Digital Identity of Consumers: The Risk and the Role of Banks

Soniya Khanna

06 Jul, 2023

With the convenience and seamless customer experience that digital banking provides, many consumers are shifting to digital banking from traditional banking. In the process, consumers require providing their digital identity to banks, which involves certain areas of concern like security and privacy.

What is Digital Identity?

 A digital identity is the compilation of information on the individual that exists in digital form. This can vary from bank details, login IDs, and passwords, biometrics such as fingerprints, etc. Such an identity can give access to consumers to use banking services online.

How does Digital Identities (DI) benefit banks and consumers?

DI benefits both banks and consumers in a number of ways:

Benefits for Banks

• New Revenue Streams;
• Enabler of Open Banking;
• Enhanced Products; and
• Operational Efficiency.

Benefits for consumers

• Enhanced security in the form of biometrics etc;
• Access to other services;
• Personalized offerings; and
• Convenience with control.

What is the risk with Digital Identity (DI)?

Your DI acts as a currency on the web. Although in your favour it can give you access to your accounts, allow you to open new accounts, and give you credibility to engage in a trustworthy manner with online products and services, the fact that your personal identity is available online means that it is subject to hacks, breaches, and theft.

The threat to DI of consumers comes in the following form and manner:

• Mobile device attacks

With the increase in mobile banking applications, there has been a massive rise in consumers using banking transactions through their mobile phones, and it has also increased attacks by cyber hackers. Financial institutions need to work hard on preventing ID theft and fraud on their mobile platforms.

• Rise in Synthetic identity fraud

Large datasets such as the ones lost in the recent high profile breaches can be used to create a semi-fictitious personage for the use in Synthetic identity fraud.

• Malware

Increased cases of malware have posed a considerable risk to DI of consumers that has made the consumers fell unsafe to provide DI.

• Ransomware

Ransomware is also a type of malware that threatens to publish consumers DI or perpetually block access to it unless a ransom is paid. There have been numerous cases of ransomware where DI of consumers were stolen, and a huge ransom was demanded in exchange for it.

Should banks guard the digital identity of Consumers?

The single interoperable DI could be a dominant force over the next few years within the financial services industry. Often given the push by digitally-minded governments, there are DI schemes and where they have been established, they have evolved differently in different markets in the last 20 years. They have been able to provide high population penetration and efficiency and security for consumers due to the bank collaboration that they had.

In such cases, banks have been able to play their trusted role in the economy, their technical knowhow, and experience with shared infrastructure, to bring about a level of success in opt in digital identities schemes that governments have found it challenging to achieve. However, it may be noted that banks cannot take their position in digitized identity for granted. In countries where banks have driven the DI agenda, regulation and market structure can change, and new competition may emerge.

Those countries that are working on DI frameworks or that are looking to expand government national ID schemes into private sector usefulness, banks must be aware that the big tech players and other globally networked companies have the potential in them to topple the global market for the digital ID.

If banks can get right with DI, then they stand to realize the benefits in the streamlined sales process and customer onboarding, reduce losses significantly arising from frauds and regulatory fines and the potential for new revenue-generating identity-based products and services but essentially they can maintain their roles as arbiters of trust and also stay relevant in the transformation of the digital economy.

Conclusion

Read our article:Digital Identity of Consumers: The Risk and the Role of Banks