Digital Identity (Digital ID)

What is Digital Identity?

A digital identity is the collection of data online about a person, business, or piece of technology.

It is feasible to identify persons or their devices using their unique identifiers and use patterns. Website owners and advertisers frequently use this data to track and identify users for personalization purposes as well as to deliver them with content and advertisements that are more relevant to them.

A digital identity develops naturally as a result of how personal information is used online and the shadow data that the user’s online activities produce. A Pseudonymous profile connected to the device’s IP address, for instance, or a uniquely created ID are two examples of digital identities. Since users only provide certain information while giving authentication information, digital identities are thought of as contextual in nature.

Data points that can be used to create a digital identity include, for instance:

  • Username and password
  • Purchasing behavior or history
  • Date of birth
  • Social security number
  • Online search activities, such as electronic transactions
  • Medical history

Digital identities come with privacy and security risks, such as identity theft, due to the fact that a profile frequently contains elements of a person’s actual identity. Through cross-site data analysis, pseudonymous profiles can also reveal an individual’s identify. The presence of such personally identifiable information (PII) online may provide more threats than benefits for the user, whereas passports and licences serve to identify individuals in real life. There have been many attempts at authentication and authorization, but there is still no accepted method for identifying digital identities.

What are the Digital identity types?

Digital identification may be verified in a variety of ways, including through database checks, document and identity verification, biometric verification, and identity verification. A user can access online services like banking, investing, gaming, and travel after proving their identity.

Different types of digital identity information can be used to identify people online. Their official ID can be uploaded or taken as a picture. Or, they can use biometric scans like voice, fingerprint, or facial recognition to confirm their identity. Additionally, they can provide personally identifiable information (PII) about themselves for database verification.

Why is Digital Identity important?

When all of a person’s online data is gathered together, it paints a picture of who they are in reality. Digital identity verification is the process of identifying someone online using their digital identity. Businesses wouldn’t be able to recognise their online counterparts without this procedure.

It’s crucial to confirm customers’ identities for a number of reasons.

  • Compliance with regulations: Regulated industries must comply with know-your-customer (KYC) rules and perform customer due diligence (CDD). In order to help prevent things like money laundering and other financial crimes, they are required by law to do this when they establish business-customer relationships.
  • Better customer experiences are possible when businesses have a clearer understanding of their clients’ demographics, interests, and purchasing habits. This allows them to provide more specialised, personalised services.
  • Fraud prevention: With a more accurate understanding of their customers, businesses are better prepared to combat fraud. A symptom of account takeover fraud can include someone trying to log into an account who doesn’t match the account owner’s profile, for instance.
  • Lowering the expense of attracting new clients: More internal processes could be automated with a more streamlined identity verification process. As a result, businesses are able to acquire customers more cheaply and more effectively, adding to their customer base.

What is Digital Identity used for?

In many situations, digital identity can be used to confirm identity. Here are a few typical applications for digital identity:

Opening accounts

To create a bank or other financial services account online, identification verification is nearly a given. Banks now use facial recognition technology to confirm that the person presenting the ID is actually the one who owns it before allowing new customers to open accounts by taking a photo of their valid identification.

Age verification

Driving, renting, buying alcohol or other prohibited items, gambling, and many more services and transactions all need customers to be a specific age. A business is protected by using digital identification for age verification by ensuring that they don’t trade with prohibited customers.

High-risk transactions

Customers may need to re-verify or authenticate their digital identity if they are moving a significant quantity of money or engaging in other high-stakes activities.

What are the examples of Digital identity?

A person’s authentic online self is represented by their digital identity, also known as their digital ID. A digital identity can be made up of a variety of distinctive identifiers, just like in the physical world. These consist of:

  • Personal information, like name and date of birth

  • Email addresses

  • Usernames and passwords

  • Social Security numbers

  • Passport numbers

  • Online search activities

  • Purchasing history or behavior

Businesses can identify individuals thanks to their distinctive identities and behaviours.

What are the benefits of Digital Identity?

In addition to creating bank accounts and signing up for services, proving one’s identification is frequently required in order to buy age-restricted goods, enrol in college, or demonstrate one’s eligibility for a licence or a rental. Digital identities are used more frequently as organisations transfer more of their operations online. The advantages of a digital identity include its location-independence: rather than physically visiting a branch or location, you can prove your identity digitally from wherever you happen to be.

The enhanced security and fraud detection that can be carried out digitally are further advantages of digital identification. Digitally verifying identity has grown more secure as technology has advanced. Additionally, using a digital identity is quicker.Digital identity verification that is automated by AI frees up internal teams, improves user experience, and eliminates the need for manual verification. Digital identity’s security, simplicity, and speed may boost client acquisition, decrease drop-off, and guard against fraud.

How is Digital Identity Verified?

There are several ways for businesses to confirm the online identities of their clients since a digital identity is made up of many different components. These techniques offer various degrees of certainty when establishing whether the individual is who they say they are online. Does their online persona correspond to who they are in real life?

It will be difficult to determine someone’s true identify by focusing on just one aspect of their digital identity. For instance, usernames and passwords by themselves are insufficient to confirm a person’s identity.

The optimal strategy for confirming a person’s digital identification will include a variety of checks. These could incorporate many of the following:

  • Database checks for ID records: Background database checks evaluate user information against extensive databases, such as consumer, credit, and utility databases, and provide a low-friction solution for customers.
  • Checking for proof of address is a crucial step in complying with various AML regulations when onboarding new customers.
  • Document Verification: Database checks alone can’t always provide assurance in a customer’s identity due to regulatory requirements, fraud susceptibility, or a lack of coverage. By authenticating a legal document, document verification increases client trust in their identification.
  • Biometric Verification: Assists in confirming the legitimacy of the individual presenting an identity document. A customer’s face biometrics being compared to those on their identification document improves security, complies with regulations, and may make future biometric authentication easier.
  • Check the watchlist when onboarding users and keep track of them afterwards for possible exposure to sanctions, politically exposed individuals (PEIs), and other data sources.

How is Digital Identity used in financial services?

A physical-first banking experience won’t do in a digital age where consumers value convenience and instant access. Today’s consumers take online banking services for granted.

But shifting money management services online isn’t the only way to digitise banking interactions. Digital presents new challenges for the financial services industry, including preventing online fraud, protecting user privacy, and easing customer experience friction.

On the dark web, stolen personal information and SSNs are readily accessible by fraudsters who utilise this data to create false accounts. Additionally, customers must have faith in the onboarding procedure. If they believe their data is not secure, the process is too intrusive, or onboarding takes too long, up to 43% of customers will give up on creating an account.

By making digital identity verification a key component of their digital strategies, banks can satisfy the needs of contemporary customers while also protecting their company and their clientele.

How are Digital Identity Verification solutions used?

There are several levels of certainty in a customer’s digital identity depending on the methods used to verify them. For a number of reasons, biometric verification in particular has demonstrated effectiveness in confirming customers’ digital identities.

Firstly, customers are accustomed to and conversant with biometric verification technologies. Many of us unlock our phones daily using biometrics. People become more at ease using this type of technology as we all become more accustomed to it. Consider the example of online banking. Twenty years ago, it was a novel idea that many people viewed with scepticism. Today, we all use it.

Customers favour biometrics as well. Our Digital by Default survey found that 8 out of 10 clients regard biometrics to be both practical and safe. In order to satisfy the demands of modern customers, biometrics are undoubtedly the best option.

And last, fraud may be successfully thwarted by using biometrics. According to an Identity Fraud Report 2022, the average fraud rates for selfie and video checks in 2021 were 1.54% and 0.17%, respectively, as opposed to 5.9% for document fraud.

Additionally, businesses can prevent issues like stolen IDs by verifying that the identity document belongs to the person presenting it by comparing a customer’s facial biometrics to those on the identity document. The fastest-growing type of fraud in the US, synthetic identity fraud, may also be prevented by using biometrics to safeguard enterprises.

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