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Trend 31 March Mar 2021 0518 31 March 2021

The digital identity business

Italy's public digital ID system reaches 22% in 2020. Last year it was half that number. This new market is drawing an increasing number of startups

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Over 13 million active digital identities are now registered in Italy's Public Digital Identity System (SPID) in 2020, a 140% increase versus 2019 driven by regulatory interventions to simplify adoption and mandatory access to the bonuses and benefits disbursed during the pandemic. A mobile app has also been launched to fully digitise the electronic identity card, which nearly 18 million Italians now hold. Several private initiatives have also emerged to handle the remote entry of new clients, their access to services and also authorisations for digital transactions on different channels. The health emergency, tempered by lockdowns and social distancing rules, has led to a real breakthrough in Italy's deployment of digital identity systems, yet the area still lacks a structured culture with shared strategies and a common direction to exploit their full potential.

Valeria Portale, Head of Innovative Payments and Blockchain & Distributed Ledger Observatories

"The number of active SPID IDs grew by 140% in 2020, with approximately 7.7 million new users compared to the 5.5 million registered at the end of 2019, and monthly accesses increased from 6.3 million in January to 16.7 million in October", points out Valeria Portale, Head of Innovative Payments and Blockchain & Distributed Ledger Observatories, "though booming, Italy's digital identity systems still only 'cover' 22% of the population (and 26% of adults), a far cry from the more advanced European countries such as the Netherlands (79%), Sweden (78%), Norway (74%) and Finland (55%). There are several other popular systems elsewhere in Europe, notably in Germany and France, yet they are based on smart cards, which makes it difficult to estimate their actual use for accessing digital services".

While not yet mature, the Italian market is nevertheless very concentrated. Public administrations have spent just over €7.5 million since 2016 until the end of 2019 to join the digital identity system, of which €5.7 million (76%) was allocated to just ten providers. Only 5,300 out of more than 22,000 public administrations let citizens access at least one digital service with their SPID IDs.

"The pandemic, on the other hand, has dramatically sped up digital identity development, underscoring the urgent need for a secure recognition system", explains Portale, "and key market players are building substantial business opportunities, creating ecosystems and forging partnerships with a view to enhancing digital identity for users in various fields. However, these efforts are merely the starting point of a more complex path: harnessing the full potential of ID systems requires an organic strategy for managing the initiatives emerging in the public and private sectors, developing ancillary services associated with digital identity, strengthening cooperation between public entities and businesses, and experimenting with new technologies to make the systems more secure and certified".

Startups

The growing interest in digital identity is drawing innovative players to the market: a quick survey identified a total of 173 international startups providing solutions to simplify user recognition, tap into technologies such as artificial intelligence, machine learning or blockchain for authentication, or manage the integration of different applications, with total funding of USD 721 million. Only 20 startups (15% of the total) accounted for virtually half of the investments (48%).

Every second startup proposes a simplification of user recognition while ensuring high security standards through biometric recognition, receiving in return an average of USD 5.3 million. Authentication solutions based on Artificial Intelligence and Machine Learning represent 31% of these startups, which receive the most funding, averaging USD 8.9 million. Roughly a third base their business model on decentralised infrastructures, such as blockchain, raising an average of $4.3 million in investment. Finally, 34% specialise in managing APIs (graphical interfaces that enable communication and data transmission between different applications) and integrating the interfaces of different applications.

Luca Gastaldi, docente di Ingegneria informatica al Politecnico di Milano

"Digital identity is becoming increasingly central to online and offline interactions, enabling users to access services remotely," adds Luca Gastaldi, professor of computer engineering at the Milan Politecnico University, "the public digital identity system boomed in 2020, though its true potential is still untapped. There are still too few services accessible in public and private sectors, and the resources allocated by the government to make services accessible via the public digital identity system are limited and in the hands of only a few operators. Italy's SPID system runs the risk of becoming a universal key to open only a few doors, used only when necessary to access grants and spot initiatives, yet not for routine access to frequently used public and private services".

Digital identity models

Digital identity comprises a set of data for uniquely identifying a person, company or object. These data are collected, stored and shared digitally within an ecosystem of actors and through enabling technologies providing access to value-added digital services. There are 5 digital identity models.

  1. The Social ID, i.e. the set of data declared by the user when subscribing to a social platform, such as Facebook or Google identities. It features a minimum verification level with a high update frequency and can also be used to access other digital services.
  2. The eCommerce ID has similar features, but is based on eCommerce platforms or marketplaces, such as Amazon or Shopify.
  3. The eGov ID covers digital identity systems developed and deployed by government agencies to uniquely recognise citizens so they can use public services, e.g. electronic identity cards.
  4. The Financial ID is the profile of identification data collected by a banking institution to recognise its customer, which is then used to access other service providers, such as PayPal.
  5. Finally, the Mobile ID relies on the SIM card as a security element for user identity data, collected and verified with medium to high levels of assurance.

Giorgia Dragoni, Digital Identity expert

"Social and eCommerce IDs are very widely used yet pose problems in terms of user privacy and data processing, while eGov IDs are trusted systems, characterised by high reliability, though often used much less frequently", explains Digital Identity expert Giorgia Dragoni, "eGov has a vastly untapped potential, because it could be adopted by all citizens, yet it is struggling to catch on in many European countries, including Italy. Also trusted systems, Mobile and Financial IDs open up major opportunities with their wealth of data and focus on user experience, a feature that boosts uptake and makes them attractive to users and service providers alike."

Bolstering digital identity

The Milan Polytechnic University believes Italy can pave the way to a stronger digital identity by enhancing existing models, enriching data, integrating the basic ID profile with other information, involving new players in the digital identity ecosystem in different roles and spreading greater awareness of the usefulness and security of these systems. Another key to success is the integration of ID systems with ancillary services: managing the entire lifecycle of the digital transaction securely brings advantages for operators who manage user data and service providers alike, including the possibility of signing documents and contracts after reliable user recognition, enabling the identity provider to enhance the associated ID and the service provider to manage all stages of the transaction. The third direction is interoperability with other ID systems operating in Italy and abroad, which is a crucial step in enabling transactions and interactions between European countries, proliferating opportunities for users with their IDs and also for service providers, since partnerships between players in different ecosystems would foster the joint creation of new services to round out the offer, sharing assets and enabling technologies. A fourth track consists of exploring new technologies, increasing the value of digital identity: integrating technological innovations into existing systems and running pilots to gain an understanding of benefits and applications may just prove to be the key for reshaping the dynamics of the digital identity market.

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