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The economics of identity

Posted on: Monday 9th of June 2014

Every day individuals have to undertake a range of information tasks such as ‘fill in a form’ or ‘prove you are who you say you are’ when dealing with organisations.

This second task of identity assurance is critically important for both individuals and organisations. If it goes wrong, it opens the door to identity theft and fraud. If either side doesn’t trust the process, they might walk away from the transaction, or they default to a much more cumbersome and expensive process such as manually presenting and inspecting identity-confirming documents such as passports or driving licences.

The costs of identity

In a project for the Open Identity Exchange Ctrl-Shift has been looking at what it costs for organisations and individuals to undertake identity assurance processes, how much these costs could be reduced by alternative approaches, and what opportunities these alternative approaches could open up.

Today’s set up is pretty dysfunctional. Every organisation creates its own systems and processes for assuring identities, forcing customers to learn, adapt to and jump through different sets of hoops – the user name and password nightmare, for example. It’s a honeypot for hackers and fraudsters. And because of this many of the most important identity assurance tasks are still conducted manually, adding huge amounts of cost to both sides.

By looking at the number and range of identity tasks individuals and organisations have to undertake every year, and the costs of these processes, we found that ID assurance costs the UK economy around £3.3bn a year – and that’s before counting the costs of fraud.

Cost reduction opportunities

We also found that these costs could be reduced by over 90%.

How? In two ways. First, by digitising manual processes. Currently, to get a high level of confidence the person is who they say they are, they are required to present a range of documents such as passports, utility bills and so on, that can then be inspected. But what if, for example, my driving licence and passport came with a secure, encrypted, electronic token that I could use online?

It needn’t stop at driving licence and passport. It could extend to all sorts of things: educational qualifications, proofs of transactions and contracts, medical data and so on. This is a new market for ‘verified attributes’ where every organisation becomes both a verified attribute provider and user.

The second way to cut costs is to eliminate re-work. Currently, if customers jump through a set of hoops to prove our identity to one organisation, if they deal with another organisation they have to start all over again. But what if they had a system where, once they had done it once, they created an assured identity – an electronic token – that they could use again, and again, and again? If it cost, say, £15 in terms of labour time to create the identity in the first place, and if it was used 100 times, the unit cost would fall to 15p (versus £150 if you had to go through the whole process anew each time).

This is what the UK Government is trying to do with its federated Identity Assurance programme where five accredited identity providers – Digidentity, Experian, Mydex, The Post Office and Verizon – compete to provide individuals with these identity credentials.

A new market

From Ctrl-Shift’s point of view, the exciting thing about this is the way it enables the new market for Personal Information Management Services (PIMS). The identity assurance work that’s currently taking place is effectively creating the infrastructure and rules for a new market for verified attributes (of which identity is one part) where, over time, individuals can build up a rich library of verified attributes about themselves, that they can share with organisations to help them deliver service.

Using these verified attributes (and mixed with non-verified information about plans, preferences and so on) individuals can create rich profiles and persona that help businesses and public sector organisations serve them better at much lower cost.

As it happens, we’ve also undertaken new research to identify the size of this PIMS prize. Hint: it’s much, much bigger than the market for identity assurance services, who are akin to ISPs making a rich array of online services possible.

But more of that later.

Read more in the full report – Economics of Identity.