As the world becomes increasingly digital, the need for secure and efficient digital identity verification has never been greater. In 2023, we expect to see several key trends emerge in this space, including the continued evolution of KYC (Know Your Customer) regulations, the proliferation of digital ID wallets, mass adoption of Facial Liveness Detection, and the ongoing battle against fraud and fake identities.
Evolution of KYC Regulations
KYC regulations are put in place to ensure that businesses and organizations can verify the identity of their customers, clients, and partners. These regulations are particularly important in the financial sector, where they help to prevent money laundering and other financial crimes. In 2023, we can expect to see continued development and refinement of KYC regulations, as governments and regulatory bodies seek to stay ahead of evolving threats and challenges.
The need for governments to create well-constructed regulatory frameworks is vital if the adoption of digital identity propositions is to be promoted. Clear and stable rules on the collection, processing, and sharing of personal data must be put in place by authorities. This is especially true for the crypto market.
The crypto industry faced challenges at the end of 2022, including the collapse of FTX in November. As a result, the European Transfer of Funds Regulation (TFR) is expected to be extended to include crypto assets in 2023, requiring the sender and beneficiary of all applicable crypto transactions to be identified.
Markets in Crypto Assets (MiCA) has also been proposed as the first major regulatory framework for crypto assets, establishing rules for the issuance, admission to trading, and operation of crypto assets. While MiCA is not expected until 2024, British providers will need to obtain MiCA authorization in order to trade with customers in the EU starting this year.
Both MiCA and TFR could have significant impacts on the regulation of crypto beyond the EU. Since the FTX crash, other countries such as the United States have been looking towards Europe as a model for their own regulatory frameworks for crypto.
Digital ID Wallets
Digital identity is expected to continue its rise in 2023, with digital processes being used to prove a person's identity as the primary way of accessing government, banking, health, workplace, and education services. The global market for digital identity solutions is projected to reach $116 billion by 2030, growing at a CAGR of 18.6%.
A digital ID wallet is a secure and convenient way to store and manage digital identity documents, such as passports and driver's licenses. In 2023, we can expect to see an increase in the use of digital ID wallets as more people embrace the convenience and security of storing their important documents electronically.
There are now so many instances where verification is required for onboarding that it is becoming increasingly time-consuming to go through the same processes repeatedly for each service. As digitalization becomes more popular, the number of expected verification processes will also rise.
The Bring Your Own Identity (BYOI) model, using an underlying ledger infrastructure, is expected to grow in adoption. However, the market for schemes like this remains fragmented with regional variations and no interoperability standards. It is likely that a global standard for portable decentralized identities will emerge in the coming years as use cases continue to evolve quickly.
Mandatory Liveness Detection
Facial Liveness Detection is a technology used to verify the identity of a person by analyzing the biometric sample of their face and determining whether it is that of a live human or a spoof such as a silicon mask, a photo, video, etc. Liveness Detection is performed by a person taking a selfie as a part of an identity verification process or digital onboarding. The detection usually takes only a few seconds, depending on whether it is being performed as an active liveness check or a passive liveness check.
In 2023, the use of facial liveness detection is expected to increase as a means of verifying digital identities. The European Banking Authority has issued new guidelines requiring regulated financial service providers in the EU to conduct biometric liveness checks when enrolling customers remotely. As Europe strengthens its security measures to combat fraud, theft, and money laundering, other markets and regulators may need to follow suit.
Synthetic Fraud Growth
As the economy continues to face uncertainty, fraudsters are taking advantage of the situation by increasing their use of ransomware, geographically-targeted phishing, and attacks related to cloud security and the Internet of Things (IoT). One method that is expected to grow in the coming year is deepfake, as machine learning becomes more sophisticated and facial databases contain more detailed information about people's appearances. This allows bad actors to create millions of fake identities using deepfake technology.
As fraud becomes more sophisticated and widespread, it will be important for organizations to identify both risky individuals and legitimate consumers across platforms. Synthetic identity fraud, in particular, has exploded in recent years, with criminals creating fake identities using various pieces of data to defraud governments and businesses of money. This type of fraud is estimated to cost the U.S. alone $2.42 billion in 2023.
Nearly every organization is at risk of onboarding a fake person, which can result in financial loss, data theft, regulatory penalties, and more. To protect against synthetic identity and crime attacks, businesses will need to enhance their online security measures by implementing robust identity verification solutions.
To summarize, the trends in digital identity verification for 2023 demonstrate the importance of adapting to an increasingly digital world while prioritizing the protection of personal information. By staying informed and implementing robust security measures, businesses can maintain the trust of their customers and build a secure digital future.