two sides of that access/participation coin.”
Cohen noted that unfortunately, the eCommerce ecosphere is already “feeling the failure” that comes from traditional anti-fraud systems’ decreased effectiveness. Although the industry doesn’t need to scrap everything it’s already doing, it must hold onto what works in some contexts and build out new systems from there.
Cohen admitted that in the absence of a tangible problem, it’s easy to lose a sense of urgency around digital identity.
“Then we enter a situation like the one we're in now, where the unexpected effects of those past decisions become quite obvious, and the gaps in the process have become larger, [so] we have to make different choices,” he said.
But Cohen said those different choices will vary based on individual digital interactions. The goal isn’t to bolt on a single solution, but to consider the entire issue of digital identity more holistically in deciding what layers of protection to insert as more consumers flood the digital marketplace.
“When there is lots of participation, the fraud attempts increase and expose the lack of additional means and mechanisms to properly verify individuals,” Cohen said. “[And] when there is a lack of access, it demonstrates a need for new mechanisms to identify harder-to-reach populations or different demographics.”
However, he added that “interestingly enough, the solution to both is often the same: creating additional mechanisms and levers to pull when it comes to an identity stack.”
Finding those mechanisms and levers can be challenging in a world where there’s no single standard for digital identity. Cohen said it’s a challenge that requires a network of data points. Those allow for a “mosaic” approach that lets merchants build a clear picture that shows the consumer is a real person and they’re the person they claim to be.
Cohen said he believes that progress is possible. For example, regulators a decade ago wouldn’t allow businesses to snap photos of customers’ drivers’ licenses for authentication — but today, that’s commonplace.
Still, Cohen pointed out that didn’t happen overnight. Instead, it meant taking drivers’ license data, standardizing it into a functional workflow, and making it accessible by building a platform to house the information via a securely deployable application programming interface (API).
Cohen said the digital identity market is rapidly growing and is estimated to reach $20 billion to $30 billion in total value over the next five years. That means there are more incentives than ever to build tools and continue to grow the industry and market participation around the world.
But, he added, “the devil's in the details. It’s highly complex — a rapidly changing industry. We've seen a virtual graveyard of identity startups in recent years — and that's OK, that's what happens. We’ve seen the point solutions that get created in these individual segments get rolled into a broader, more holistic approach that has that flexibility.”
Creating a broader set of network solutions will take time, Cohen noted — but likely years rather than decades, given the incredible push the market has gotten of late.
“We've seen examples in industries where this is taking off very quickly, and I'm positively encouraged by what we've seen in the last five years,” he said.
As for what we’ll see in the next five years, the specifics remain unknown, but the pressing need for digital identity innovation is growing.
“The identity pipes that connect all of these other payments and financial services — which bring a feeling of trust to marketplaces — it's all rooted in that identity network,” Cohen said. “That will be the cornerstone of [online] commerce.”