Heralded as the “New Internet,” decentralized identity is poised to change how we do, well… everything. From changing the way we think about personal data to removing the notion of passwords altogether, decentralized, or self-sovereign, identity ushers in a new era of private, secure communication between consumers, businesses, and governments.
And while we talk a lot about the impact decentralized identity will have on bringing a layer of trust to the internet and putting personal information back into the hands of its owners, the benefits go far beyond consumers—it’s good for the bottom line as well.
The stage is set for decentralized identity to radically slash costs and unlock new revenue opportunities across the board, starting with the five ways below our customers are exploring today:
1. Removing friction from new customer onboarding
What does your first experience with a doctor, bank, and insurance agency have in common? You probably spent a significant amount of time filling out paperwork and sharing various forms of ID in order for them to get you set up with an account.
Many industries have an obligation to collect and manage certain customer data to verify the identities of those they serve (e.g., “know your customer” or KYC regulations). For other businesses, it comes down to providing a secure and seamless customer experience. You want to be able to recognize and personally welcome your customers each time they call, stop by, or log in. At the same time, customers hate filling out long forms and collecting this data in the first place can a burdensome experience for all involved, resulting in abandoned registrations and shopping carts.
With decentralized identity, onboarding will be largely automatic. The process of applying and qualifying for a new loan can take seconds instead of hours or days. The customer simply has to share a set of credentials (stored in their digital wallet) that have already been verified by a trusted institution. No more calling banks or employers to verify application details.
McKinsey estimates that:
“Institutions using high-assurance ID for registration could see up to 90 percent cost reduction in customer onboarding, with the time taken for these interactions reduced from days or weeks to minutes…. For example, for financial services providers, the cost of offering customers digital accounts can be 80 to 90 percent lower than the cost of using physical branches.”
Financial service providers and other institutions that offer both digital and in-person services can leverage their ability to offer streamlined onboarding to steer customers toward digital services requiring lower overhead costs. Customers who aren’t tech-savvy or don’t like dealing with password managers will almost always think twice about whether or not they want another set of information to keep up with. Those who do use password managers have to decide whether they prefer to deal with multi-step processes to keep their information secure or keep it accessible and risk the possibility of a data breach.
2. Expediting authentication
The friction currently involved in onboarding also spills over into authentication procedures. When employees and customers need to access billing, support, or other services through web portals and applications, the headache involved in dealing with lost passwords, password managers, and CAPTCHAs results in wasted productivity for the customer. And for many, it’s all too much to keep up with, causing 59% of individuals to prioritize convenience over security by using the same password everywhere—which only magnifies the dangers of potential data breaches.
Instead of entering a password or clicking a button to “Sign in with Google/Facebook/Apple/etc.,” decentralized identity allows people to access services using credentials they can store in their own digital wallet. Once a person or organization has gone through an onboarding process, using tools for decentralized identity will allow them to store and share information similar to the way we can select the permissions we’re willing to share when downloading new applications.
Using decentralized identity for authentication can lower costs associated with password support and the friction involved in authentication. In the U.S. alone, Billing and Insurance-Related (BIR) expenses associated with healthcare cost $496 billion a year and represent 15% of total healthcare spending according to the National Academy of Medicine (NAM). NAM estimates that half of that cost could be eliminated by introducing more efficient systems.
The problems associated with BIR expenses can essentially be viewed as a massive identity crisis. Healthcare providers, insurance agencies, and payment processors know they need to work together but the amount of information that requires manual processing introduces numerous opportunities for error and fraud. Decentralized identity makes it easier for individuals and organizations within consortiums like those responsible for delivering healthcare to share the information they need to better serve their customers.
3. Eliminating fraud
In addition to its benefits in onboarding and authentication, decentralized identity improves authentication and verification by making it much easier to understand where information is coming from.
In January 2019, the Hasso Platter Institute reported that a trove of 2.2 billion email addresses and passwords had been published by cybercriminals. Decentralized identity can’t unpublish those credentials but it can give people an easier way to tell where the information they receive online comes from. Committing fraud isn’t difficult given the amount of personal information available on the dark web but it isn’t the only source of trouble, either. The complexity and lack of accountability in large consortiums involved with payment processing offer lucrative opportunities to dishonest individuals.
A great example of organizations using decentralized identity to combat fraud exists in Canada. The government of British Columbia launched OrgBook BC, a public directory of verifiable information about businesses registered in the province. OrgBook BC prevents criminals from making-up or using existing businesses to deceive others for personal gain. If someone in B.C. suspects that an email from their bank may be fraudulent, they can figure it out for themselves using the information available in OrgBook BC, rather than waiting on hold with their bank to see whether or not anyone sent the customer an email.
4. Lowering compliance costs
Compliance with regulations like HIPAA, GDPR, and Know Your Customer/Anti-Money Laundering (KYC/AML) annually create exorbitant costs for businesses. These regulations aim to protect consumers, organizations, and the greater economy from dangerous or malicious business practices, but take a serious toll on even the most ethical of organizations. A report from LexisNexis on the cost of compliance with KYC/AML regulations found that mid-to-large-sized firms average $18.9 million a year in KYC compliance costs.
KYC/AML regulations originally omitted standards for compliance, which led financial institutions to define their own approach. Updates to KYC/AML and the new GDPR regulations have formalized procedures and requirements, creating numerous difficulties as companies rush to bring their operations into compliance with new and coming regulations. Regulations on data privacy like GDPR not only require businesses to give users control over the use of their data, they direct companies to provide explicit details about how they use customer data.
Protocols for decentralized identity comply with these requirements by design. Decentralized identity makes it easy for companies to express what information they need to collect and how it will be used and for consumers to securely store that information and share it as they see fit. Since products that use decentralized identity can be easily integrated with existing systems for digital ID, using them to bring operations into compliance with regulations on data privacy makes perfect sense.
5. Reducing data breaches
Perhaps the most important benefit of adopting tools for decentralized identity is its ability to improve the security of personal information. The increased frequency of data breaches has been a major driver behind new regulation and the impact of data breaches continues to rise according to a report from IBM titled 2019 Cost of a Data Breach. The study says that the cost of the average data breach has risen to $3.92 million and has climbed to as much as $1.4 Billion with the recent Equifax breach. Breaches come with long-term effects that can cost businesses for years after the incidents in addition to the damage done to a company’s reputation.
Protocols for decentralized identity lower the surface area available for hackers to try and penetrate by providing a more secure model for storing and sharing information. Being able to access online accounts using information stored in a digital wallet instead of a username and password means that the information only needs to be stored in one place instead of two. Users can also create separate wallets for separate types of information so that less of their information will be exposed in the event that a wallet gets compromised.
Decentralized identity is an example of a technology that becomes more useful as more people and organizations begin using it. In order to maximize the benefits of decentralized identity, work needs to be done to integrate the technology with existing ID programs serving individuals as well as public and private-sector organizations. According to a 2019 report titled Transforming Government for the 21st Century, the Tony Blair Institute for Global change advocates for:
“An electronic identity system should be the flagship, citizen-facing reform in a suite of APIs, data registers and other software platforms to enable the strategic activity of all layers of government as well as industry and non-profits.”
In addition to serving the public sector, companies are looking to adopt tools for decentralized identity to improve the security of their existing credentialing solutions and remove friction from the customer experience. Using tools for decentralized identity also reduces costs by introducing efficiency and security to onboarding and authentication processes and lowering the potential of data breaches and the cost of compliance with regulations on the use of customer data.
Issues of regulatory compliance aside, the up-front cost of adopting tools for decentralized identity tends to be minimal due to the ease of integration with existing systems. Those who embrace this technology early will gain a competitive advantage over businesses that lag in developing their digital offerings. No matter what pain points they’re looking to solve, they will be able to have confidence in decentralized identity knowing they won’t have to compromise between security and convenience.