Managing Director & Senior Partner; Corporate Finance & Strategy Regional Practice Area Lead
Identity solutions are an integral part of the digital experience—and consumers want nothing to do with them. By authenticating users, these platforms keep fraud at bay, boosting trust, clicks, and sales. But they often require consumers to jump through hoops—creating unwieldy passwords, for example, or entering verification codes from a second device. The seamless convenience consumers expect online is now a trip to the dentist.
As a result, many digital identity solutions aren’t as efficient, effective, or commercially successful as they could be. Consumers often decline to use more secure, but more onerous, features like multi-factor authentication. Meanwhile, a number of large businesses—including some of the household names of the digital era—have opted to go their own way, creating proprietary identity platforms.
No solution—whether homegrown or off the shelf—will truly succeed unless it is designed with consumer preferences and behavior in mind. This means using data and technology in a way that lets authentication operate invisibly in the background—just the way consumers like it. This isn’t easy to do. The solution must access the right identifying information at the right time, leverage a flexible data infrastructure (one that brings together different types of structured and unstructured data), and call on sophisticated capabilities in artificial intelligence and machine learning. But this holistic approach to digital identity—bringing simplicity to consumers, security for businesses, and success for the providers who get it right—is achievable.
As connected devices proliferate and digital transactions multiply, we expect the market for identity authentication and fraud solutions to boom, increasing from $12 billion in 2018 to $28 billion in 2023. Identity authentication will be an increasingly important component of that market. (See Exhibit 1.) Robust front-end verification—ensuring that the person initiating a digital transaction is who they say they are—can help minimize fraud by keeping out bad actors.
This gatekeeping is essential if consumers are to put their trust—and their dollars—in online transactions. In the digital era, nothing is certain except death, taxes, and data breaches, and many of those breaches expose personally identifying information, such as passwords, social security numbers, and credit card data. In the first six months of 2018, according to the Gemalto Breach Level Index, some 3.25 billion records were compromised in the US alone, a 356% increase over the same period in 2017. Effective authentication can take big bites out of both direct fraud (such as unauthorized money transfers) and downstream fraud (the billions of dollars lost each year to transactions that utilize data compromised in a breach).
Not surprisingly, many players want to lead the gatekeeping. Established identity solutions providers and startups alike are building capabilities and pursuing patents and acquisitions. In 2017, there were 226 identity deals funded via the private equity market, according to CB Insights—up from 123 in 2012. (See Exhibit 2.)
Yet even with all the investment and interest, the market still lacks a clear leader. Three significant challenges explain why this is the case:
These challenges are holding back identity solutions—to the point where some digitally focused businesses are taking matters into their own hands. Amazon, Apple, Facebook, Google, and Microsoft are among the companies that are bypassing providers and developing homegrown solutions. Yet these same challenges also create an opportunity. A provider that understands the pain points and can navigate around them could create a solution that works for all stakeholders—one that is seamless for consumers, efficient and effective for businesses and governments, and a differentiator for its creator.
To create a seamless, efficient, and differentiating experience, solutions providers—startups and established players alike—need to rethink their strategy. They need to evolve their solutions to align with consumer preferences and make the most of the data and technologies relevant to digital identity. This means embracing five key practices:
Digital identity is a fast-moving space in which technologies, data, rules, and preferences are in constant flux. But one thing is certain: the most successful solutions will provide a user experience that’s tailored to how consumers are actually likely to behave. For providers, that means designing solutions with the consumer’s perspective—and preferences—always top of mind. It also means utilizing data, technological capabilities, and processes in a holistic way, investing in and applying the mix that simplifies yet enhances authentication. This kind of seamless, secure identity solution will be a boon for consumers and businesses—and a bane for fraud.
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