Digital IDs vital to combating identity theft, fraud in the US and Canada

• A digital ID is seen as a critical way to combat identity theft and fraud, and provide higher-level security for online transactions
• According to Aite Group, nearly half of US citizens experienced financial identity theft in 2021
• Digital ID adoption amongst Canadians is at the forefront of certain payment services like Interac and Transunion

Banks, emerging neobanks, and fintech companies have all struggled, no matter how high-tech or how ironclad their policies, to keep up with the rampant online fraud plaguing consumers. According to Aite Group, 47% of US citizens experienced financial identity theft in 2021.

The estimated total cost of damages as a result of identity theft and fraud increased by 42% between 2019 and 2020, rising from US$502.5 billion to US$712.4 billion.

Digital banking and e-commerce have become an overnight staple in many people’s lives, but that could come to an end just as quickly if consumers lose confidence in these platforms. As a result, it would hinder marketing efforts and growth. Therefore, financial institutions need to protect customers’ data and money better.

Digital IDs can streamline the banking process

US Banks are under constant pressure to increase cost efficiency and reduce compliance with new regulations. Digital ID is a term that is gaining more prominence in online banking and finance.

According to the most recent study by Brandessence Market Research, the market value of digital identity solutions is expected to record a US$60.88 billion valuation by 2027, with a 15.9% CAGR.

What’s more, financial institutions can leverage digital ID verification and security processes to streamline Know Your Customer (KYC) needs, assess customer risk, and detect money laundering.

Combat identity theft and fraud for online transactions

Digital IDs are also seen as a critical way to combat identity theft and fraud and provide a higher level of security for online transactions. Customers, in turn, want the convenience of not having to carry around multiple identifications and want to reduce the chances of fraud.

However, the report has shown that abandonment of an online banking session is a significant concern for financial institutions as consumer faith in the companies’ ability to protect their data fell from 2020 to 2021.

Soon you will need a #DigitalID to go online. pic.twitter.com/ntj8wPc7vY

— World Ecommunist Forum (@EcommunistForum) March 30, 2022

 Digital fraud, a problem among American consumers

IDology also found that 23% of American consumers said unauthorized accounts were opened in their names in 2021, hiking to 21% compared to 2020. Consumers reported new account fraud in banking accounts, credit cards, and shopping accounts, including government benefits and healthcare services.

The IDology findings suggest that improving digital identification means finding new technology approaches to safeguard people and their accounts further. This would include better communication on the how and why aspects of what the financial institution is doing.

Chief Economist of Financial Systems and Regulation in BBVA Research, Santiago Fernandez de Lis, said at a forum organized by the World Economic Forum (WEF) that financial institutions will face issues related to cybersecurity including identity theft in the digital asset management market. However, trust is key to creating digital identification systems.

Canada deep-diving into digital IDs

Digital IDs are seen as a growing vital component of the Canadian economy. Its various financial institutions are entirely on board, each pushing for their version of the technology.

There are some concerns about how this push will play out, but most experts agree that a municipal digital ID would do wonders for Canada’s economy. Transactions would go smoother, there would be less need to resort to paperwork, and paying bills from a bank account could be done online.

The adoption of digital IDs amongst Canadians is at the forefront of payment service organizations Interac and Transunion. Meanwhile, KPMG Canada is pushing for the integration of digital identification with financial institutions.

The Canadian Bankers Association is also pressuring the Canadian federal government to use Canada’s banks as the foundation for the digital ID, while The World Economic Forum backs this initiative.

This would tie Canada’s banks into the federal bureaucracy even more. The rollout of digital IDs as a powerful enabler of open banking is planned to start in January 2023, according to the Department of Finance’s report issued in August 2021.