The Ultimate Guide to Identity and Payment

Opinion

By some estimates, the identity verification market is expected to be worth nearly $13 billion by 2024. Identity, one of our most valuable assets, is only becoming more important as a central part of how our economy functions. 

At Civic, we spend a lot of time thinking about identity. In today’s digital age, identity is more complex than an understanding of oneself. Identity has become the compounding of everything that we own, do, and share. Without verified attributes such as your name, social security number, and date of birth, a person is, most often, barred from engaging in society as we know it today. Bank accounts, housing, and healthcare become inaccessible to someone without an established identity. As we’ve argued in a previous blog post, our digital identity is how we present ourselves to the world and how we interact with it, so it’s important that each of us has control over our own. 

Identity is at the heart of everyday life. So is commerce – and therefore, payments. 

What is a payment? The most basic definition of payment is an exchange of value for goods or services. Originally, payments happened in the form of bartering. Each party would trade for something they needed: a gallon of milk for a dozen eggs, for example. Over time, currency was developed, as ancient civilizations evolved to use precious metals, leather, and paper money to pay for things. In 1816, England established gold as its standard of value. Credit cards appeared on the scene in 1912, and it wasn’t until 1994 that digital payments were introduced. While the form of payments has changed dramatically over time, the transfer of ownership, and how we get things, hasn’t evolved dramatically. Under our economic system, everything that has value carries an associated cost. 

How do identity and payment play off each other? 

With the advent of credit cards, e-commerce, and digital currencies, the relationship between identity and payment has become inextricable. Digital payments above certain values, for the most part, cannot be completed with identity verification; and digital transactions are on the rise. In 2018, cash transactions made up only 30% of all transactions; and 55% of transactions under $10, respectively. All other forms of payment, from e-commerce to credit cards, require a unique identity generally determined by a) what a customer knows, i.e. their PIN number, secrets, or b) what the customer has, i.e. possession of a card. 

Payments tied to a customer’s identity are a double-edged sword. On one hand, identity presents a way to build consumer trust by making transparent the parties engaged in a transaction. On the other hand, not protecting identity and attaching payments data to it can backfire on e-commerce merchants. Reports from Accenture show that banks have spent $1 billion a year for the last 10 years on identity management solutions. Banks see identity verification of customers as critical to the security of transactions and an integral part of regulatory compliance. 

To combat security issues, companies are beginning to innovate on payment privacy and initiatives with identity as the cornerstone to most solutions. 

Our very own Civic Pay app uses blockchain to combine identity verification and payment in one single transaction. Starting with vending machines, the Civic Pay app secures transactions by verifying users once; thereafter, users don’t ever need to be verified again. Their existing verified identity can be reused with a simple biometric reauthentication, making sure that the owner of the device is the one making payments, thus avoiding the type of fraud credit card theft has brought forward. What’s more, people paying this way can safely purchase age-restricted products and engage in transactions where identity verification is required. All through their mobile device. 

How can identity and payment benefit customers?

User experience is taking priority in the retail and other industries. Integral to providing a great user experience is making the payment process seamless and efficient. Customers want their payment experience to be simple, flexible, and secure. Merchants should be able to accept a variety of payments – from NFC to instant transfer through platforms like Venmo, users want their personal preferences catered to. And, no matter what their preferred method of payment, customers want their transaction to be secure. Research by security company Kaspersky Lab found that 42% of internet users would complete more online payments if they believed they were protected from cyber fraud and identity theft. 

One example of how a brand is using identity to improve the payment process is Amazon Go. These cashless grocery stores use AI and image recognition software to allow shoppers to take what they need and leave. Amazon bills a customer’s credit card as they leave through the turnstile. The app later sends a detailed receipt to the user’s phone detailing the transaction amount, items purchased, and time spent in the store. Nowhere in the shopping expedition is there a checkout line or a cashier; instead, the entire shopping expedition relies on images and a personalized barcode attached to your Amazon account. 

Verified identity solutions are the silver bullet for many of the obstacles toward improving the payment experience. For companies seeking to expand their accepted payment methods and secure every transaction, identity is key. 

In conclusion

Automated retail such as vending machines are the first examples of how powerful a role identity can play in the payment industry. As more and more transactions shift away from cash, securing your identity and payment wallet will become as crucial as securing your personal bank account.