What is a Digital Identity?

Digital identity is still a relatively recent development. Because of our world’s rapid digitization, more and more aspects of our lives take place online these days. We‘re not just referring to online shopping here; nowadays, we use digital services to manage our finances, buy insurance policies and many more transactions - all from the comfort of our own homes. In doing so, we all gradually create our own digital identities, often without even being aware of it. But what does the term "digital identity" mean, and why do we constantly need to verify it?

Definition: Digital Identity

A digital identity makes it possible to verify that an identity corresponds with a person in the physical world. It is designed to ensure that you are dealing with the right person.

A digital identity includes all information about a person that is available in digital form. When combined, you can make out a person's identity with this information. Every person with any type of online credentials has a digital identity. This identity can take many forms, from a profile on Facebook or an online store to a banking identity. All of these establish a person's digital presence in the digital world. The respective service providers all know, to varying degrees, who the real person behind any digital identity is.

All e-commerce companies need at least very basic information about their customers, depending on the regulations and risks applicable for a particular industry. Know Your Customer (KYC) regulations, for example, require identity verification - especially for financial institutions, to combat money laundering and terrorism. Yet, if a company sells only clothing, for instance, they will require less information about their customers. For the latter, it is basically a matter of verifying the accuracy of payment data and delivery address. 

Verified Digital Identity

Digital identity is a generic term for all digital information available about an individual. A verified digital identity, however, is a proof of identity issued by a trusted service provider that requires physical verification through the presentation of an identity document, such as a passport, and meets the regulations of the E-Sign-Act in the United States of America as well as the even more stringent eIDAS requirements in the EU.

Digital identities as such may consist of information provided solely by the customer without verification through a third party, such as a Facebook account, effectively rendering them unverified. However, it is also possible to conduct an identity verification and validation to obtain a verified digital identity.

It can be a challenge, however, that currently, each platform uses a different identification procedure. This is the reason you have to verify your identity over and over again. However, efforts are already underway at both state and international levels to establish a uniform model.

What is an eID?

An eID (electronic identity) is a digital solution to verify the identity of individuals or organizations. It is more convenient and secure than traditional proofs of identity such as passports or ID cards. At the same time, it establishes the same level of trust as their physical counterparts. With an eID, users can use their smartphone to manage the release of their own identity data for transactions. It allows them to disclose only those pieces of identity information required for a particular transaction without having to worry about what other information is transmitted.

With their eID, customers can easily log in to all kinds of services online without having to remember multiple usernames and authentication methods. Instead, they can rely on their eID as a standardized registration option to access information in the public and private spheres.

Unfortunately, the eID isn’t a common solution yet, which is why there are other services available for companies to verify their customers' identities in the meantime. The automated digital identity verification, for example, is one of them - a method that is convenient, efficient, as well as secure.

Example: EU eID

So far, the EU has been an exemplary forerunner with its digital strategy. In June 2021, the European Commission presented its plans for a European digital identity for citizens of the EU and Europe. It is supposed to simplify administrative processes such as renting an apartment, enrolling at a university or opening an account outside of one's home country. User-friendliness and security are of fundamental importance in this endeavor.

By 2030, at least 80% of all citizens should own and be able to actively use a digital identity to access key public services. The goal is to create a trustworthy and secure European eID framework. This new provision is based on the Regulation of the European Parliament and of the Council of the EU on electronic identification and trusted services for electronic transactions on the internal market (eIDAS Regulation), which dates back to 2014.

To ensure that citizens are able to control their own data, they will be able to use EUiD wallets to decide what information about their digital identity is disclosed. They will also be able to use electronic signatures this way. These digital wallets will be subject to a directive stating that each member state must issue them within one year of the new regulation coming into effect.

Risks of Digital Identities

As with all sensitive data, digital identities are also at risk of theft or manipulation. If someone were to gain access to another person's or company's online banking password or PIN, for example, they could impersonate that person or organization and act on their behalf.

Another problem is that people today often create various digital identities on different platforms, which leaves them more exposed to cyberattacks. Without rigorous identity verification procedures, the risk of identity theft and cybercrime grows. Additionally, gathering evidence in cyberspace (digital forensics) is often more difficult than in the physical world.

There are a number of ways to protect against such dangers. Companies should, for instance, implement appropriate data protection measures, ranging from securing employee data to establishing their online presence in compliance with data protection requirements. Obtaining cyber insurance is another option that companies may want to consider.

Digital Identity Management

Digital identity management (IdM) or identity and access management (IAM) enables authorized employees to access the tech resources they need, while restricting access to authorized users only. It includes policies and technology that regulate how employees, groups of people, or software applications are identified, authenticated, and authorized throughout an organization, including user rights and identity-based restrictions.

An identity management system prevents unauthorized access to systems and resources, protects against data exfiltration, and alerts to access attempts by unauthorized individuals or programs, both inside and outside the organization.

Digital identity and eID are increasingly important in our digitalized world. They offer convenience and efficiency, but also come with challenges. Protecting digital identities is critical, as they are vulnerable to theft and misuse. Developing and implementing solid identity management solutions is crucial to ensure privacy and security. At the same time, we need to make this technology accessible and user-friendly to encourage acceptance and mainstream participation. Finding an intuitive solution to verify identities could help in this regard. Contact us now for a consultation.

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