Calculating ROI is crucial to assessing the success of any software integration. It’s how you know a new integration has improved upon the old solution, and is providing real value to your business.
Digital identity verification impacts a lot of your business – some of it tangibly and some intangibly.
In this article, we’ll focus on the tangible business benefits that you can measure and assign a dollar value to, so you and your team can have confidence that the way you verify identities is making a difference to your business.
3 business benefits of identity verification solutions
There are 3 core tangible business benefits of any identity verification solution. They are:
- Increased customer acquisition
- Lower exposure to fraud
- And increased onboarding productivity
We’re going to look at them one by one.
The exact tangible ROI of each benefit will vary, of course, depending on how you integrate a new solution. But this framework should help you assess different solutions with a little tweaking.
We’re going to focus on the onboarding use case, as it’s the most common moment for identity verification to be used. But there are additional benefits to consider if you also use a solution for authentication later in the identity lifecycle.
With that said, let’s dig into each benefit.
Calculating identity verification ROI for customer acquisition
The first impact to consider is customer acquisition.
Changing the identity verification solution you use will likely have an impact on customer conversion, because you’re either going to be increasing or decreasing the amount of friction imposed on an applicant.
You should look at what impact the new solution has on conversion rates. Here’s an example:
Imagine 100 customers are trying to sign up for an account. And the average lifetime value of a customer is $100.
With the old solution, 60 complete the process and 40 drop off. So the conversion rate is 60%, and you’re bringing $6000 into your business (60 customers multiplied by $100).
Once you’ve implemented a new solution, you should measure the change in conversion.
For example, let’s say after implementation of a new solution, 80 of 100 applicants now convert to customers – your new conversion rate is 80%. Compared to the old solution, 20 more customers are converting, netting you $8000. That’s $2000 more than when the conversion was only 60%.
You can also quantify a reduction in lost user acquisition costs. If each applicant costs $10 to acquire, moving from 60% to 80% conversion rate means 20 additional applicants are onboarding. That means you save $200 in user acquisition costs that would otherwise have been lost.
It should be noted that identity verification is not the only thing that impacts drop-off. So it’s important when measuring this change to, if possible, not change any other aspects of your sign-up flow.
Calculating identity verification ROI for fraud
The second benefit you should look at is exposure to fraud.
One of the core purposes of integrating an identity verification solution is to prevent fraudulent activity, and causing commercial and reputational damage.
You should first assess how many fraudulent actors are entering your platform before changing your solution.
This is called the False Acceptance Rate or FAR.
FAR is calculated by looking at the total number of fraudsters caught before entering your platform, and the number of fraudulent actors who still gain access.
For example, one solution might catch 6 fraudsters out of 10. So 4 still enter your business. The FAR in this example is 40%.
A new solution might catch an additional 3, so 9 of 10 fraudsters are now caught - and 1 enters your business. The FAR in this example would be 10%. A lower FAR is a better result.
To quantify the dollar value of this change, you need to calculate the cost to your business per fraudster who gains access.
In this example let’s presume the cost per fraudster is $1000. With the old solution, 4 fraudsters gain access, so the total cost of fraud was $4000.
With the new solution, only 1 gains access, so the cost of fraud has come down to $1000. So $3000 is protected by changing the solution.
Calculating identity verification ROI for onboarding productivity
The third benefit to look at is onboarding productivity.
Verifying a customer’s identity can often be a relatively manual process, requiring teams of agents to assess the applications from scratch, or to review the judgment made by whichever tool you have in place.
The key metric to quantify here is the number of manual escalations. In other words, how many times an identity solution requires you to manually review a check because it's unable to reach a clear decision.
A good identity solution will offer high pass rates with few manual escalations.
That puts less pressure on your analysts, and gives them back hours to focus on the checks that really require their attention, as well as bringing down your costs.
Say each manual escalation costs you $20. And with the original solution, let’s assume you were averaging 100 manual escalations per day. So the daily cost is $2000.
But with a new solution that offers higher pass rates, you only have 40 manual escalations per day. So the new cost is $800.
In effect the new solution is saving you $1,200 a day. Not to mention the hours you give back to your analyst team.
These are the core tangible benefits that we recommend looking at when calculating the ROI of any identity verification solution. To recap:
- Increase in customer acquisition
- Lower exposure to fraud;
- Increase in productivity when it comes to onboarding
You can also, if you wish, factor in other costs such as:
- An integration fee
- Set-up costs
- And the change in fees from the new vendor
From there, you can calculate the overall change in ROI, and assess how successful it’s been.
As mentioned, this is a framework that might need some tweaking depending on your circumstances.
ROI of Onfido’s solution
A Total Economic Impact report by Forrester Consulting quantified the real business benefits delivered by Onfido. They found that Onfido delivers value in three key areas:
- 26% increase in customer conversion
- 27% increase in fraudulent accounts detected
- 30% decrease in time spent onboarding
Delivering an overall ROI of 261%
If you’ve got more questions, you can find more resources or get in touch at onfido.com.