Jip de Lange, Innopay: "Digital Identity has evolved more and more into a channel for transactions"

Digital Identity is all we hear lately. What is it all about?

With the maturing of the internet, it has evolved more and more into a channel for transactions. A whole new set of contexts in which people want to interact and want to do business with each other.

Many of the traditional arrangements that we use offline have to be adjusted for adequate use on the web. In order to do business online, reliable solutions for the digital identity of buyers and merchants are instrumental.

For merchants it is important to know who their customers are, in order to offer them a seamless shopping experience, which eventually leads to higher conversion. For consumers there is value in controlled ways of sharing (parts) of their identity.

As the number of online transactions is increasing, there is an accelerating demand of consumers and businesses for reliable and safe digital services. The market is further fuelled by an array of security, privacy and KYC (know-your-customer) driven European regulation (PSD2, General Data Protection, SecuRe Pay, eIDAS, AML4).

So the market for digital identity is growing as a result of the digitalization of our society. Both for incumbents and new players, this market represents new opportunities.

Why is this especially relevant for banks?

As the market is far from mature, banks are particularly well positioned to claim a position in the digital identity market. Banks already possess at least three features that could help them secure a position in digital identity services:

- Their regulated position has earned banks the trust of consumers, businesses and the public sector. The digital identity market is a so-called two-sided market, where two categories of actors have different needs: a user (typically a ‘the buyer’) wants to use the service of the relying party (‘merchant or government’), whereas the relying party wants to know who he is dealing with.
- Banks are experienced with cooperation in two-sided markets, as the payment market represents such a market as well. This experience provides banks with the network that is needed and enables them to build services on top of that network.
- Banks possess a rich set of verified data about their customers. Banks can draw on this information they have of their clients and enable them to share this information in a controlled way.

So banks are well positioned to offer digital identity services to customers. Do you also see any constraints?

It is clear that digital identity services provide a huge opportunity and banks are not the only players aiming at a position in this field. With the rise of third-party providers, the most valuable part of the transaction, the user experience of authentication, might no longer be exclusively part of the issuer’s service.

New players challenge the traditional business models of banks. On the side of the acquirers we observe a similar movement. Challengers in this domain (e.g. non-bank (Internet) payment service providers (PSPs)) are already putting the position of traditional acquirers to the test.

As mentioned before, banks own certain capabilities that place them well to leverage identity services. They are however not the only industry that has certain starting points. Examples include existing identity service providers who can be seen as the early pioneers of the market, or large merchants who already created their own infrastructure to know their customer.

Another potential category of competitors are the postal services who are looking for new markets to replace their traditional ones or social networks, who already have proven to scale quickly and have access to lots of personal information of their users.

So for banks to seize the opportunity of claiming a position in the market the time to act is now, as other players are warming up as well.

What is the purpose of the Digital Identity Day, which Innopay is organizing in Stockholm in August?

With such an event, we aim to bring bankers and other diverse stakeholders together from the financial transaction community, and show them the possibilities to seize the opportunities in the digital identity market and create a revenue stream of it.

The program is centred around first-hand thought sharing by banking practitioners from Norwegian and Swedish banking based eID solutions. Nowhere is the digital identity market as developed as in the Nordics. We can learn from best practices and share thoughts on this important development together. As for Innopay, we have a tradition of putting new developments in the transaction world on the agenda. For us, digital identity is the logical next step.

About the author:

Jip de Lange (1981) is a consultant at Innopay. As a consultant and project manager, Jip leads small teams during short term, high-impact assignments in the field of digital identity, e-payments and transaction services.

 Company Description

Innopay is an independent management consultancy firm specialised in digital strategy and transformation. For businesses it is a challenge to stay relevant in the increasing digital world. We help clients by providing strategies and solutions in the field of digital identity, online payments, ecommerce, digital innovation and e-business.