Digital Identity’s Call For Democracy

With online fraud’s rapid growth into a shady multibillion-dollar annual business, preventing it is becoming increasingly critical for all merchants and consumers. One area where fraud is being fought is within the gaping loopholes in identity authentication. Just in the last six years, Fraudsters are estimated to have stolen over $100 billion.

Travis Jarae, an industry leader focused on initiatives related to the future of identity verification and developing FinTech compliance standards, knows firsthand the verification challenges plaguing the payments ecosystem and the future of digital identity.“A great number of companies today are trying to tackle some of the biggest global issues, which revolve around the lack of a solid identity verification solution,” said

“A great number of companies today are trying to tackle some of the biggest global issues, which revolve around the lack of a solid identity verification solution,” said Jarae, who has worked in the identity verification field for companies including Citi, Deloitte and now Google (all opinions in this article are his own). “In the U.S., it’s pretty straightforward, but if you look at countries in the European Economic Area (EEA) for example, that’s when it gets to be more difficult, because of the many different languages, document types, and governments.”

PYMNTS recently caught up with Jarae to discuss pressing issues hindering the adoption and growth of the digital identity ecosystem.

The core issue

“The issue of identity verification fringes upon a host of other related issues such as cyberthreats, identity fraud, and financial inclusion. Any solution developed to solve issues around identity; however, will need to be built for financial services first” Jarae said.

An identity verification solution that is built around improving financial inclusion can open up access to products and services to the unbanked and underserved, he explained. “You have to put financial services and financial inclusion front and center. There are over 2 billion people around the world [who] have an issue with [financial inclusion] – and that number is not shrinking.”

The 2 billion people account for 38 percent of adults worldwide and 73 percent of individuals who are unbanked due to costs, travel distances and complicated requirements for accessing financial services, according to the World Bank.

This has attracted numerous tech and nontraditional banking companies to invest in FinTech and to monetize the huge opportunity financial inclusion poses. In the first quarter of 2016, global investment in FinTech ventures reached $5.3 billion, marking a 67 percent growth over the same period last year, according to an Accenture report.

“They do not have the required identity credentials to be verified,” Jarae said of the unbanked population. “If you ever want to expand any payments-type product, you really have to set the groundwork first and that groundwork is making sure you can onboard your target user base to use your payment product, cross-border or not.”

The democratization of Digital Identity

As financial institutions build inroads to achieve higher rates of financial inclusion in developing parts of the world, they are doing so by establishing digital identity of unbaked users. The process, however, invites the possibility of a group of institutions owning and controlling a user identity — something, Jarae believes, should be left in power of people.

Hypothetically, Jarae explained, if one major bank were to invest heavily in building a user identity verification infrastructure for its financial services, other banks could potentially tap into its KYC database for vetting both new and potential customers, thereby leaving a user’s identity only as good as the invested bank’s due diligence program.

This is something Jarae is working on preventing through his nonprofit called The Identity Institute, which is slated to launch in 2017.

“The idea for The Identity Institute is to solve the issue of financial inclusion with identity related solutions. We also want to make sure identity is democratized, and that it’s not owned by one institution or many institutions – that your identity is owned by you”, Jarae said.

The four tenets of the Institute, Jarae said, are: incubating startups that are geared to take on the issue of financial inclusion through digital identity, convening with industry experts to explore new ideas through data sharing, mobilizing policy and capacity building through advisory work.

If “one entity or a couple of large groups own your identity, you really don’t have much control over that. We need to make sure we, as a society, set ourselves on the right path when it comes to identity. We plan on helping startups in the identity space to build the path to a safer and more inclusive world,” he said.

Identity and its many faces

With the surge in usage of social media platforms and rapid digitization of old-school technology, the constitution of physical and digital identity is increasingly converging, Jarae explained.

“It’s a funny thing. We’ve done a lot of different interviews of folks around the world – tons of different ages, everyone from 16 through their 60s, and there’s a point around 35 where the definition of digital identity seems to flip,” Jarae said.

When people younger than 35 were asked how they perceived their digital identity, he explained, they often tended to talk about their presences on Facebook and Twitter first, followed by their passport, driver’s license and other documents traditionally associated as the pillars of identity, Jarae explained.

On the other hand, people older than 35 related to physical documents like their passport, driver’s license and their family, as their identity.

“And then when they get into their 60s, you don’t even hear about their Facebook account being part of their identity,” Jarae said. “So there’s a huge range there, and more and more you’re going to have a digital presence that’s totally converging, and you’re getting to a place where you’ll have to prove both.”

The idea of converging identities is also being embraced by the U.S. federal government.

Last month, the U.S. Customs and Border Protection agency sent a proposal to the Federal Register to add a new section to visitor applications listed under the visa waiver program that would give users a choice to optionally disclose their social media profiles on Facebook, Twitter and Snapchat. The proposal is currently under review.

Other than social data, biometric authentication is yet another promising form of authentication, which when used in combination with other authentication methods makes for a powerful tool, Jarae said.

Some of the new-age biometric methods like voice recognition, iris scanning, selfie verification and others — including user behaviors, such as screen interaction and movement sensors — when put together, makes for a solid solution for identity verification, Jarae explained.

Verification of users’ identities through their mobile usage patterns is also part of Google’s Project Abacus, which is aiming to eliminate the necessity of PIN-based passwords for mobile devices. The project was revealed by Google’s ATAP Chief Regina Dugan at this year’s annual developer conference.

Fraudsters and blockchain

While biometrics and social data are viable solutions for identity verification, Jarae thinks of the blockchain as the breakthrough innovation that holds the most potential.

“I would have to say the blockchain is the biggest innovation, period. I definitely think [digital] identity and the blockchain will have a very good marriage in the foreseeable future,” Jarae said of the potential of security offered by blockchain tokens for identity verification.

For now, institutions need to catch up with the ever-evolving, fast-changing definition of identity by utilizing social and digital data to improve their KYC standards.

Nonetheless, disruption in KYC standards won’t happen overnight and the blockchain seems to have a bumpy road ahead before it potentially becomes a solution to keep fraudsters at bay.For Jarae, identity poses a challenge that keeps him up at night, but not from fretting, as one might expect. “Fraudsters keep me going at night. They’re the ones that make this exciting, right?” he said.

For Jarae, identity poses a challenge that keeps him up at night, but not from fretting, as one might expect. “Fraudsters keep me going at night. They’re the ones that make this exciting, right?” he said.

To download the August edition of the Digital Identity Tracker™, powered by Socure, click the button below.

About the Tracker:

The PYMNTS.com Digital Identity Tracker™, powered by Socure, is a forum for framing and addressing key issues and trends facing the entities charged with efficiently and securely identifying and granting permission to individuals to access, purchase, transact or otherwise confirm their identity.