Photo by Vadim Bogulov / Unsplash
The Rise of Pay-to-Verify: Monetizing Digital Identity
We want Internet use to be a safe activity, but over time this has come to involve increasing levels of identity verification to prevent our various accounts from being hacked by bad actors. This can be an arduous process for important online systems like banking and health care, with users having to upload multiple documents and photos to prove their identity. For consumers, identity verification can protect against identity theft and subsequent loss of money and credit-worthiness (as determined by a credit score). For firms, identity verification can protect against hackers and being sued by angry customers for allegedly allowing identity theft.
Market for Identity Protection
High profile news stories about the horrors of identity theft have created a market for identity protection. Currently, the identity protection market is approximately $14 billion in size and is expected to grow at close to 20 percent annually. Demand is increasingly widespread as more consumers come to do most of their financial transactions online, making Internet safety a mainstream concern rather than something reserved only for the tech-obsessed. Supply is also growing as more companies enter the identity protection market, with LifeLock perhaps the best known to casual consumers.
Increasing Services of Identity Protection Firms
With frauds and scams becoming more sophisticated and difficult to readily detect, more and more consumers are willing to pay for digital identity protection. This typically involves frequently searching the Internet for signs that your data has been inappropriately accessed, as well as comparing new spending with your traditional spending habits. If your credit card is suddenly racking up unusual expenses in a part of town you’ve never frequented before, an identity theft company will notify you. Depending on the access and permission you give it, the company may even put a freeze on your credit card spending until the situation can be handled.
As an Internet user, being a subscriber of an identity protection firm can give you access to encryption services to help keep your web browsing unmonitored. A popular tool is using a VPN, or virtual private network, to keep data encrypted. An identity protection subscription may also entitle you to free downloads of anti-virus software to keep your computers’ hard drives free of digital spies and saboteurs, preventing hackers from accessing your sensitive information. Finally, subscribers can often access a password manager program that automatically fills in the correct, complex password for whichever website or software you’re using. This protects users from repetitively using simple, easy-to-guess passwords for each site (which makes being hacked more likely).
Why Charge for Verification?
Internet companies also charge users for “verified” status, which can be seen as similar to convincing customers to upgrade from freemium packages to paid subscription packages. Users who pay to become verified will likely have greater access to features and memory storage on the website. For websites that allow user-to-user communications, becoming verified can be seen as an investment in networking opportunities, including sales. Websites make revenue by selling verification statuses to users who complete basic background checks, thereby letting these users advertise themselves as trustworthy. The flip side of this is that verified members also receive identity protection services, making it less likely that unauthorized users can hack their accounts.
Status Symbol
Many users may purchase low-cost verified statuses on social media sites to signal that they can afford such a subscription, making verified status akin to a Veblen good. Showing that one is a verified user may also send a signal that the user is worried about attempts to hack his or her account, implying the account has substantial value. Altogether, users may find that the marginal benefits of paying for verified status exceed the marginal costs in terms of increasing popularity and intrigue, making it a sound investment. When there are so many unverified accounts on a social media platform, verified accounts may stand out by contrast, drawing users’ attention.
Consumer Trust
For business accounts especially, verified statuses may generate increased demand through perceived trustworthiness. With so many businesses online, consumers may struggle to find clear indicators of trustworthiness and reliability, thus creating a market for such clear indicators. As a result, many small businesses may apply for membership in organizations that provide verification of credentials, such as the Better Business Bureau (BBB). These accreditation sites may require businesses to verify that their websites and listed phone numbers work for customer service purposes.
Prospective customers want to know that, if they have a dispute with a company, the customer service portals are operational. They also want to be able to see reviews of a company’s goods and services, which may be more readily available from firms that have paid for digital identity verification. New companies that have not established their identity through identity protection subscriptions or identity verification services may be at a disadvantage due to lack of a public profile, meaning customers may not see them during searches.
Excludability of Unverified Users
To keep online systems secure, some companies may require users to have their identities verified by paid identity verification/identity protection services. Users may dislike the cost of paying for this verification, but enjoy long-term benefits like being able to access valuable online systems quickly. Companies may be able to convince users to purchase paid verification by extending that quick access to other platforms, perhaps through partnering agreements. For example, if a user purchases paid identity verification, such as through an identity protection subscription, he or she can access many different banking, finance, and government secure websites with ease.
In effect, the identity protection company becomes a preferred contractor for other companies, allowing these companies to outsource their own identity verification programs. An example of a paid identity verification program that benefits users with faster access is TSA PreCheck, which is run by the Transportation Security Administration (TSA). Currently, subscribers to certain credit cards may receive discounts to purchase TSA PreCheck. If those who do not purchase identity verification cannot easily access a desired service, many will purchase the service to avoid being excluded. Therefore, identity protection can be seen as an investment to avoid the threat of excludability.
