Trends in Digital Customer Onboarding: Is It Time for a Federated Identity System?

06.15.2022

1-Jun-14-2022-03-42-51-56-PM

We are all familiar with traditional paper-based national identification mechanisms like driver’s licenses, passports and social security numbers that have, admittedly, modernized. But as we increasingly move from face-to-face transactions to online technologies, people need to prove who they are in an entirely different way. These traditional methods of identification no longer suffice. Physical documents are too easy to forge and they simply don’t support today’s innovative digital offerings. 

A federated identity system is growing in popularity as a means to store a user’s digital identity to be used across different platforms. So, is it time to make federated identities commonplace?

What Customers Want vs. What Companies Need

Customer onboarding is often the first introduction new clients have to the customer experience. It's an important step on the road to customer loyalty. Onboarding has the potential to create an excellent customer experience. It’s also the first line of defense against fraud. Customers want fast, efficient, and seamless service. Yet regulations — in particular, Know Your Customer (KYC) and Anti-Money Laundering (AML) laws — require that companies get to know who they're dealing with during the onboarding process. Companies must practice due diligence at every turn…often using painfully slow processes. 

In 2021, the long-awaited financial services digital transformation accelerated beyond expectations. This is, in large part, due to the pandemic which drove many consumers online in search of socially distanced solutions. But the road to the digitized future is a bumpy one. While bank profits dipped 70% in 2020, fraud was on the upswing. Last year, identity theft was up 45% and account takeovers rose 38%.

As technology gets smarter, it is increasingly important for companies to protect themselves from the ever-evolving threat. But the path to digitization could be a lot smoother: Instnt is one step ahead with the fully automated and easily deployable plug-and-play solutions you need right now. Plus, we ensure regulatory compliance and give you the potential to go beyond the limitations of traditional legacy systems. 

Trends in Digital Customer Onboarding 

In an effort to prevent fraud during the onboarding process, companies are leveraging cutting-edge technologies. These include the following:

Blockchain is a decentralized public network that digitally records and decentralizes information in a public ledger so that it is not controlled by any one entity. This makes it impossible to cheat the system by altering transactions since doing so would prevent the system from syncing with other members. 

Artificial intelligence (AI) is a branch of computer science that supports various technologies capable of analyzing customer data and monitoring transactions. Instnt utilizes AI via geographic location, velocity checking and user behavior to ensure that customers are onboarded safely. AI as a whole simplifies client onboarding, a particular benefit in highly regulated environments. A federated identity system can use AI to create data bodies.

Digital identification includes facial recognition and document verification, which Instnt can help with. The customer takes a selfie holding an official document such as a passport or government issued identification card. 

Biometrics uses unique human characteristics including fingerprints, hand geometry, iris and facial features to verify identity and mitigate the risk of cybercrime. A federated identity model allows biometrics to be shared among separate central databases.

Strong customer authentication (SCA) is a European regulatory standard to reduce fraud in online and offline digital transactions. As of now, it only applies to European countries, but it will likely become standard in the U.S. also. SCA builds in multifactor identification including something the customer knows, e.g., a PIN, something the customer has, e.g., a cell phone, and something the customer is, e.g., fingerprint. 

These are all viable technologies for onboarding solutions. They could also be part of a comprehensive federated identity system. Federated identity is the result of linking consumer digital identifications and its attributes. Blockchain-based technologies allow everyone access to the data without revealing the actual information and AI is key to creating credible data bodies. The standalone use of any particular technology does not solve the need, however, for a better overall process of digital identification that is simple and secure.

Is Federated Identity the Answer?

If you are the fortunate holder of a U.S. passport, you have unfettered access to 184 different countries, more or less. What if you could log on once and have access to 184 different domains? FIM is to the digital world what the passport is to world travel. More importantly, federated identity management (FIM) simplifies onboarding, for companies as well as their clients. 

In simple terms, federated identity is an agreement between multiple service providers (SP) to link user identity across multiple secure domains. In this way, subscribers can use the same identification data to gain access to all of the networks in the group. It’s fast, it’s easy and it’s secure. 

How Does FIM Work?

With FIM, the user provides their credentials to the identification provider (IdP). The IdP, as the third party link between the user and a number of SPs, stores and authenticates the credentials. Once authenticated, the user can access any of the domains without reauthorization. 

Difference Between FIM and SSO

FIM is similar to single sign-on (SSO). Google, Facebook and Twitter are all SSOs. They provide access to a number of applications through one sign-on. However, FIM and SSO are not the same. FIM provides SSO. SSO, however, does not provide FIM. There are two key differences:

  1. FIM provides access to multiple organizations: SSO can not do this. Rather, SSO provides access to multiple systems within the same organization. 

     

  2. FIM is more secure: The user provides credentials to the identification provider only. The IdP provides authentication upon request to, for example, a trusted SP. The identity provider does not release the actual user security information. With SSO, when the user logs into the various systems, the SP receives the actual user information.

The Advantages of a Federated Identity System

Let’s take a closer look at what FIM provides:

  • Allows multiple companies to share a single application, thereby reducing cost for all
  • Simplifies workflow, which may present opportunities for product and service innovation
  • Reduces the number of resources dedicated to creating single sign-on solutions and authenticating users and frees up precious time for more mission-critical and value-added work
  • Streamlines the customer experience so that business can be conducted quickly and easily — retains more customers during the onboarding process who might otherwise abandon
  • Enhances enterprise security while reducing the opportunity for data breaches

Instnt offers a single signup FIM that provides instant acceptance into all businesses powered by Instnt. 

The Risk

There are many benefits to FIM. The main limitation is that setting up FIM requires an upfront investment of money and time. The ROI, however, can be proven in multiple ways:

  • The retention of customers during the onboarding process
  • The reduction in cost to authenticate new clients
  • The reduction in risk of compliance penalties and litigation
  • The decrease in losses through identity theft and account takeovers

Also, if your company joins more than one federation, you must ensure that the multiple sets of rules are congruent. 

The Solution You Need for Today’s Digital Challenges

What can you do right now? You need an onboarding solution that meets the digital challenges of today. With Instnt, onboarding is powered by the most sophisticated AI. Our accurate and predictive models validate physical documents, stopping bots and bad actors in-process. The end result?  You have more good customers. Try a demo today.

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About the Author

Instnt's fraud loss indemnification technology provides coverage of up to $100M for fraud losses stemming from synthetic, third-party, and first-party fraud. With Instnt's comprehensive fraud loss protection, businesses can confidently extend their services to a wider customer base, enabling them to embrace more opportunities and enhance revenue streams while maintaining a secure, fraud-free environment.