As organisations grow their use of technology to deliver services, design processes and media interaction, the question of what happens on the other end of a digital communication is becoming more pressing. Customers are engaging at distance, employees are working on many systems and from many locations and transactions are happening without physical presence. In this climate trust has to exist electronically – digital identity is the foundation of that trust.
It allows organisations to understand who they have to do business with, manage access to services and systems, and to be secure at scale. What used to be a technical matter is now a business imperative touching on security, compliance, user experience and organisational resilience.
This article aims to give a business reader an overview of digital identity: its definition, its importance, how organizations use digital identity and the issues and factors that organizations need to take into account when managing identity in the digital age.
- What is Digital Identity?
- Why Digital Identity Is a Business Issue
- Trust and Customer Relationships
- Risk and Accountability
- Regulatory Expectations
- Operational Efficiency
- Types of Digital Identity in Organisations
- Identity Verification vs Authentication
- Identity Assurance and Levels of Trust
- Digital Identity in Regulated Environments
- Common Digital Identity Challenges for Businesses
- Fragmented Identity Systems
- Balancing Security and User Experience
- Scaling Across Markets and Use Cases
- Managing Identity Lifecycles
- How Organisations Manage Digital Identity
- What the Future Holds
- Conclusion: Digital Identity as a Foundation for Trust
- FAQs
What is Digital Identity?
It is defined as all attributes, credentials and information associated with an individual, organisation or system in a digital context. These attributes are used to identify the entity, authenticate the entity and make decisions about what actions are permitted to the entity
But from a business point of view, it is not one data element or one login method. It is an identity that can be trusted in all your digital interactions. It could be a combination of identifier (name, ID), credentials (certificate, key, authenticator), and context to drive some decision.
Digital identity, as opposed to physical identity, needs to be built, administered and verified in the absence of human interaction. Thus, consistency, assurance and governance issues are of utmost concern.
Why Digital Identity Is a Business Issue
Digital identity is sometimes described as a technical or security, related subject, but it is far more than that.
Trust and Customer Relationships
It creates a perception of reliability, trustworthiness, and professionalism in the customer. Customers desire frictionless and secure access to digital services. Improper identity management erodes and destroys trust and friction point identity controls cause frustration.
Risk and Accountability
Identity is the foundation in the fight against fraud, misuse and unauthorised access, it is what makes accountability possible.
Regulatory Expectations
Across many sectors, regulators expect organisations to understand who their employees and customers are, administer and control access to their resources accordingly, and ensure that they can prove what they’ve done with that access. Digital identity underpins this regulatory compliance.
Operational Efficiency
Manual identity processes don’t scale. Digital processes allow us to automate, shave off some administration and provide consistent access management for all systems and services.
As such, digital identity has become a competitive enablement that facilitates growth, resilience and trust.
Types of Digital Identity in Organisations
Most organisations administer various types of digital identity for different functions.
Customer and User Identity
Customer or user identities are external to the services, used by non, organizational parties to interact with the service. They are used for registration, login, transactions with the service and generally accessing any kind of digital service. Customer identity management has to consider both security and usability/accessibility.
Employee and Workforce Identity
Employee identities, on the other hand, are internal users such as employees, contractors and partners. Employee identities are often associated with a role, permissions and organisational structure and they need to be managed for the entire identity life cycle.
Organisational and System Identity
Some contexts also require digital identities of organisations, applications and devices since digital identities allow secure system, to, system communication and accountability in automated contexts.
It is therefore necessary to be aware of these distinctions between different types of identities if designing consistent practices of identities.
Identity Verification vs Authentication
Digital identity encompasses two concepts that are often used interchangeably, but should not be. They are: identity verification and authentication.
Identity Verification
Identity checks are the process of verifying who someone is, usually by checking documents or attributes, during onboarding or registration.
Authentication
Authentication is the process of determining whether a user is who they claim to be. This process can take place continuously through access and interaction and is often session dependent and multi, factored by authenticating using credentials or authenticators.
Verification establishes identity, but authentication maintains it for the long term. Muddling the two results in lax identity assurance or needless friction.
Identity Assurance and Levels of Trust
Not all digital interactions are of equal risk. Identity assurance defines the level of confidence an organisation has in an identity.
Risk-Based Identity
Higher-risk interactions—such as accessing sensitive data or approving transactions—require stronger identity assurance than low-risk actions.
Levels of Identity Assurance
Many frameworks define levels of assurance that align identity strength with risk. These levels consider factors such as how identity was verified, how authentication is performed, and how credentials are protected.
Using identity assurance levels helps organisations apply proportionate controls while maintaining usability.
Digital Identity in Regulated Environments
Within regulated sectors, digital identity is strongly linked to accountability and compliance.
Regulations often require organisations to:
- must be able to reliably verify identities
- control and monitor access to systems,
- ensure audit trails.
- have a commitment to transparency and accountability, including demonstration of accountability for actions.
Digital identity is what makes these requirements achievable. It provides the means to do so, recognising that compliance does not rely on identity, but weak identity conditions make compliance difficult or impossible.
Common Digital Identity Challenges for Businesses
Even though digital identity is an essential aspect of technology there are some difficulties in using this technology.
Fragmented Identity Systems
An abundance of organisations operate a number of identity systems in services and across departments, resulting in inconsistency and poor visibility.
Balancing Security and User Experience
Strong identity controls may cause friction. Maintaining an appropriate balance is crucial.
Scaling Across Markets and Use Cases
With growth, communities are likely to have various identity needs at different places, regulation and against risk.
Managing Identity Lifecycles
Identities change over time. Consistently managing onboarding, changes and deactivation is a critical, yet complex aspect of identity management.
Addressing these challenges requires coordination across business, security, and technology functions.
How Organisations Manage Digital Identity
Good management of digital identities is based on structure, not patchwork efforts.
Governance and Policy
Clear policies define how identities are established, used, and retired. Governance ensures consistency and accountability.
Identity Lifecycle Management
An organisation needs to maintain identities at all times from birth through ongoing changes to deactivation, not assuming that attribute variance will manage permissions over time.
Integration with Business Processes
Identity must not stand in the way of business: integration with onboarding, access requests, audits is a must.
A modeled approach enables digital identity to grow with the organisation.
What the Future Holds
Digital identity is still in trend along with the trends of business and technology.
- The role of providing digital services has grown to be the key activity of many institutions and will further shrink the importance of physical contact.
- Rising security and accountability expectations.
- Digital identities that facilitate cross-border online transactions are in need of interoperable identity solutions.
- The process of automatisation and standardisation.
Organisations that treat digital identity as a strategic capability rather than a technical afterthought are better positioned to build trust in digital environments.
Conclusion: Digital Identity as a Foundation for Trust
Digital identity has become an integral part of doing business in the modern world. It provides a foundation of trust, for securely transacting in a digital environment and accountability across services and business operations.
By understanding the role of digital identity, distinguishing key concepts, and adopting a structured approach to identity management, organisations can move beyond reactive solutions and establish a sustainable foundation for trust in the digital economy.
