Digital Identity Verification explained

Have you ever asked the question, “What is digital identity verification?” and wondered what the industry best practices are? In this article, we explain the term of digital identity verification and how it can help your business during the customer onboarding process. In addition, we will provide an overview of different identity verification methods and what to consider when determining which method to implement.

What is digital identity verification?

Identity verification is the process of analyzing and cross-checking personal identification documents with official records and/or biometric data to confirm that a person is who they claim to be.
Identity by definition refers to the characteristics determining who or what a person or thing is.

So what is a digital identity? A digital identity is a virtual form of identification used online to interact with digital resources and online services. In a technical context, digital identity should be unique to each individual and define specific attributes to prove their existence in a virtual environment.

A simple digital identity might be a username or screen name, whereas a more complex digital identity used to prove an individual’s identity or liveness would need to be verified and authenticated by digital means. Digital identity checks can be done through the use of digital signatures, biometrics, or other virtual methods.

Why is digital identity verification important?

Verifying identities has always played a crucial role in the analog world, especially in regard to the transactions of goods or services. Transactions were usually done face-to-face, involving basic forms of human interaction that can be used to confirm one’s identity, such as eye contact or handshakes. In this way, those involved could more or less determine on the spot with relative ease whether or not the other party was acting honestly and actually was who they said they were. Meeting in person offered a level of authentication that was and still is hard to surpass.

However, nowadays, more and more transactions take place online, a tendency that has been further amplified as a result of the COVID-19 pandemic. Therefore, online identity verification methods used to confirm an individual’s identity (built on the standards of liveness) are of growing importance as an increasing number of industries take their services online.

Digital identities are subject to risk: Identity fraud

In the last 10+ years, some of the largest data breaches reported have involved big name brands, i.e., LinkedIn with its approximate 172 million user accounts, or eBay, with its estimated 145 million user accounts. Each time hackers succeed in another large-scale breach of personally identifiable information (or PII in industry jargon), large volumes of highly sensitive data, namely digital identities, are illegally sold in underground markets on the dark web.

The data often consists of various forms of identification, such as name, date of birth, address, and encrypted passwords. However, in some cases the information leaked may be much more revealing if it includes highly sensitive details about our identity or finances, including government ID / social security numbers, driver's license numbers, bank account numbers, etc.

Digital identity verification helps prevent fraud

Digital identity verification can help to prevent fraud in several ways. First and foremost, it helps ensure that the person who is using a particular digital account is who they claim to be. This is important in the prevention of identity theft, which could potentially lead to financial fraud as well. Additionally, digital identity proofing can help prevent other types of fraud, such as account takeover, in which a fraudster gains access to a user's account and uses it to commit fraud.

Today, various forms of identity verification methods are used to authenticate and prove digital identity. While most forms of online transactions require the verification of one’s identity, the actual level of verification required differs from platform to platform and the regulatory framework that governs the industry where the product or service is based. Here are two very different examples:

• Online marketplaces such as the German marketplace, kleinanzeigen.de (formerly eBay Kleinanzeigen), only ask for an email address to establish user identity. An email, of course, can easily be faked. Thus, the site warns both buyers and sellers to exercise careful judgment, deal locally, and if possible, in person.
  
  
• The multinational online marketplace and tech giant, Amazon.com, has a more sophisticated account creation process. To set up an account, users are required to submit their first and last name, email or phone number, and password. This is followed up by a one-time password (OPT) to verify the email or phone number. Users can also set up a unique passkey (i.e., fingerprint or face ID) for further protection.
  
  
• The online bank N26 requires all new users during its onboarding process to identify themselves via a live video-identification chat with a human operator. And that’s in addition to sharing personal information such as passports and other supporting documentation with this operator. This manual method of identity verification is regulated by a stringent legal framework governing all financial institutions (also known as AML or Anti-Money Laundering checks) that operate within Germany.
  
  

Digital identity verification methods explained

So, now that we understand what the electronic verification of digital identity looks like and why it is important, let's explore the different methods. To accurately verify and authenticate an identity, there are three proven methods that are often used in tandem during the digital onboarding process:

1. Document Verification

Document Verification is the process of reviewing documents provided by an individual to ensure that they are authentic and accurate. This may include verifying the identity of the person who submitted the documents, as well as confirming whether or not the information contained therein is correct.

Digital document verification allows users to get verified via an electronic scan of a government-issued ID. Government-issued identity documents (such as a passport, driver’s license, or national ID card) are used when it comes to verifying an identity. These documents are unique to each person and are usually required by law or as a compliance step during the digital onboarding process.

The setup for digital document verification is simple: A user only needs a smartphone camera to scan their ID and process the results. Unfortunately, the simplicity of this process can become its own disadvantage. Government-issued documents can be faked, and as you might expect, there are different levels of quality when it comes to document tampering.

What you should consider with document verification:

Most digital identity verification vendors claim high pass rates as well as broad document support worldwide. However, many of these vendors are still heavily dependent on face-to-face interactions in the verification process, employing many back-office agents to manually check the verification results. This system not only has an impact on the user experience and overall speed of the process, but also poses a significant privacy risk due to its exposure during the manual phase of the verification process.

2. Biometric facial verification

Biometric facial verification is a system that uses facial identity verification technology to confirm and authenticate the identity of an individual. Facial biometric solutions provide an almost fully automated identity verification experience without the drawbacks of human operators and human error, or the costs associated with higher dropout rates.

What you should consider with biometric facial verification:

Many biometric solutions cannot adapt to the various challenges that routinely occur during customer onboarding. Others are not optimized for specific use cases. Regular challenges typically include:

• Poor document photo quality
• Beards, glasses, and make-up
• Change in appearance due to aging or plastic surgery
• Poor lighting conditions and uncontrolled user environments
  
  

Therefore, to properly address these challenges, it’s crucial to have a solution that is designed to perform optimally under many different conditions and in many different scenarios.

3. Liveness detection

Digital liveness detection, also known as digital identity authentication, is the process of verifying whether a digital image or video is of a real, living person. This can be done through various means, such as facial recognition or analyzing body movement. Identity verification vendors offer clients different liveness solutions, but most approaches use ‘active’ liveness detection, which requires a user to perform actions such as facial movements, eye blinks, or head twitches to ‘prove’ they are a real person. This method is sometimes referred to as a ‘challenge response’.

What you should consider with liveness detection:

When vendors refer to liveness detection technology, it is not uncommon that they conveniently forget to differentiate between the two different technological solutions: active vs. passive liveness detection.

Unlike active liveness detection, which requires users to follow a series of instructions to perform simple actions, passive liveness detection minimizes risk in customer onboarding processes by removing the need for complex liveness instructions. It is an advanced solution based on machine-learning technology, which allows for a streamlined or ‘passive’ approach to facial authentication that only requires one simple selfie video.

Digital identity verification best practices

Digital identity verification is no longer an emerging technological concept. However, this branch of technology is continually evolving and advancing to meet user demand and stay one step ahead of cunning hackers and fraudsters. Therefore, companies should be aware of electronic verification and authentication best practices and implement these in accordance with local regulations and company-specific policies. Let’s take a look at some of these industry best practices:

1. Implement a multifactor verification solution: One-step verification, also known as single-factor verification, has long lost its charm as a secure digital identity verification solution. Nowadays, two-step or two-factor verification is very common among businesses such as online stores, marketplaces, social media platforms, etc. However, for online service providers that handle more sensitive personal information, such as financial or healthcare institutions, having a very secure multifactor identity verification solution is essential and, in some cases, regulated.
2. User reverification: In addition to the initial user identity verification at the time of onboarding, reverifying user identities is an important step to maintain security and compliance. Establishing a schedule to prompt users to reverify their identity or personal information on a semi-regular basis, such as every 90 days, is necessary for some institutions like banks or credit unions.
3. Maintain regulatory compliance: To keep up with the ever-changing field of technology, government authorities modify regulations or create new ones like clockwork. Therefore, staying in the loop and continually updating your policies, protocols, and technology to maintain compliance is a fundamental best practice for any use case.
4. Establish clear protocols: Fraud detection is not common; however, in the case that your identity verification solution does detect fraud, having a predetermined set of protocols to respond appropriately to the situation will prevent chaos or inappropriate actions in response to the alert.
   
   

Maintain system updates: Just like regulations and compliance, technology is constantly being refined and advanced to improve security, user experience, and site navigation. Therefore, maintaining system updates is a crucial best practice that should be done whenever there are available updates.

Use Cases for digital identity verification

Where and when is digital identity verification applicable? Digital identity verification can be implemented for nearly all types of online services. Therefore, there are numerous different use cases. Here is a brief snapshot of some of the most important ones:

1. KYC and AML: Some industries, namely financial service providers, are regulated; thus requiring a digital customer onboarding process that includes Know Your Customer (KYC), Anti-Money Laundering (AML), and multifactor authentication (MFA). Non-compliance with these regulations can lead to a high risk of a data breach and result in penalties and fines.
2. Age Verification: Some forms of digital content or services are age-restricted for minor protection, requiring one-time visitors and account users to verify their identity before entering the site. For example, online gaming services (i.e., gambling or betting) as well as alcohol sales are both age-restricted in compliance with government regulations.
3. Fraud Prevention: Fraud prevention is essential for both customer and company alike. Digital identity verification helps ensure that companies only onboard honest individuals that have proven their identity and do not pose a risk to the company. However, identity verification is also a critical component of customer loyalty and engagement. Users need to know that they can rely on a company to protect their personal information and prevent exposure to fraud or any other form of illicit activity.

How to drive efficiency for your business:

The key to successful digital identity verification is combining these three methods into one secure and fully automated process. A solution that combines those methods, such as the PXL Vision’s identity verification solution, can drive significant improvements in efficiency. Some examples of this include reducing the cost of customer onboarding, preventing fraud, and increasing customer sales conversion. After all, our fully automated digital identity verification technology can also open the door for businesses to open new channels to serve their customers.

Our AI-driven software solution is flexible, customizable, and can be implemented directly into your existing customer onboarding process. Thanks to this reliable technology, you can accurately onboard customers without the dropout rates found in traditional identity verification methods.

Conclusion

Digital identity verification is a fundamental practice that applies to nearly all types of online service providers. It can be used to verify one’s identity when purchasing a product or service, creating an online account, setting up online banking, or for document submission on official government portals.

Want to learn more about what to consider when purchasing an identity verification solution for your business? Download our Buyer's Guide here for an in-depth outline of the whole process. This 40-page guide was carefully researched and written by our team of experienced identity verification experts.

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