The Key to Payment Innovation: Rethinking Digital Identity

You can’t get to what’s next in payments without getting to what’s next in identity.

That’s according to Mary Ann Miller, vice president of client experience at Prove Identity, who told PYMNTS for the series “What’s Next in Payments: Embedded Everything: Priority One for Financial Services in 2025” that businesses are realizing the real innovation isn’t just in how we pay, but in verifying who is paying.

Without that key, the door to what’s next in payments stays firmly shut. After all, in this new age of digital commerce, identity is becoming more than just a piece of information — it’s the linchpin of a secure and efficient payment system.

From opening bank accounts to making large purchases, traditional methods of verifying identity — such as providing a name, Social Security number and date of birth — are being reshaped by a new wave of technologies. Enter embedded identity.

“Identity is becoming smarter,” Miller said. “It’s using more than just data to include different signals and different attributes to form and authenticate identity.”

Embedded identity represents a leap forward in how identity solutions are integrated seamlessly into digital ecosystems, she said.

The growing reliance on identity verification across financial transactions isn’t just about security — it’s about transforming the customer experience. Whether you’re swiping your phone at the register or transferring funds internationally, the way your identity is managed could soon be the difference between a seamless transaction and a stalled one.

What Is Embedded Identity?

As businesses and consumers demand seamless digital experiences, the role of identity verification has shifted from being a back-end security measure to a foundational element driving trust and efficiency.

At its core, embedded identity refers to integrating identity verification within platforms so seamlessly that the process becomes invisible to users. Miller drew a sharp contrast between traditional methods of identity verification, where users must manually input information such as Social Security numbers or birth dates, and the concept of embedded identity, which uses an array of signals and attributes already present within digital environments.

The financial services industry is seeing a strong momentum behind the adoption of embedded identity solutions. One of the key drivers for this shift was the fraud and identity theft experienced during the COVID-19 pandemic, Miller said. The public and private sectors witnessed losses, and this exposure accelerated the conversation around modernizing identity verification processes.

As with any evolving technology, regulation plays a role in shaping the adoption and implementation of embedded identity solutions. While regulation can often be a catalyst for innovation, it also requires businesses to stay agile. The technology must keep pace with the evolving regulatory environment, ensuring that identity solutions remain compliant while also providing the seamless experience consumers expect, Miller said.

The Benefits of Embracing Embedded Identity

For consumers, embedded identity means the ability to make purchases without the friction of multiple authentication steps. Contactless payments, for instance, are gaining popularity, and biometric verification embedded within smartphones or wearables enables a frictionless checkout experience.

When users feel confident that their identity is secure, they are more likely to engage with a platform and complete transactions, Miller said. This is particularly crucial in industries like financial services, where customers are often reluctant to share personal information online. Embedded identity solutions offer a way to enhance user experience while simultaneously bolstering trust.

On the merchant side, having embedded identity in payment platforms allows businesses to verify transactions with higher confidence, reducing chargebacks and payment fraud.

By using smarter signals and attributes, businesses can make more accurate identity determinations upfront, reducing the need for manual reviews and interventions. This “total cost of ownership” approach allows businesses to streamline their operations and focus resources where they are most needed, Miller said.

There is a history of successful collaboration in the financial services industry, particularly in transaction monitoring, where data sharing has helped institutions build better artificial intelligence models and fraud detection systems. The same model can be applied to identity verification, enabling more robust and secure identity solutions through shared intelligence, Miller said.

The Future of Embedded Identity

As embedded identity becomes more prevalent, the opportunities for further innovation and growth are vast. Miller said she envisions a future where identity verification becomes a seamless, portable experience — one that can be transferred across different platforms and services without the need for redundant authentication steps.

This vision, however, is not without its challenges. The ecosystem for embedded identity is still developing, particularly in countries like the United States, where the financial services landscape is highly complex and competitive. Legal agreements and compliance frameworks are important in building an interoperable ecosystem that can support the future of embedded identity, she said.

As the technology continues to evolve, Miller said she believes that private sector innovation will play a leading role in shaping the future of identity. By investing in advanced solutions, businesses can not only create better experiences for their customers but also build a stronger foundation for security in the digital age.

The businesses that embrace this shift will be well-positioned to thrive in the digital economy, while those that fail to modernize risk will be left behind. The future of identity is here, and it’s embedded.

“It’s time,” Miller said.