In a recent article, journalists at The Economist attempted to answer the question, “Which firms will profit from proving your identity online?” They examined various statewide, national and overseas public-private partnerships that have been set up to link online and offline identities in order to prove people are who they say they are when they interact and transact in the virtual world.
One such initiative, the National Strategy for Trusted Identities in Cyberspace, plans to align with several hundred US businesses on developing common standards for online identification – and thinks half of all Americans will be using a multipurpose log-in issued by its participating firms by 2016.
Theoretically, this should result in economic gains for those participating companies, right?
Here’s the rub: No one has yet solved the riddle of how being a “public” identity provider (IDP) really pays off in the end. What’s the business model, and where’s the ROI? To be more valuable than social media logins, an IDP needs to assume some liability for the transactions, financial or otherwise, that are performed based on claims it has made to service providers about the end user.
It seems to me the amount of value provided is often directly related to amount of liability assumed. To do this right, an IDP needs to do enough ID proofing – or user verification – to manage that risk. And the IDP needs to do that for a large enough audience to make it worth a service provider’s effort to integrate with the IDP’s service in the first place.
I’ve always thought that organizations that have close relationships with their customers – the types which have already done ID proofing, like banks, credit card companies, PayPal, and wireless providers – would be the ones to solve the riddle of “consumer authentication” or “public authentication” first. That way they could leverage the asset they have in those existing customer relationships to create new value.
But for now, it’s a chicken-or-the-egg situation: No one has invested in making those close relationships with a broad range of consumers yet in order to provide a public IDP service. Some of the large enterprises that we already have those relationships with are beginning to enter the IDP market – it will be interesting to see how those business models evolve.