The Fragmentation Challenge
Pamela Oldfield
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Modern KYC infrastructure is increasingly fragmented - and it’s not because the companies who need to use KYC solutions want it to be that way. Certainly, no product, technical or compliance team actively pursues multiple integrations, complex systems and manual processes as a strategy!
Before we discuss how the Fragmentation Challenge presents itself in an organization, and what options exist to tackle them, let’s have a quick look at the bigger picture - the external factors - that are contributing to the challenge.
The Bigger Picture
KYC is inherently complex. Depending on the nature of business, the industry and geographies a company operates in, it needs to comply with the regulatory requirements of the industry and of the country. A gambling company, for example, typically has at least eight verification methods - from documentation, to proof of address, to payments, to biometrics, to two-factor authentication, geolocation, and others - the volume and variety of providers to support all these methods is vast.
Against this backdrop, the first of the macro factors we’ll discuss is:
Constantly evolving regulation, most recently eIDAS 2.0
eIDAS 2.0 has been grabbing headlines and headspace as it heralds a paradigm shift for digital identity in Europe. By 2026, EU member states will need to make a national digital identity wallet available to citizens. These wallets must contain at least two digitized government documents, such as driver’s license and passport. While the Nordics are well known to have been ahead of the curve by several years, countries such as Poland already have this implemented, with Germany, France and Italy, amongst others, also in various stages of delivery. The United Kingdom will also launch their own digital identity wallet in the summer of 2025, starting with digital driving licenses.
Accommodating these new verification methods is not optional for organizations with operations in the United Kingdom and European Union. New digital identity verification methods will affect multiple industries, from gambling, to crypto, to payments (particularly around SCA), and more.
In parallel: user adoption of digital wallets and expectations
While overall adoption rates of digital identity wallets in European countries has been rising steadily since the early 2020s, with countries such as Norway seeing 79% of the population owning a digital identity and Netherlands with 87% and France with 61%, the demographics of adoption is where organizations will also need to pay attention.
For many organizations, demographic information is vital when it comes to informing product development and delivery. Being aware of user expectation can make the difference in competitive markets, when it comes to acquiring new customers and maintaining customer loyalty.
When we look at the demographic breakdown by generation for digital wallet adoption, the numbers are higher than people expect:
- 79% of Generation Z consumers
- 67% of Millennial consumers (aged between 29-44)
- 45% of Generation X consumers (aged 45-60)
Needless to say, these two major factors result in a push-pull relationship where, if an organization is to remain competitive, they need to be masters in striking a balance between compliance and customer experience and customer expectation.
When external factors and internal realities collide
All we’ve discussed so far, collides over the heads of the people responsible for product, technology, operations and compliance. If an organization is in a regulated industry, it is these teams who must balance compliance and customers.
And, as the Authologic team speaks to people from these teams regularly, some of the top challenges we hear about are:
- Speed of new integrations: as verification methods continue to evolve and increase, teams are finding it difficult to keep up with demand as each new provider and/or method requires its own integration and testing.
- Optimizing services: a close second to new integrations, is the need to A/B test different services to ensure conversion rates are improved and efficiencies achieved in provider spend. The ability of teams to do this is a challenge as each service needs to be set up, run in parallel, analysed, and so on. Managing multiple, individual services is a time consuming process.
- Data consistency: managing different providers for multiple verification methods produces a lot of datasets - nearly none of which are consistent with each other. Therefore, the work required by internal teams to normalize data across multiple providers and methods takes yet more time, and is a headache.
- Orchestrating OCR and eIDs: many companies utilize OCR/Liveness technologies, yet they will still need to have eIDs. They will need to orchestrate these two systems and trying to manage it results in high infrastructure and maintenance costs.
For organizations grappling with the Fragmentation Challenge, and especially for those trying to build, manage and maintain it all by themselves, this introduces levels of risk (from security, to data processing, to tribal knowledge, to complexity of systems) and overhead, not to mention opportunity cost.
As KYC and verification methods continue to evolve, organizations should consider streamlining where they can.
For organizations interested in this, Authologic have helped customers successfully address the challenges discussed, and through its API-first approach, enabled customers to:
- Access multiple verification methods and providers, on a single platform
- Use out-the-box workflows to take your customers through a seamless KYC process
- Quickly and easily A/B test for the solution that fits business and customer needs, best
- And more...