If you're in the business of onboarding customers, chances are you'll need to complete some sort of digital identity verification as part of the process. Digital ID checks play a key role in mitigating the risk of identity theft, fraud and data breaches, while allowing you to meet your legal obligations.
Here's what you need to know about identity verification, including how it works and its benefits.
What is identity verification?
Identity verification is the process of confirming a person’s identity to ensure they are who they claim to be.
In the past, identity verification required customers to provide physical identity documents, like a driver's license or passport. However, with the rise of digital services, technological advances have paved the way for sophisticated online identity verification services.
There are a number of different industries that rely on digital identity verification, including financial services and banking, e-commerce, insurance and healthcare providers.
Why is identity verification necessary?
Identity verification is one of the foundational security measures that businesses put in place to protect sensitive data. A robust identity verification process allows businesses to confirm the identity of their customers, helping to prevent fraud, identity theft, data breaches and other digital attacks.
Under Know Your Customer (KYC) and Anti-Money Laundering (AML) regulatory requirements, many businesses are legally obliged to implement digital identity verification. Plus, when customers know businesses are taking proactive steps to safeguard their personal information, they're often more likely to trust the company and do business with them.
How does the identity verification process work?
There are many ways to verify identity, but the process typically involves collecting, validating and authenticating personal information and documentation to establish a person’s identity.
The first step in the verification process involves gathering information, data and documentation from the user. This often includes:
Government-issued photo IDs: Passports, driver’s licenses, a social security number or national ID cards.
Personal details: Name, date of birth, address or phone number.
Biometric data: Fingerprints, facial recognition or voice samples.
This information is then cross-checked against other data sources to confirm the person submitting the information matches the individual the documents belong to. Once again, there are a number of different methods used to authenticate an individual's identity, including:
Biometric identity verification: A variety of biometric methods can be used, including facial recognition, fingerprint scanning, voice recognition and retina scans. Biometric methods are widely adopted due to their high accuracy and security.
Knowledge-based verification: This approach involves answering personal security questions based on the user’s data (EG. previous addresses or account details). This method is becoming less popular due to potential data breaches exposing such information.
Database cross-checking: This method compares submitted details against trusted databases, including government records, credit bureaus or watchlists.
Based on the level of risk that the customer poses, they may be subject to more stringent verification checks known as Enhanced Due Diligence (EDD).
When should I use online identity verification?
Identity verification is an essential process for several industries, such as traditional and digital banking, financial services, insurance, real estate and gaming. With this in mind, identity verification is often required across a range of different scenarios, including:
Opening a new bank account,
Setting up a new account online,
Insurance applications and claims,
Share trading or cryptocurrency exchanges,
Gaming, gambling or casinos,
Cross-border business operations,
High-value real estate transactions, and
Subscription-based services, like online streaming platforms.
Challenges of identity verification
While digital identity verification often uses sophisticated technology to confirm a user's identity, this approach isn't fool-proof. Here are some of the key challenges that continue to face identity verification methods:
Balancing security measures with customer experience: Lengthy or clunky verification steps can lead to user frustration and drop-offs. With this in mind, it's essential to provide a seamless onboarding process.
Increasingly sophisticated fraud: While technological advancements are supporting innovations in digital identity verification, they also provide opportunities for criminals to embrace more advanced fraudulent activities. For example, fraudsters have started using AI to generate deepfakes to mimic individuals, bypassing traditional biometric checks like facial recognition.
Compliance with regulatory requirements: Regulatory standards are constantly evolving to keep up with an increasingly digital environment. As a result, businesses must ensure their online identity verification solutions adhere to data protection laws, as well as AML and KYC regulations.
Benefits of robust identity verification solutions
Despite the challenges currently facing digital identity verification, this process plays a key role in fraud prevention by providing an additional layer of security. ID verification benefits include:
Enhanced security: By accurately identifying individuals, robust identity verification systems help prevent identity theft, phishing scams and account takeovers. Advanced tools like biometric verification and AI-based fraud detection can also help to safeguard against emerging risks, like synthetic identities and deepfakes.
Regulatory compliance: Having an identity verification system in place allows you to adhere to KYC, AML and other regulatory standards, helping to avoid legal penalties. Comprehensive systems ensure adherence to varying regulatory requirements across countries, making global operations smoother.
Improved customer trust: Customers feel secure when businesses protect their personal information and provide a seamless experience. Reliable identity verification reassures customers that the company prioritises security, fostering long-term loyalty.
Faster customer onboarding: Streamlined identity verification reduces the time required to onboard customers and speeds up access to services. By enhancing operational efficiency, you can often take advantage of cost savings.
Data Zoo's identity verification solution is the easiest way to verify global customers. Whether you're looking to streamline your onboarding process or maximise your match rates, Data Zoo can help. Book a free demo to learn how Data Zoo can help you enhance your digital identity verification system.