Digital wallets are revolutionizing the payments landscape. As a virtual way to store payment methods such as credit and debit cards, they have also been a convenient place to store boarding passes, tickets—and potentially—a whole range of government documentation such as driver’s licenses, passports, and even Social Security numbers.
In a recent report, “How Alternative Identity Authentication Methods Will Change Payments,” Matthew Gaughan, Analyst for Emerging Payments at Javelin Strategy & Research, explores how emerging technology is at the forefront of altering the way a consumer’s identity is verified. He also outlines the implications and lessons we can learn from a country already making a significant progress with digital IDs.
Transforming Identity Authentication
There are two sides to how emerging technology is changing the way consumers’ identity is being authenticated: the client facing side and the backend technology side.
On the consumer side, emerging technology has already made its way into the checkout process at brick-and-mortar locations, including Panera Bread. Recently, the company announced it was implementing Amazon One in its locations, letting customers both pay via the palm of their hand, as well as access the popular chain’s loyalty program.
Certain ATM locations in China also enable customers to have access to their accounts by using physical biometrics such as a facial scan.
On the tech side, public key cryptography is the underlying tech solution that uses a private and public key pair between the user and the entity that they’re interacting with in order to confirm a user’s identity. Consumers can safely attest their identity without having to enter knowledge-based credentials, such as a username or password—which are more susceptible to data breaches and phishing attempts.
Implications to Consider
According to Gaughan, public key cryptography will play a major role within countless touch points along the payments journey once it is more widely adopted.
“It’ll be something that I think is powering the technology that helps authenticate a user’s identity—digital IDs, biometrics—at checkout, onboarding, or during approval for a financial product like a loan,” he said. “I think it’s crucial that strategists educate themselves on this tech if they haven’t already.”
“Digital wallets will be the key to future payments success,” he said. “They will be foundational to the distribution of tokenized digital IDs. In the same way that a user could choose which card to pay with, they will be able to securely share a unique identifier like a social security number to complete a range of processes.”
Taking a Note from India’s Alternative Authentication
Through its current framework, India was able to introduce mobile payments to a population that’s nearly double that of the U.S. The key to the country’s success was in its introduction of a digital ID in the early 2010s, called Aadhaar. It’s a 12-number identifier that enables users to attest their identity while opening a bank account. It was on top of this technology that India was able to roll out its Unified Payments Interface (UPI) in 2016, which allowed citizens to transact with their peers and businesses via a single app, across hundreds of banks.
Gaughan believes that the U.S. may not be able to replicate this framework due to different regulatory and market driven characteristics. However, something can be derived from India’s implementation of mobile payments.
“The lesson is that emerging identity authentication and new payment solutions should develop congruently, so to allow for maximized accessibility for all citizens, not just those with the most resources,” he said.
Learn more about the nascent technology, its possible use cases, and how other countries have made strides towards digital IDs.