The Future of Identity in Financial Services: Threats, Challenges and Opportunities

Identity is ingrained in the life of every American. It affects our security, our privacy and our liberty.

And from an economic standpoint, particularly as we move high-value transactions into the digital world, identity can be the great enabler. It provides a foundation for digital transactions and online experiences that are more secure, more enjoyable, and ideally, more respectful of individual privacy.

Unfortunately, the ability of consumers to prove their identity — that they are who they say they are — is more difficult than ever before, in part because hackers have caught up to the tools we have depended on for identity proofing and verification.

The Better Identity Coalition was launched to tackle issues just like this. Together, with recognized leaders from diverse sectors of the economy — including financial services, health care, technology, fintech, payments and security — we’ve made it our mission to find innovative ways to empower Americans to conduct their business online, safely and securely.

When we don’t get identity protection right, we make it easier for criminals and other adversaries to mount attacks in cyberspace. Verizon’s 2017 Data Breach Investigations Report revealed that a whopping 81 percent of breaches were the result of weak or stolen passwords.

Getting identity protection right is important to every sector of the economy — especially financial services, where identity is essential to ensuring security, maintaining the integrity of the financial system and enabling great customer experiences. To achieve these outcomes, there are four major challenges that every financial services company must address:

• New account fraud. It’s difficult to figure out whether someone is who they claim to be at account opening. Not surprising, this is one of the areas where we have the most work to do. Losses from new account fraud increased 13 percent in the past year to $3.4 billion.

• Synthetic identity fraud. This is when fraudsters combine a fake name with a real Social Security number to trick a financial system into thinking that an applicant’s identity is real. The Federal Reserve recently reported that synthetic identity fraud cost U.S. lenders $6 billion in 2016; most of the victims in the United States are children.

• Authentication. Once an account has been created, the challenge is to create systems that can securely log a customer in to that account, in a world where passwords just don’t cut it anymore. 

• Open banking. Banks and fintech firms need more sophisticated identity solutions to enable consumers to share their banking data with account aggregation services, or to enable third parties to make payments from their account.

Within financial services, not all of the challenges are the same. While passwords are broken, consumers and businesses have greater access to tools that they can use in addition to — or in lieu of — passwords. But unlike passwords, where the market has responded with tools like FIDO authentication and behavior analytics, identity proofing and verification have yet to be sorted out.

And it’s increasingly become clear that although industry is innovating, the private sector cannot solve this problem on its own. 

At the end of the day, governments are the only authoritative issuers of identity in the United States. But the systems that governments administer are largely stuck in the paper world, while commerce increasingly moves online. This “identity gap” — a complete absence of credentials suited for digital transactions — is actively exploited by adversaries to steal identities, money and sensitive data, and to defraud consumers and businesses.

The Better Identity Coalition’s 2018 report Better Identity in America: A Blueprint for Policymakers details the following steps that governments can take to improve identity proofing and verification: 

• Modernize our legacy paper-based systems around a privacy-protecting, consumer-centric model that allows consumers to ask the agency that issued a credential to stand behind it in the online world — by validating the information from the credential. At the federal level, the Social Security Administration, and at the state level, agencies that issue driver’s licenses and identity cards, are in the best position to offer these new services.

• Develop a forward-looking investment strategy for identity research and standards.

• Address policy and regulatory barriers that inhibit private-sector entities from modernizing identity systems — and create incentives that promote the adoption of innovations.

The need is there. The time is here. We can fix our system for verifying and protecting our digital identities, but governments need to play a role. Only then can we truly take advantage of this new digital world — safely and securely.

Jeremy Grant is coordinator of the Better Identity Coalition, an industry organization that works with policymakers to improve the way Americans establish, protect and verify their identities when they’re online.

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