If it wasn’t obvious that digital identification procedures were becoming a focal point for businesses, the Coronavirus pandemic made sure to shed some light on it.
During the lockdown, companies turned the online key to full blast and it didn’t take long for the digital identification part of the equation to reveal its importance. Companies need a robust, trustworthy, and seamless digital onboarding process in order to have a fighting chance in the digital world.
Data scandals such as the Facebook scandal and the Marriot data breach are perfect examples that even the biggest players in the game are susceptible to online threats. Finding the answer to the security conundrum is a never ending battle for players no matter of size and experience.
It seems that if there’s ever going to be a sustainable solution to this problem, it’s going to be regulation. In order to create a secure data-processing world, digital identity needs regulation to be its ally and slowly yet steadily, build a framework where this technology can thrive.
Today, we’ll investigate the current regulatory environment surrounding the technology and the friction it causes with user experience.
Comfort vs Safety: A Neverending Story
This idea isn’t new – the safer something is, the longer it takes, the more it costs and the less fun it is. The most advanced and latest iteration of digital identity verification is video KYC in conjunction to liveness checks.
This is definitely a step up from the humble beginning of online KYC, but it’s still far from perfect. These processes are usually expensive to acquire and you are essentially sacrificing a slice of comfort in the alter of safety.
To put it simply, the process is still long and not particularly enjoyable for the end-user.
Financial Sector Can Act As a Guide…of Sorts
The financial sector is one of the most highly regulated sectors regarding KYC, AML and digital identification. Here are the most notable FI regulations:
- AMLD6 – The European Commission’s Latest Directive on AML
- The FATF Guidance on Digital Identity – A guide to help governments, financial institutions, virtual asset service providers and other regulated entities determine whether a digital identity (ID) is appropriate for use for customer due diligence (CDD)
- eIDAS (electronic IDentification, Authentication, and Trust Services) – An EU Regulation that sets out rules for electronic identification and trust services. These services help verify the identity of individuals and businesses online or the authenticity of electronic documents
As you can see, the financial services sector is not leaving anything chance. It seems that this would be the ideal place to start a digital identity regulation crusade, right? Yes and no.
Yes, it is a good place to start because the financial sector has been proactive and has paved the way for setting industry standards. No, it’s not a good place to start because despite it being a heavily regulated sector, financial institutions “boast” the biggest scandals and mishaps.
A recent study from Juniper Research showed that businesses in eCommerce, airline ticketing, money transfer, and banking services, will cumulatively lose over $200 billion to online payment fraud between 2020 and 2024.
Numbers like that do make you scratch your head and wonder why fraud is escalating at a crazy pace when more and more regulation is set in place to prevent exactly that. If we had to create a reasonable argument as to why this is happening, our answer would go like this.
It’s a matter of speed. The speed at which regulation is created, but most importantly enforced, is much slower than the speed at which fraudsters are able to decipher and break through the newest technology.
If the digital identity sector has anything to learn from FI regulation, is that it needs to be more flexible, adaptable, and quicker to respond.
If you’re looking for a good sign on where things are headed, here’s one.
The European Commission recently launched a public consultation on the eIDAS regulation, taking into consideration the latest technological and policy developments, such as the increased reliance on doing business online.
Want another one?
Onfido’s latest report calls for a unified EU regulatory framework for digital identity verification. A system that supports different use cases across different industries.
Signs are promising but the volatility of this industry will never let it take a breather. Regulation is a huge factor in how vendors and technology companies will evolve their offerings. What will happen remains to be seen but you can rest assured we will be here to pick it up and relay it back to you.