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December 1, 2021 - Eduardo Guraieb

A Closer Look at Digital Identities and Fraud

As financial services move increasingly toward a digital model, one crucial ingredient for their provision lags behind: a reliable means of identity verification. How can financial institutions trust that a person is who they claim to be?

Until now, financial institutions have largely relied on the same measures that online retailers take for identity verification: matching account usernames and passwords, comparing PII with credit card details, and using personal questions and answers (e.g. hometown, maiden name, pet’s name, etc.), for example. Given that fraud continues to occur, it’s clear that these measures are not enough and better approaches to identity verification are needed.

Could an official digital identity fill the gap in fraud detection?

What is a Digital Identity?

Much like an official ID card used in the real world, a digital identity is a set of digital credentials used for online activities. Unlike the traditional username and password combinations, a digital identity is supported and regulated by a national ID program. Like your driver’s license or social security number, every digital ID is unique to the individual. 

Some attributes it might contain include:

  • Personal details such as a name, birth date, address, and/or social security number
  • Biometrics, such as voice or facial recognition, fingerprint scanning, or retina scans 
  • Unique ID numbers issued by a citizen’s country

National ID schemes are on the rise, with countries like Finland, Germany, Spain, Estonia, and Italy already implementing the technology for their citizens. What’s more, the United Nations and World Bank aim to provide everyone globally with a digital ID by 2030.

A Closer Look at Digital Identities and Fraud (1)

How a Digital ID Supports Fraud Prevention

When applied to fraud prevention, an official digital identity aims to foolproof the online identity verification process. Digital IDs contain sufficient information about an individual for them to prove their identities online, even when visual signals like a photo or signature are unavailable.

What’s more, digital IDs should be (and mostly are) impossible to replicate, forge, or steal. Rather, they help to curb the widespread circulation of fake IDs and documents that obscure a person’s real identity. Each individual can only have one digital ID in the system and must meet high standards for verification and security.

As a result, for example, payments are more trustworthy and secure, reducing the risk of chargebacks and losses to merchants. Digital IDs also limit the chance of credit card theft for individuals, as unauthorized purchases cannot be made. 

The Future of the Digital ID

Widespread adoption of digital financial services is likely to continue growing, even when conditions return to pre-pandemic norms. E-commerce has also been steadily increasing year over year, rising 32.4% in 2020 alone. As more consumers are taking a digital-first approach to daily life, identity authentication processes must follow suit.


Part of the push for digital identity policies comes from the Open Finance Revolution that is set to transform the way we look at financial services. Check out this condensed infographic that will bring you up to speed on open finance.

Open Finance: The Future and Challenge of Data Sharing

Photo of Eduardo Guraieb
about Eduardo Guraieb
Eduardo is a Product Marketing Manager at DataVisor with experience working with fintech startups and top-tier international financial institutions. Eduardo is passionate about marketing, financial inclusion, coffee, and bicycles. He holds a law degree from the Technological Institute of Mexico (ITAM) and an MBA from Berkeley Haas.
Photo of Eduardo Guraieb
about Eduardo Guraieb
Eduardo is a Product Marketing Manager at DataVisor with experience working with fintech startups and top-tier international financial institutions. Eduardo is passionate about marketing, financial inclusion, coffee, and bicycles. He holds a law degree from the Technological Institute of Mexico (ITAM) and an MBA from Berkeley Haas.