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Digital Identity & Costs of Fraud
- The lack of trustworthy and secure digital identity is an extremely costly global problem, resulting in billions of dollars spent by business and government entities.
- If properly implemented with interoperability, security and privacy, digital identity can help mitigate fraud, identity theft, and more.
Without a clear, verifiable way to prove one’s identity online, cybercrime related to identity theft or impersonation has ballooned, affecting individuals, businesses, and the allocation of public benefits. In addition to mitigating the costs of fraud to individuals, businesses, and taxpayers, a digital identity infrastructure can also unlock vast economic upside if designed with interoperability, security, and privacy.
The line graph below demonstrates total losses attributed to "Imposter Scams" in fraud reports to the Federal Trade Commission (FTC), broken down by different subcategories of Imposter Scams.
Source: Federal Trade Commission, Fraud Reports
Additionally, there is a surge of identity-related fraud in accessing public benefits and financial assistance. Since the onset of the COVID-19 pandemic, unemployment insurance (UI) fraud has grown astonishingly.
The U.S. Department of Labor's Inspector General states that of "the estimated $872.5 billion in pandemic UI funding, at least $163 billion in benefits could have been paid improperly, with a significant portion attributable to fraud."
Businesses and other organizations do not have a verifiable way to segment users, so they need to resort to storing user data on their own servers. This creates centralized honeypots which are ripe for bad actors looking to gain unauthorized access to personally identifiable information (PII).
According to a study by IBM, the average cost of a data breach for a company in the United States is $9.44 million, compared to the global average of $4.35 million. This total cost represents expenses such as legal fees, lost business, and damage to the company's reputation. For “mega-breaches” with between 50 to 60 million records affected, the average cost is $387 million.
The lack of trustworthy and secure digital identity is a massively costly global problem, for individuals, businesses, and governments alike. The threat of data breaches alone creates intense pressure for compliance and liability insurance for any businesses that touch personal data. This can be extremely prohibitive to businesses, innovation, and partnerships.
So how can we combat this? In the next section, we'll outline what a future state might look like powered by digital identity.