In a world where money moves faster than ever, and as cross border payments surge, identity verification is struggling to keep up. However, digital identity is emerging as a convenient and critical safeguard against fraud, inefficiency, and regulatory chaos. Could this be the missing piece in the global financial puzzle? The signs are positive, but more needs to be done to make digital ID a trusted and secure component of the system.
What is a digital identity?
Businesses represent themselves in the digital world through a digital identity, which is data that uniquely identifies the company, allowing it to access services, conduct transactions, and engage with customers.
Foremost, a digital ID is used for authentication and authorization. It verifies an individual or business’s identity to access online systems, services, or platforms. A digital identity also helps establish trust and ensure security, enabling compliance, online transactions, secure data sharing, and other communications with clients and partners.
Why do businesses need digital identities for KYC?
When it comes to services, both businesses and consumers expect speed.
“Generally speaking, financial services have gotten faster,” says Scott Johnson, Vice President of Technical Program Management at Convera. “When you look at real-time payments, when you look at stablecoins and other crypto assets, a lot of money moves faster. But that doesn’t necessarily mean that compliance and KYC processes have kept up.”
That’s why one of the core use cases for digital identity in cross-border payments is KYC, know-your-business (KYB), and other due diligence and compliance processes. By integrating digital IDs into their systems, businesses can streamline — and even automate — KYC, as part of their compliance with AML regulations.
Top benefits of digital identities for cross-border payments
Fraud prevention: A digital identity can help authenticate a business in real time, preventing fraud, identity theft, or falsification. It can also ensure that only authorized employees approve or make payments.
Streamlined compliance: With a digital ID, a business can instantly verify its legal status and financial standing without paperwork and compliance reviews.
Security: A standardized digital identification framework can help simplify and secure payments across borders.
Who is adopting digital IDs?
In a recent survey, 42% of business leaders said they are actively integrating digital IDs into their systems, and are expecting to see these key benefits:
- Improved customer experience — 75%
- More efficient identification verification — 74%
- Better compliance with regulatory standards — 73%
- Enhanced security and fraud prevention — 71%
The race to integrate digital identities is underway, with many countries starting to rely on digital IDs to give their citizens access to various services. However, the implementation varies.
India’s Aadhaar is the world’s most-used digital ID system with more than 99% of the population registering their biometric data to access government services, open bank accounts, verify their identity, or for other uses. This authentication system enables both instant KYC for businesses and seamless digital payments for consumers.
The European Union is creating a digital identity wallet — eIDAS 2.0 — for its citizens, businesses, and residents. There are four pilots already running in several countries, and by early 2027, the digital IDs are expected to take effect across the EU.
With such a standardized digital ID system, financial institutions and cross-border payment providers will be able to streamline user verification (for both individuals and businesses) across jurisdictions, reducing cross-border friction and simplifying compliance with different regulations.
It’s not just governments; businesses are getting involved in building a digital ID infrastructure as well. “I’m really interested to watch over the next year the evolution of self-sovereign identity,” Johnson says. “I think there are a lot of third-party companies, non-governmental companies who are experimenting in this space along with blockchain initiatives and regulator-driven initiatives.”
What is self-sovereign identity?
Self-sovereign identity (SSI) is a digital identity that gives the user (a business or an individual) complete control and ownership over what data, and when, is shared without relying on an intermediary to store or manage it. SSI is based on blockchain, decentralized identifiers, and verifiable credentials.
Rather than relying on fragmented digital identities managed by various third-party services, SSI offers businesses a unified solution. As researchers from the Fraunhofer Institute for Applied Information Technology explain, it enables “a unified identity management solution that allows for the portable and interoperable use of verifiable identity data across services.”
With SSI, businesses can seamlessly and securely verify identities without relying on traditional, time-consuming, and often manual KYC procedures. Financial institutions can more efficiently comply with regulatory requirements, streamline customer onboarding, and reduce fraud. For users, this means an improved customer experience, and for cross-border payment providers, reduced operational costs
Navigating the challenges of digital identity
Despite the promise of SSI and digital wallets, several key challenges and risks require global attention across industries and institutions.
Digital ID challenge: Lack of widespread adoption
“If 10% of the population is using a digital identity scheme, probably no company is going to do the work to integrate with it,” explains Johnson. “It won’t have utility, and then the remaining 90% of the population will not want to use it.”
For example, in the UK, 71% of surveyed people said they have some understanding of digital identity, but 38% of respondents also reported that they had never used a digital identity service because, the majority said, they currently have no need to use it.
Digital ID challenge: Inefficiency, uncertainty, and complexity
Even as the EU’s eIDAS 2.0 provides a regional framework that aims to solve interoperability issues and establish a trusted infrastructure across Europe, there’s no unified global vision for digital wallets.
Similarly, although gaining traction, SSI has not yet been widely adopted. Valued at $3 billion in 2024, the global SSI market size is projected to reach $39 billion by 2033. However, hampered by the lack of government and regulatory support, challenges in scaling decentralized solutions, and the complexity of existing legal requirements for data protection and privacy, businesses are hesitant to invest at the moment.
“Digital identity solutions hold immense potential for transforming COMESA’s financial landscape, promoting inclusion, and reducing fraud,” writes the Business Council for the Common Market for Eastern and Southern Africa (COMESA). “However, their implementation must be thoughtful and balanced, addressing valid concerns about privacy, exclusion, and data protection.”
Similarly, in the US, where 63% of consumers use digital wallets for cross-border payments, fewer than half of small- to medium-sized businesses do the same. They cite the lack of an industry standard, complexity, regulatory uncertainty, and security as a few of the main reasons.
Digital ID challenge: Privacy and fraud
Inherent to the capture, storage, and use of personal data are risks associated with privacy violations, identity theft, data breaches, and fraud.
“These systems have to be secure, and they have to be secured in a really future-focused way,” Johnson says. “A lot of us are really excited about the productivity promises of artificial intelligence, and I’d guess that fraudsters are also really excited about the productivity enhancements they can get out of AI.”
With generative AI, potential threats to digital ID security include deepfakes — synthetic media can now easily deceive biometric verification systems. In 2024, for example, a finance worker wired more than $25 million to fraudsters who used deepfake technology to impersonate the company’s chief financial officer in a video conference call.
As deepfakes grow more complex, so do the technologies and tools meant to detect them. Similarly, businesses are hoping that governments will regulate synthetic media and its creation, while ensuring that existing and future digital identification frameworks are agile and able to keep up with evolving security threats.
The digital future of cross-border payments
Digital IDs have the potential to transform the cross-border payments industry.
“Businesses should certainly pay attention now, as this has the potential to move quite quickly,” Johnson says. “And so you should be ready, understand what digital wallets can and can’t do, pilot an experiment, be agile, and be willing to pivot.”
As governments around the world are working on building digital identity frameworks, businesses can start using digital identity to make their customers’ lives easier, enable more people to access financial services, reduce the burden of compliance, and streamline KYC checks.
