Understanding Identity Verification header imageUnderstanding Identity Verification header image
#KYC#Law#Regulations#Fintech
20.12.2023, 12:05

Understanding Identity Verification - What is it and how does it work?

Identity verification is the process of validating the authenticity of an individual's identity. It involves confirming that a person is indeed who they claim to be, ensuring that there is a genuine individual behind their actions. This practice is particularly prevalent in financial procedures, such as initiating a bank account, as it establishes the legitimacy of the person, allowing for secure transactions and services.

Globally, identity verification relies on key data elements like name, date of birth, and address to substantiate the reality of an identity. This step is crucial in mitigating risks for businesses, as without proper verification, the authenticity of an individual's identity remains uncertain, exposing enterprises to potential threats.

Identity verification holds significant importance in compliance frameworks like Know Your Customer (KYC), Customer Due Diligence (CDD), and age verification, as mandated by anti-money laundering regulations and industry standards worldwide. Understanding the intricacies of identity verification is paramount for preventing fraud and fostering trust in various business interactions.

Digital identity verification - ย an overview

Digital identity verification is the process of authenticating an identity without the need for in-person interaction. It ensures the legitimacy of a person's claimed identity and verifies that the provided personal information is genuine, guarding against identity fraud. Leveraging technology, digital identity verification also plays a crucial role in confirming the presence of a real individual behind the digital interface, countering the increased threat of fabricated identities facilitated by advancements in criminal technology.

In the verification process, essential details such as names, date of birth (DOB), and addresses are cross-referenced with trusted digital datasets. These datasets may include information from credit bureaus, official government documents, or mobile operator databases. Strengthening the verification process involves incorporating negative data sets, which consist of attributes that should not be associated with the given identity, along with other innovative data elements, enhancing the overall confidence in the authenticity of the identity.

How digital identity verification works

Digital identity verification revolves around gathering and validating personal information, typically during the customer onboarding process for a business. This involves cross-referencing the provided data with trusted sources to ensure its authenticity. The verification process includes scrutinizing documents like passports or biometric data such as facial images, comparing them against verified datasets, which may comprise government records, credit references, or mobile data.

The essence of digital identity verification lies in expediting the verification steps, aligning with the rapid pace of the digital realm where the majority of transactions occur online. In today's era, customers expect swift onboarding for products or services, demanding a seamless experience without unnecessary delays.

Achieving a seamless customer experience, however, requires a delicate balance with a robust identity verification process. This process ensures business security, compliance adherence, and protection against identity fraud. Given the extensive online presence in our lives, safeguarding personal data is paramount, making the identity verification process a critical component of digital interactions.

Verifying data

Digital identity verification encompasses various strategies, and one prevalent method involves the thorough examination of personal data such as name, date of birth (DOB), address, and, at times, national ID numbers. This process entails comparing this information against a curated selection of reliable and comprehensive global data sources.

Navigating the multitude of international identity data sources can pose challenges, especially for businesses engaging in global trade and requiring extensive global data coverage. Additionally, the absence of a standardized format for data, evident in variations like date of birth representations across countries, further complicates the landscape of identity verification.

Moreover, the dynamic nature of the world introduces additional complexities. Individuals change residences, and names undergo modifications over time. To address these challenges, best practices in identity verification involve matching against multiple data points and leveraging trusted data sources. This ensures that a brand can have the utmost confidence that the presented identity has been validated previously and is deemed safe for conducting business with the individual.

Verifying documents

An integral method in digital identity verification involves the scanning and extraction of information from government-issued identity documents, coupled with the authentication of the document's genuineness.

Commonly utilized identity documents for this purpose include passports, ID cards, and driving licenses, recognized for their official status and distinctive features like watermarks, fonts, and rounded corners. These features play a crucial role in detecting and signaling potential cases of document tampering and identity fraud.

To ensure accurate document identity verification on a global scale, businesses need access to an extensive global database of identity documentation. Digital identity document verification solutions employ technologies such as Optical Character Recognition (OCR), artificial intelligence (AI), and authenticity algorithms to analyze and compare the document image with the officially issued template, enhancing the accuracy and reliability of the verification process.

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Verifying documents - infographic

What exactly is identity authentication?

In addition to confirming the authenticity of an identity, a business must ensure that the presented identity belongs to the individual claiming it. This crucial step is known as identity authentication, relying on data that is challenging for anyone other than the person themselves to generate, such as biometric information.

For returning customers, there might be instances where they are prompted to re-authenticate their identity, possibly on multiple occasions or each time they access their account. This precautionary measure aims to guarantee the consistency of the individual accessing the account and prevent any unauthorized transactions on a valid and legitimate account.

What is the process of identity authentication?

There are diverse methods to carry out identity authentication, often combining multiple approaches.

For instance, facial recognition and liveness checks can be employed to compare a potential customer's identity document with their actual physical characteristics and measurements, providing evidence that the individual presenting the document is indeed its legitimate owner.

Additionally, mobile authentication has gained popularity as a secure method. A mobile number, being personal to an individual, has become a primary facilitating platform in our daily lives. Confirming that an individual is the rightful owner of that number serves as a secure means of authenticating a digital identity and mitigating the risk of synthetic identity fraud.

The importance of identity verification

Identity verification serves as the linchpin for establishing customer trust in thriving businesses. Without this essential process, we would exist in a realm of anonymity, particularly concerning in today's digital landscape marked by escalating levels of fraud and criminal activities. This vulnerability poses risks to both individuals and businesses.

Complying with the legal requirement of Know Your Customer (KYC), especially in regulated industries, and adopting it as a best practice across all businesses, becomes imperative. Digital identity verification plays a crucial role in ensuring that companies have a clear understanding of the individuals they are dealing with. This knowledge proves essential before engaging in any transaction that could potentially harm or cause loss to the business or individual, thereby safeguarding all parties involved.

How does identity verification contribute to combating fraudulent activities?

Criminal activities often involve individuals concealing their true identity, much like a bank robber dons a mask and gloves to obscure their face and fingerprints. Similarly, in the cyber realm, criminals mask their identity by either generating synthetic identities or falsely asserting a legitimate identity as their own.

The implementation of digital identity verification adds a layer of complexity, making it challenging to pilfer or fabricate identities. This, in turn, diminishes the likelihood of falling victim to identity fraud.

Getting ready to implement identity verification? - 5 things to remember about:

1. Collaborate with a proficient provider of digital identity verification solutions

In the digital realm, where physical boundaries are nonexistent, any business has the potential to engage in global trade. Overcoming digital obstacles such as trust issues, speed, accuracy, and ensuring a positive customer experience is achievable through the application of appropriate data and technology.

Employing a digital identity verification solution tailored for global operations enables businesses to swiftly and effortlessly authenticate the identities of customers worldwide, while also ensuring compliance with international regulations. Some digital identity verification providers in this space include GBG, Veriff, OneSpan, and Regula Forensics.

2. Ensure your business adheres to regulatory compliance

For businesses operating within regulated sectors like healthcare, banking, and pharmaceuticals, compliance with Know Your Customer (KYC) regulations is a crucial element in building trust between the business and its customers.

While KYC compliance is mandatory in regulated industries, adopting the practice of understanding your customer is advisable for any expanding business seeking to engage in transactions and interactions with a foundation of trust and confidence.

If you would like to get an introduction to the KYC process, you can explore one of our earlier blog posts where we go over the meaning of KYC and outline its key elements. If you already have a foundational understanding of KYC, we recommend the articles below that provide more in-depth insights into specific aspects.

๐Ÿ‘‰ In this post you can learn more about the global KYC regulations from this year
๐Ÿ‘‰ For financial institutions, this article goes over the importance of KYC compliance and its potential impact on your company
๐Ÿ‘‰ This article shows instances of AML fines imposed this year due to non-compliance with Anti-Money Laundering (AML) regulations.

3. Harmonize security measures with an excellent customer experience

For successful brands aiming to cultivate customer relationships grounded in trust, speed, and convenience are just as crucial as security. A seamless and secure experience is integral to the growth of any business.

Integrating intelligent digital identity verification solutions into your current processes can be done swiftly and effortlessly. This ensures that your business welcomes only authentic customers while thwarting fraudsters, all without compromising the overall customer experience.

First impressions have a lasting impact on your client, which is why itโ€™s important to create a good customer onboarding process. However, achieving an outstanding user experience, especially during identity verification, can be difficult. What can you do to ensure customer satisfaction right from the start? We will discuss this topic in our next blog post, where we will discover some practical tips and explain how to create a user-friendly onboarding process while integrating KYC.

4. Opt for a customizable solution that suits your business needs

Various industries often adopt distinct strategies in harmonizing safety and customer experience within their operational contexts. By tailoring your identity verification solution to align with the unique needs and criteria of your business, you retain the authority to determine eligibility.

Establishing effective verification rules from the outset empowers you to identify individuals suitable for onboarding. This enables automated acceptance or rejection and referral decisions, aligning with your business's risk management approach.

When designing an effective identity verification system for your business, it's crucial to ensure the accuracy of verifications without affecting your conversion rates. This process involves multiple steps, and the arrangement and sequence depend on your specific business needs. Salesforce provides a solution for creating an Identity Verification Flow through its templates for its Caller Identity Verification feature. Another valuable tool is Truora's Digital Identity Verification, enabling the creation of a digital identity flow on their platform. You have the flexibility to customize and adjust the steps within the process, including the ability to configure the behavior of each validation.ย 

5. Prepare for the expansion of your business into untapped markets

As your business expands, it is essential that your digital identity verification solution grants access to worldwide identity data sources and an extensive library of international identity documents. Conducting thorough identity verification checks remains crucial, regardless of an individual's location. This ensures the successful onboarding of legitimate customers while preventing fraud and ensuring compliance with both global and local regulations.

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