Legacy Identity Systems Push Billions Out the Back Door

Identity makes the world of commerce and payments go ‘round. But its fundamental role in driving modern customer experiences and defending against fraud can often fade to the background.

Many companies have treated identity the way they treat insurance policies, office leases, or compliance filings: necessary, occasionally painful, rarely transformative. As long as it met regulatory requirements and stopped the most obvious fraud attempts, organizations could justify deferring true modernization. “Good enough” was, for many, good enough.

As businesses look ahead to 2026, the ground has shifted. Digital commerce has become both more global and more automated. Consumers now interact with companies through a swirling ecosystem of devices, platforms, and artificial intelligence (AI) agents. Fraud has become faster, cheaper, more creative, and less distinguishable from legitimate activity.

Data in the report “The Hidden Costs of ‘Good Enough’: Identity Verification in the Age of Bots and Agents,” a PYMNTS Intelligence and Trulioo collaboration, found that against today’s modern backdrop, identity is no longer just about preventing fraud. It is about enabling customer trust, accelerating onboarding, maximizing conversion and delivering the kind of frictionless experience that defines modern digital brands.

Yet identity’s growing importance in preventing fraud in the AI age also can’t be overstated. Nearly all of firms (96%) remain confident in their defenses against AI bots, even as over half (60%) report rising bot-driven fraud. This overconfidence could mask systemic weaknesses.

After all, modern adversarial AI has raised the stakes, forcing businesses to harden identity defenses. And the same arms race has made any friction at this critical identity verification juncture far more consequential for customer experience.

Identity Friction Becomes a Customer Experience Breakdown, Not a Compliance Step

Companies that treat identity solely as a fraud safeguard miss a central trend emerging around abandoned applications, customer-service escalations, and stalled onboarding funnels.

The result can be a global commercial environment where friction, fraud, and false confidence quietly erode growth, profitability, and customer trust.

This isn’t merely a story about risk. It’s a story about opportunity cost and how legacy identity thinking keeps companies anchored to a shrinking past while competitors embrace systems that enable faster onboarding, international expansion, and trustworthy AI-driven interactions.

The headline number from the report is almost jarring. Companies lose an average of 3.1% of their annual revenue due to failures in their digital identity systems, amounting to nearly $95 billion across the firms surveyed. The report breaks this down across industries: retail and online marketplaces suffer losses of $35.6 billion, financial services $33.8 billion, software platforms $18 billion. Travel, hospitality, and gig platforms each see billions slip away as well.

On paper, many organizations assume that fraud losses make up the bulk of this figure. The reality is more complex: the financial leakage flows not only from attacks that succeed but from opportunities that fail.

Read the report: The Hidden Costs of ‘Good Enough’: Identity Verification in the Age of Bots and Agents

This friction also cascades internally. Four in 10 companies surveyed say that manual review has become a significant operational burden, usually compensating for inconsistent verification systems that produce uncertain or conflicting results. Each manual review is a small tax: slow, expensive, and fundamentally avoidable. Collectively, these taxes balloon into a revenue drag that sits not on any single line item but across the entire customer journey.

A recurring theme across the report is that these costs are not simply accidental byproducts. They are structural outcomes of identity frameworks built for slower times and simpler threats.

The friction isn’t just at the start of the customer journey. Returning customers often encounter authentication challenges, slowed transactions, and extra prompts—what one might call the “loyalty penalty” of weak identity infrastructures. Poor mobile experiences and delays in onboarding further erode customer confidence and time-to-value. As identity moves closer to the center of the user experience, these small frictions accumulate into meaningful churn.

At its core, the report highlights a philosophical transformation. Identity is the new front door of digital business. It determines who gets in, how easily they move through the experience, how quickly they convert, and how secure the ecosystem remains as it grows. In the age of bots and agents, that front door must be both smarter and more welcoming—capable of blocking threats without turning away legitimate customers.