Measuring the ROI of Identity Verification Software: A Guide
In the digital age, improving user experience and customer retention is crucial for businesses. One way to achieve this is by implementing Identity Verification (IDV) software. But, how can businesses measure the financial benefits of such an investment? Let's delve into the ROI calculation for IDV software.
The ROI formula for IDV software is straightforward: ROI = (IDV return - Total cost of IDV) / Total cost of IDV x 100.
The financial benefits a company obtains from implementing an IDV solution can be measured with quantitative metrics such as fraud prevention savings, regulatory compliance, operational efficiency, improved user experience, and customer retention.
Direct and recurring costs of IDV software include expenses related to implementation and maintenance, system configuration, customization, infrastructure provision, continuous system maintenance, licensing fees, and human resources. Hidden costs may arise from integration with existing systems, staff training, and regulatory adjustments.
Fraud prevention savings are calculated by comparing the transaction income of legitimate and fraudulent transactions. Operational efficiency improvements can be measured by comparing conversion rates before and after IDV implementation, and considering the hourly wage of human agents who performed manual processes before automation.
Recurring costs associated with the daily operation of the IDV system include license or transaction fees and salaries of employees involved in the verification process.
Incorporating behavioral analytics can further enhance fraud detection rates without degrading user experience, providing greater benefit with minimal extra cost or customer friction. Additionally, regulatory technology investments help manage compliance costs and risks, improving efficiency and reducing fines that can be significant hidden costs.
To quantify all costs over a defined period (e.g., annually), businesses should consider initial investments and ongoing costs. Measuring or estimating savings in fraud losses and compliance costs before and after implementation is also essential. Estimating operational gains by calculating time saved multiplied by labor costs, plus estimated improvements in customer retention and satisfaction (often requiring proxy metrics or customer lifetime value models) is crucial.
Summing all benefit values and subtracting total costs, then dividing by total costs and multiplying by 100 for ROI percentage, produces a comprehensive financial measure to guide strategic investment decisions.
It's important to note that the ROI value depends on when it is calculated and can even be negative in the first months after implementation before gradually increasing. Expressing indicators such as onboarding speed or customer loyalty in monetary terms can be challenging when calculating ROI.
In summary, a thorough ROI calculation for IDV software should include direct and recurring costs, fraud prevention savings, compliance cost reduction, operational efficiency gains, enhanced user experience, and customer retention. Using the ROI formula with quantified values across these categories produces a comprehensive financial measure to guide strategic investment decisions. If the gains from IDV software are greater than its costs, the IDV solution is fulfilling its purpose.
Investing in IDV software can yield significant financial benefits for businesses, as the ROI formula suggests: ROI = (IDV return - Total cost of IDV) / Total cost of IDV x 100. These benefits can be quantified by measuring savings in fraud losses, improvements in operational efficiency, enhanced user experience, and increased customer retention. Furthermore, regulatory technology investments help manage compliance costs and risks, offering additional monetary benefits through reduced fines.
