Doing business in what has become an increasingly online-first world comes with its challenges.
One such challenge is the fact that when you do business online vs in person, it can be difficult to know if and when your customer is telling the truth — about who they are, as well as about their intentions for making a purchase, opening an account, or otherwise leveraging your platform.
This challenge unfortunately creates the possibility for a range of criminal activities, such as identity theft, money laundering, and fraud.
The good news, however, is that there are ways you can protect your business — and your customers — from this threat. Implementing robust and thorough identity verification processes is one of those ways.
Below, we define identity verification, explore how it works, and discuss its role in the digital economy. We also take a look at the different types of identity verification you may choose to leverage in your business and answer other commonly asked questions.
What is identity verification?
At its heart, identity verification is the process of confirming that somebody is who they say they are. In other words, it’s the act of quite literally verifying an individual’s identity. Identity verification typically occurs during the onboarding process, and then in an ongoing fashion as necessary.
Businesses can approach identity verification in a variety of ways. This includes in-person identity verification, remote identity verification that requires the individual to submit hard-copy documents, and digital identity verification.
When most people think about identity verification, they’re thinking about digital identity verification (also sometimes called electronic KYC or eKYC). As such, we’ll focus primarily on digital identity verification in the remainder of this article.
Identity verification vs identity authentication
Identity verification and identity authentication are two related, but distinct, concepts.
While identity verification is concerned with determining whether somebody is who they say they are, identity authentication is concerned with determining whether a user should have access to specific actions, information, or services. While identity authentication may leverage some of the same technologies as identity verification, it largely depends on measures such as:
- Password authentication
- Two-factor authentication (2FA)
- Knowledge-based authentication (KBA)
- Token-based authentication
- Certificate authentication
- Biometric authentication
As a general rule of thumb, identity verification occurs during user onboarding and then in an ongoing manner as necessary. On the other hand, identity authentication usually occurs after the user has created an account, such as when they want to sign in again, wish to initiate a specific action or service, or need to access protected information.
How does identity verification work?
Identity verification comes in many different forms, which we’ll discuss in greater detail below.
That being said, virtually all forms of identity verification work by comparing user-supplied information (such as the individual’s name, address, date of birth, Social Security number, etc.) against a verified dataset, such as a government-issued ID or third-party database.
Identity verification can leverage active signals, which are provided directly by the individual; passive signals, which are provided by the user’s device; behavioral signals, which look at how the user interacts with an online form or application; and third-party data, which is provided by government entities, private businesses, and other authoritative issuing databases.
Identity verification methods
As mentioned above, a user’s identity can be verified using a variety of different methods. Because each of these methods has its own strengths and weaknesses, it’s often prudent to leverage more than one method. Documentary verification, digital ID verification, database verification, and selfie verification are amongst the most common forms of identity verification today.
Documentary verification requires the user to take and submit a photo or upload a digital scan of documents.
Many businesses require their users to submit a government-issued photo ID, such as a driver’s license or passport. However, additional documents can also be leveraged for verification, including but not limited to:
- Birth certificates
- Social Security cards
- US military cards
- Permanent Resident Card
- Certificate of Citizenship or Naturalization
- Utility bills/mail (for proof of address)
- Employment records (like a W-2 or pay stub)
- Business documents
Digital ID verification
Digital ID verification is a form of electronic identification that verifies digital copies of official IDs, such as mobile driver’s licenses (mDLs), which are stored in a digital wallet on the user’s smartphone or mobile device.
Digital ID verification can bring a number of benefits to your verification processes. First, it can be used to automatically populate form fields, which can reduce the instance of entry errors and false negatives. Second, because the digital ID has already been verified by the digital wallet app in which it is stored (and typically protected via biometric security measures such as FaceID or a fingerprint scan), allowing users to submit digital IDs can streamline your verification processes and reduce friction.
Database verification involves checking user-supplied information against trusted third-party databases to ensure that it is accurate.
Exactly what database(s) you choose to leverage as a part of your verification processes will depend on the information you have chosen to collect. That being said, databases are typically grouped in two main buckets:
- Issuing databases: These databases are maintained by the organizations that issue a form of identification, such as a Social Security number or driver’s license. Examples of issuing databases that can be leveraged in identity verification include AAMVA (for DMV records) and TIN (for IRS records).
- Authoritative databases: These are also trusted databases that store information about an individual. The key difference is they do not create the information, but instead aggregate it. Credit bureaus, financial institutions, and phone carriers are all examples of authoritative databases.
Selfie verification is a form of biometric verification. It involves requiring the user to submit a real-time selfie or series of selfies, which are then analyzed for liveness and often compared against a government-issued photo ID.
Selfie verification is primarily used as a means to identify and prevent spoofing attempts.
Is identity verification required?
The answer to this question will depend on the industry your business operates within.
Financial institutions — such as banks, insurance companies, lenders, brokers, and more — are subject to the tenets of the Bank Secrecy Act. As such, they must verify their customers’ identities during onboarding and continually monitor customer activity in order to mitigate the risk of identity theft, money laundering, and other financial crimes.
But the reality is that virtually any business that operates online can potentially benefit from implementing identity verification processes. Social media and dating apps can, for example, leverage identity verification to promote the safety of their users and mitigate fraud. Likewise, online marketplaces that don’t deal in restricted commerce can use identity verification to protect both buyers and sellers that leverage their platforms. And online learning platforms can build legitimacy and trust by implementing verification processes that ensure the person holding a degree or certificate is the person who actually completed the coursework.
Identity verification and your business
Whether you need to comply with AML and KYC regulations, build trust with your users to strengthen the appeal of your platform, or simply mitigate the risk of fraud and financial crime, identity verification can help you meet your goals.
Here at Persona, we understand that identity verification isn’t one-size-fits-all. That’s why we allow our users to tailor their verification processes based upon their own unique needs. Our Verifications solution allows you to build the perfect process for your business by mixing and matching documentary verifications, selfie verifications, database verifications, and digital ID verifications as necessary.