Take a look at the 2021 Fortune 500 ranking and you’ll notice a trend: companies that provide customers with premier digital experiences that are easy, secure, and privacy-enhancing climb the ranks, while companies that fail to pivot to digital-first strategies often fall by the wayside. Take Chipotle, for instance, one of the most surprising companies to make its debut on the Fortune 500 this year. While the COVID-19 pandemic severely impacted the restaurant industry as a whole, the fast-casual Mexican eatery enjoyed a 60% increase in its stock price. According to CEO Brian Niccol, Chipotle’s “billion-dollar digital business” that allows customers to pre-order food on its app is one of the primary reasons for its recent success.
On the other hand, JCPenney’s struggle to pivot to a digital-first strategy has led to store closures, layoffs, and a painful fall from the Fortune 500. As the leading companies begin to recognize the outsized importance of their digital channels in an economy transformed by the COVID-19 pandemic, many are taking a new look at an old problem: the decentralized nature of consumer identity management. To improve customer experience and cut down on fraud, companies should rethink their decentralized approach to digital authentication and embrace a more holistic, phone-centric model that reduces friction and protects consumer privacy.
Companies eager to follow in the footsteps of Chipotle and other industry leaders by improving their digital business will have to go well beyond cosmetic changes and reinvent their consumer identity management system from the ground up. Today, by and large, companies operate in closed-loop identity management systems. While this decentralized approach gives companies increased control over their digital onboarding process, it contributes to a digital economy plagued by friction and inefficiency.
If your company is using a legacy system, be mindful of the onboarding and logging-in processes that customers have to endure. A tedious or ineffective approach can drive away business: According to a study by Liminal, 42% of consumers have abandoned an online or mobile account application due to friction at onboarding. Consumers who persist through onboarding may be thwarted during the log-in process. Fed up with logging into multiple digital accounts throughout the day, Liminal found that 44% of consumers use just two to five password variations for all of their accounts. Poor password hygiene exacerbates fraud, which leads companies to implement even more frustrating security measures (CAPTCHAs, anyone?). Michael Schrage, visiting scholar to the MIT Initiative on the Digital Economy, put it simply: “Profitability predicated on customer friction, intrusion, and irritation simply isn’t sustainable.” The worst part about the state of today’s cybersecurity industrial complex? It’s incredibly ineffective at preventing fraud.
Based on my experience, using a personal identity ecosystem (PIE) to place consumers at the center of a network of digital service providers can dramatically cut down on fraud, reduce friction, and jumpstart the next major wave of digital innovation. Within the PIE, various stale databases currently operated by individual digital services are replaced by one centralized, always up-to-date, and cryptographic source-of-truth: a consumer’s phone number. By embracing a zero-knowledge framework within the PIE, companies can easily authenticate users without ever even knowing a customer’s personal data.
Implementing the PIE can help remove artificial walls between digital services and unleash the power of interoperability. For example, I believe it won’t be long before consumers can easily transfer funds from their Zelle account to their friend’s Paytm account.
While fully shifting to a personal identity ecosystem will take time, there are a few steps companies using legacy systems can take now to make things easier for customers:
• Take a cue from the TSA: Believe it or not, businesses have a lot to learn from the government agency tasked with protecting our airports. By creating the digital equivalent of a pre-check line, companies can cut down on wait times for legitimate customers while still maintaining stringent security measures for all.
• Keep it real: Use real-time phone signals (how long a phone has been in use, for example) instead of passwords to authenticate users. Because passwords can be stolen, real-time phone signals are a much more robust identity verification method.
• Make it easy: Don’t make life any harder for your customers by requiring endless form-filling. Instead, leverage verified auto-fill data to accelerate onboarding while also reducing fraud.
I believe that the next reshuffling of the Fortune 500 and the Global 1000 will be based on how easy it is to transact with a business in digital channels. Digital services that are easy to use, secure, and privacy-enhancing win market share over those that aren’t. In a digital economy transformed by the pandemic, expect a total transformation of consumer identity management.
Rodger Desai is the CEO & Co-Founder of Prove, the modern way of proving identity with just a phone.