In a digital world, there’s no way around digital identity. The topic touches all corners of fintech and ecommerce, and while it can create a stumbling block, leveraging consumer identity data can also hold great opportunity.

We recently spoke with Experian’s Kathleen Peters for her thoughts on digital identity and how financial services companies can use consumer data to their advantage.

Peters started her career as an engineer at Motorola and later moved into voice and messaging encryption technology. Eventually, she began working in Experian’s global fraud and identity business and now serves as the company’s Chief Innovation Officer.

The fintech industry has always struggled with digital identity. Why is digital identity so difficult to get right?

Kathleen Peters: A consumer’s identity is personal; every interaction and transaction requires their identity. Consumers expect a seamless and frictionless experience, but also rely on organizations to protect their information. The balance is crucial and challenging.

As an industry, fintech is known for creating compelling and personalized online journeys. But that experience can suffer if the fraud-prevention routines are perceived as burdensome by consumers.

Every year, Experian conducts a survey of consumers and business leaders, asking them about sentiments, trends, and other matters around fraud and identity. Year after year, the number-one consumer concern is online security. When transacting online, people want to know that their information is safe and secure. In striking a balance with consumers to instill trust, industry players need to show some sign of security that reinforces privacy.

Putting this balance into practice, if a consumer or business is performing a large online transaction, they want to see added layers of identity verification. Conversely, if they are performing a simple online purchase, industry players should not over-index with heavy-duty identity resolution (e.g., facial recognition, passcode) on low-risk, low-dollar transactions. In short, we need the right fraud‑prevention treatment for the right transaction; it is not a one-size-fits-all exercise.

It is important to know a customer’s identity for compliance reasons, but are there business use cases for this as well?

Peters: When it comes to KYC (Know Your Customer) compliance, you want to verify that you are dealing with a real person (not a made-up entity) and ensure that you are not dealing with criminals or people on watch lists. This is a basic compliance check and mitigates the risk presented by increasingly resourceful “bad actors” who have become very sophisticated in how they find and exploit vulnerabilities.

For commercial entities, especially small businesses, you want to know that they are a real business. You want to know that the principals involved in the business (the owners, board members) are not criminals or people on watch lists, or that the company itself is not somehow engaged in things that you do not want to deal with. In this sense, KYC applies to consumers and businesses alike in terms of a compliance check. There is a different level of compliance for consumers versus businesses, but the KYC concepts remain similar.

With KYC, businesses can check the box that indicates that “I am compliant.” That does not necessarily grow a bank, fintech, or online merchant’s topline revenues. Compliance is certainly a core element of identity, but so is identifying a potentially fraudulent transaction. For example, recognizing synthetic identity scams can prevent an organization from losing hundreds, if not thousands, of dollars in fraud losses. 

When the concept of personalization was introduced in fintech, there was a lot of discussion of privacy concerns and fears that consumers would perceive banks’ efforts as “creepy.” Does this still exist today?

Peters: Our annual Global Identity and Fraud Report shows that people hold banks in high regard. They possess an especially strong degree of trust from consumers. Yet, unknown fintechs that may reach consumers through a banner ad or other similar means may not yet possess that same amount of trust. Building trust with consumers is critical, especially for fintechs, and it starts with transparency and reinforcing the value exchange.

What is the best way for banks and fintechs to build trust among their consumers?

Peters: Banks and fintechs need a layered approach to identity resolution that accommodates the balance between fraud detection and the online experience to build consumer trust early in their relationship. Establishing that trust should be a top priority and involves having visible means of security, being transparent about why you are collecting certain types of data, and delivering value for that data exchange (e.g., personalized offers, speed). And that value needs to be immediate and a tangible benefit, not a down-the-road promotion or assurance.

According to our Global Identity and Fraud Report, consumers are willing to give more data if they trust the entity and feel as though they are receiving value.

Once the value exchange is established, those feelings of trust and recognition lead to increased brand loyalty, a holy grail for banks and fintechs.

Given this, what are ways banks and fintechs can leverage consumer data combined with an increase in their trust to better connect with consumers?

Peters: Building relationships with consumers comes down to recognizing them, protecting their information and offering a personalized experience. Consumers want to feel confident that their online accounts are secure, and that they don’t need to jump through hoops to access the resources they need.

It comes down to identifying and understanding consumers and their needs. The best way to do that is with a lot of data. It serves as a vast resource to look at the multitude of behaviors historically and predict the next likely behaviors and intent. Predictive modeling like this can be hard to do, especially if you do not have a lot of historical data. However, with aggregated data, scores, and solutions from a provider like Experian, it can be a very powerful way to drive engagement.

For instance, if a consumer is in-market for a new credit card, banks and fintechs may want to engage their consumers with a personalized offer or increase dollar-value transactions—both ways to build trust.

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