Could COVID-19 accelerate the adoption of a national digital ID in the US?
By Shai Cohen, Head of Global Fraud Solutions at TransUnion
COVID-19 has created a new level of anxiety for consumers and rightly so. Consumers in nations across the world, from the largest like the U.S., to the smallest, have been barraged by the pandemic’s attack on their health and the resulting impact on their personal finances.
This heightened concern has extended to their online transactions. In fact, the TransUnion Financial Hardship Study conducted from Oct. 28 to Nov. 5 found 37 percent of 9,515 consumers globally said they had been targeted by digital fraud related to COVID-19, a 28 percent increase from the same survey the week of April 13.
Shoring up fraud protection
The coronavirus pandemic has accelerated the adoption of new online behaviors and digital transactions ranging in nature from telehealth visits and working remotely with team members via Skype and Zoom. Fewer in-store shoppers and the need to avoid shared physical surfaces has led to a significant boost in online purchases. During the second quarter of 2020, the U.S. Commerce Department reported U.S. retail e-commerce sales were $200.72 billion, a 44 percent increase over 2Q 2019.
Most likely a result of increased activity, cyber fraud and attacks have also been on the rise. In fact, we found suspected digital fraud attempts against e-commerce companies were up globally during the early days of the pandemic when most in-person retail was closed. Specifically, TransUnion found the amount of suspected fraud against e-commerce companies was up 12 percent when comparing the periods Jan. 1st to March 10th and March 11th to April 28th. In addition, the FBI reported complaints about cyberattacks recently rose to as many as 4,000 a day, a 400 percent increase from those reported before coronavirus.
Despite the need to stop digital fraud, there is also immense pressure on executives to capture this new digital revenue. Keeping digital transactions “friction-right” – ensuring customers have an appropriate level of security to trust that their transaction is safe, without impeding a seamless checkout – ticks both of these boxes and is paramount for businesses that want to acquire and keep customers not only during, but after the pandemic. In fact, a new study from the Economist Intelligence Unit (EIU) found nearly 85 percent of over 1,600 global executives said that smooth digital transactions are “essential to business survival.”
The need to move all transactions online, is also shining a light on the need for more economic opportunities to be extended to underrepresented and underserved communities digitally. Perhaps not surprisingly, this has prompted many executives to consider alternatives to the current system.
At a time in which global e-commerce traffic is growing exponentially, global executives are looking towards a national digital ID as a way to address a number of key issues from fraud prevention to smoother digital transactions to providing economic inclusion for the “credit invisibles.” The Consumer Financial Protection Bureau (CFPB) estimates that roughly 45 million consumers in the United States may be denied access to credit because they do not have credit records that can be scored.
The push for a national digital ID
An estimated 1.1 billion consumers globally don’t have basic identification, such as passports or birth certificates. Without proper identification, people are excluded from employment, health insurance, banking, loans, mortgages, credit cards, and even stimulus checks or pandemic- related financial benefits. Giving these consumers a verifiable identity, accessible via the Internet, is an integral way to establish identity in the 21st century. Many believe a national digital ID accomplishes this.
A digital ID is a computer record containing unique identifiers, that allows for civic and social empowerment and lets all citizens participate in the broader economy. According to a recent McKinsey article, a digital ID provides reliable authentication and enables delivery of a range of public and private services via web or mobile applications that require proof of identity. From a business and consumer perspective, digital IDs can facilitate registration and authentication processes, and secure digital payments. And by supporting regulatory compliance, digital IDs can also assist with fraud prevention through age and background checks.
Seven in 10 executives surveyed in the Economist Intelligence Unit Study mentioned above believe a national digital ID gives low-income groups access to consumer services they would have previously been unable to obtain. According to the EIU, respondents from consumer lending and telecommunications were most likely to think such IDs would give lower-income groups access to services they might otherwise lack. The EIU said both industries have led the way over the last decade in reaching the community of financially-underserved customers, manifested in innovations like microfinance and mobile money.
Furthermore, according to the Economist Intelligence Unit study some 70 percent of respondents said they believe having a National Digital ID could help prevent consumer fraud by establishing a verifiable identity. Such an ID can help fraud prevention by backing up biometric identity verification checks and making document forensic checks standard.
Pandemic pushes digital boundaries
One notable feature of the pandemic is that it has exposed various countries’ readiness to switch over to digital. For instance, hackers attacked Italy’s social security emergency payment system when their system was already overloaded with legitimate users desperately seeking to access the crisis payout. But in Estonia, where every citizen has an electronic identity, the government was able to create a furlough system for workers affected by the pandemic. Unlike those in other countries, no Estonians had to wait in line to claim benefits. By building one of the world’s most advanced digital societies, the World Economic Forum dubbed the tiny Baltic nation a “lifeline” during the pandemic. It is clear that these national digital IDs created a friction-right and smooth digital experience for Estonians in need.
As 2020 draws to a close, the digital transformation that COVID-19 has spurred will continue to shape how we live and do business. Taking a page from Estonia’s success, it is time to embrace those technologies that will help smooth digital transactions, strengthen fraud prevention and increase economic inclusion for all.
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