by Jannis Riesz
September 20, 2019

How well do physical identity documents still fit into our digital world? How frictionless can a shopping experience actually be if you we as customers are constantly asked to identify ourselves or to log in?

For these reasons more up-to-date digital solutions are currently being developed. Like credit card networks enabling trusted transactions in stores and websites anywhere in the world, I want to share Wirecard’s insights of similar concepts for entirely digital identities – and of their enormous potential not only for identification but also for payment, two closely related topics.

Across the globe, consumers are rapidly adopting digital channels for more and more of their day-to-day activities. But identifying ourselves and securely paying for goods and services is often still painfully archaic, fraught with security concerns.

The core issue is that traditional ‘proof of identity’ documents – like passports, ID documents and driver’s licenses – are still largely physical concepts that just don’t easily translate into a digital environment. As a globally connected society, we need a clear way forward to create standardized, secure, digital identities that we can use within various digital environments.

What does that mean? From a financial perspective, our ‘digital identities’ are fragmented across government departments, tax authorities, banks, credit card issuers, and other players – and generally disconnected from our ‘national identities’. However, the concept of a unified ‘ses to solve these issues: Whether for online or in-store shopping, for easy identification, for travel or financial inclusion – in our increasingly digital world we need a reliable, secure and convenient digital identity solution. Below I show why and how.

What is a digital identity?

To avoid misunderstandings, it is not just an online profile, avatar, social media account or the like.

Instead, a true digital identity is a verified digitized record of a human’s unique individual identities in the real world. It’s a comprehensive digital vault of information that may include unique characteristics such as fingerprint, iris or voice biometrics, e-signatures, all augmented with identifiers like passport and identity numbers and other records from national government databases.

With trusted digital identities, it becomes easier for an individual to securely verify themselves and the devices they’re using, across multiple touchpoints and in both the digital and the physical world.

Why digital identities hold great potential for retailers

Being able to “identify yourself digitally” is closely related to the subject of digital payment. Whether they are traditional bricks-and-mortar stores, pure-play e-commerce sites, or full unified commerce operations (sometimes still  known as omnichannel), with digital identities, retailers can provide secure and frictionless checkout experiences, and gain a deeper understanding of their customer.

In fact, forward-looking retailers must build customer strategies that extend beyond websites and apps, to cater for new channels like voice user interfaces, wearable devices, connected cars, connected TVs, and many more channels as we embed technology more naturally into our lives.

Wirecard’s position is very clear: There is a need to design smart solutions for these requirements in a world that is becoming increasingly digital. This is why at Wirecard Innovation Labs, we’re developing the concept of a secure digital wallet that will give retailers a wonderful opportunity to unify three related concepts:

  • Identity management
  • Secure payment
  • Personalized loyalty programs
An identity-centered all-in-one mobile wallet for consumers – combining identity, loyalty and payment (source: Wirecard)

An identity-centered all-in-one mobile wallet for consumers – combining identity, loyalty and payment (source: Wirecard)

Digital identity puts control in the customer’s hands

What is the most important thing from the user’s point of view? As a mobile vault that is always with us, the consumers, the concept of a digital wallet will allow us to securely identify and authenticate ourselves using biometrics – sharing our personal details that are needed to complete a given transaction, conveniently making online and physical payments, and collecting / redeeming loyalty points.

Rather than any centralized institution owning and updating vast databases of individual records, a more user-centric approach sees each of us individuals managing our own digital identity (through decentralized database technologies such as the blockchain for instance) which is then validated at the appropriate points by other institutions.

In this scenario, governments may confirm one’s identity number, banks may confirm one’s credit card number, and employers may confirm their salary details. With the combined inputs of each party, a multifaceted and highly robust digital identity emerges. Best of all: it’s ultimately owned by the individuals themselves.

In its study “Digital Identity: Restoring Trust in a Digital World”, Mastercard defines “principles of digital identities” that place the user in control of privacy, ownership, transparency, security, and several other areas.

In their study “Digital Identity: Restoring Trust in a Digital World”, Mastercard defines “principles of digital identities” that place the user in control of privacy, ownership, transparency, security, and several other areas.

Digital identities enable a new level of frictionless experiences

Retailers must balance the need to provide great shopping experiences through all channels with the need to protect the personal and financial data of their customers. The solution may well lie with a single, trusted digital identity – encompassing their entire e-commerce journey from identification, authentication, payment and loyalty.

For a foretaste of what digital identities could enable, at Wirecard, we can imagine the following example from a not too distant future:

Digital identities in action

Michael is 34 and lives in Berlin. His digital identity is composed of various aspects, which he ‘exposes’ to different institutions as they need. At the most basic level, he uses his digital identity for secure physical access to his office and to the local gym. He shares it with e-commerce websites to make purchases, where he also shares certain financial aspects of his identity.

To register for his local government elections, he shares other aspects of his digital identity with independent electoral commissions. At the shopping center, he uses fingerprint biometrics that are linked to his digital identity, to make secure in-store purchases and benefit from loyalty programs. He also shares a ‘lite’ version of his identity with the likes of Apple or Google, to seamlessly sign-up for an array of digital app services and subscriptions.

Over time, as the fundamentals of his digital identity change (such as marital status, credit card numbers or physical address), the institutions he has shared this with will receive automatic updates, meaning no out-of-date information. In just the same way that we control which apps on our smartphones have permission to our camera or our contacts list for example, Michael can simply toggle access on and off, for each service provider looking to access his digital identity, as and when he pleases

That’s essentially what digital identity boils down to: establishing trust and confidence on both sides of the interaction. It’s a similar premise to the credit card systems that we’ve established, where the major credit cards tend to work in almost every store and website, anywhere in the world.

Much higher levels of privacy and security

While it may be hard to nail-down exact numbers, news outlet CNBC cites a study indicating the total annual cost of cybercrime as USD 600 billion, growing wildly year-on-year, as digital commerce continues to gain popularity. The e-commerce sector is certainly affected by evolving threats: sophisticated technical and social engineering efforts from highly professional criminal syndicates.

In response, regulators and governments are scrambling to protect the identities and finances of their citizens, passing laws such as the European Union’s General Data Protection Regulation, which demands that businesses make strong efforts to protect their customers. Across the globe, similar legislation is coming into force.

The promise of digital identities is that retailers will be able to use a richer set of customer data, i.e. not just a credit card number and CVV number on a website, which helps them to confirm a user’s true identity and mitigate the potential for this kind of ‘card not present’ online fraud.

Most importantly, for digital identities to counteract the rising wave of cybercrime, the way that the digital identity data is encrypted, stored and accessed must be bullet-proof. In order to ensure fast access at all times, storage in the cloud is essential, while at the same time meeting the highest security standards – also including strong cryptography and perhaps even Distributed Ledger Technology for decentralized hosting done at many independent nodes.

Digital identities also offer a lot of potential for financial and social inclusion   

The startling truth is that there are more than a billion people in the world without an official proof-of-identity, mostly in far-flung regions in large developing nations, too difficult to reach with mainstream government agencies. Without an official identity, these so-called ‘stateless’ individuals are unable to access key public services, they’re financially excluded, and they’re unable to participate in citizenry such as voting.

But as digital and mobile technology continues to penetrate even the most under-developed and remote regions, new models of identity verification become possible, which might lead to the basic social inclusion of hundreds of millions of individuals. And there is a great need for this, as the consulting firm McKinsey recently showed in their report “Digital identification: A key to inclusive growth”:

According to the authors,

“Digital ID offers individuals social, civic, and political benefits, from increased inclusion, formalization, and transparency to better control of online data. Designed carefully and scaled to high levels in multiple application areas, it can also create significant economic value, particularly in emerging economies, with benefits for both individuals and institutions.”

A very concrete example of how a state-initiated digital identity goes hand in hand with the possibility of including people financially is Wirecard’s cooperation with the Indian YES BANK. The biometric digital payment system developed by the National Payments Corporation of India is based on the Aadhaar system. This is an initiative on behalf of the Government of India to issue a unique identity number for each resident with the aim of promoting social and financial inclusion, public sector delivery reforms, and managing fiscal budgets. As of July 2019, more than 1.2 billion residents have been equipped with a biometric Aadhaar identification, and as a result, it is considered one of the most reliable identity documents in India.

Customers will have access to cash withdrawals and deposits, bank transfers and account balance queries – they can have their fingerprints authorized for these services. Wirecard will also offer services such as ticketing, mobile charging, insurance and logistics via its own network. This serves as a good example of how people in remote areas can now also benefit from classic financial services through a digital identity.

Conclusion: A digital world needs digital identities

In addition to the enormous potential in developing countries and emerging markets, also in industrialized countries our digital interactions are evolving at rampant pace and challenging historical paradigms of identity management. Instead of anchoring identity management in the past, there is an opportunity for retailers to look ahead, get involved in industry collaborations, and prepare themselves to adopt fresh approaches to digital identity management.