The adoption of “virtual passports” for businesses could provide a game-changing solution to the rising costs of financial crime in the UK, according to research from the Centre for Finance, Innovation and Technology (CFIT).
With global spending on digital identification forecast to hit $26 billion by the end of 2024, this innovative approach promises to bolster economic security while streamlining access to financial services and protect businesses to ensure they are not inadvertently encouraging criminal activity like money laundering.
A Costly Challenge for the UK Economy
Economic crime remains a critical issue in the UK, with losses attributed to fraud and related activities nearing £200 billion annually. According to UK Finance, fraudsters stole £1.17 billion in 2023, a slight decrease from £1.22 billion in 2022. The devastating financial toll on businesses and individuals has highlighted the urgent need for new tools and solutions.
CFIT, a government-backed organisation led by the private sector, has identified digital IDs as a pivotal solution to this crisis. Corporate digital IDs, or “virtual passports,” could not only prevent fraud but also reduce time and resource expenditures for financial institutions.
Charlotte Crosswell, Chair of CFIT, underlined the significance of tackling economic crime, “Economic crime remains a major threat to the UK’s economic security and has a profoundly distressing impact on consumers and businesses. At CFIT, we are committed to addressing this and making the financial services industry more robust against fraud.”
The Role of Digital Identification and Virtual Passports
CFIT has been actively researching alongside significant industry players, including financial institutions like Lloyds, Barclays, Monzo, and Revolut. Digital ID providers such as OneID and Yoti, as well as regulatory bodies like the Financial Conduct Authority (FCA) and Companies House, have joined the coalition to explore the potential of digital identification solutions.
Jordan Shwide, General Manager of Monzo Business, highlighted the benefits of digital verification, “This not only enables quicker access to financial services for legitimate businesses, but it also means lots of business information lives in one place. This should make it harder for scammers to set up fake companies and ultimately help prevent people falling victim to fraud.”
Implementing digital IDs is a key step in creating a “secure smart-data economy,” where data-sharing across sectors is seamless and secure.
Growing Momentum for Digital Solutions
The financial industry worldwide has increasingly embraced digital identification technologies. According to Juniper Research, spending on digital identity verification reached $15.2 billion in 2023 and is projected to soar by 74%, exceeding $26 billion by the end of 2024.
The rapid growth in this sector reflects rising demand for fraud prevention measures, particularly as digital solutions become more sophisticated and accessible. The potential for such innovations to reduce costs and bolster security drives their adoption across multiple sectors.
Government Backing for Innovation
The UK government has shown support for CFIT’s initiatives. Chancellor Rachel Reeves has expressed a willingness to consider the findings from CFIT’s research as part of the Treasury’s National Payments Vision. This endorsement suggests that digital ID solutions may soon play a central role in the UK’s strategy to combat fraud and streamline financial processes.
CFIT’s coalition aims to leverage the dynamic capabilities of Smart Data and Digital ID to create a cross-sector framework that enhances interoperability and strengthens defences against financial crime.
The Path Forward
As fraud continues to strain the UK economy, adopting corporate digital IDs could represent a turning point in reducing the prevalence and impact of financial crime. Beyond the immediate cost savings, these tools could enhance trust in financial systems, empower businesses with quicker access to services, and simplify compliance processes.
The CFIT’s call to embrace digital identification is a clarion call for action, urging businesses, regulators, and government entities to collaborate in building a safer, more efficient financial ecosystem.
The UK stands at a critical juncture where embracing digital innovation could pave the way for a more secure and prosperous economic future. With virtual passports, the promise of a robust defence against fraud is within reach, offering a powerful tool to reclaim billions lost to financial crime each year.
