Top 5 Identity Verification Measures [For Beginners]

Companies need to be certain that they’re opening doors only to legitimate customers. Otherwise, without proper identity verification measures, they risk everything — from major financial losses to lost credibility and legal consequences. More importantly, a secure network, for example, on a fintech platform, means more happy customers who trust the service provider with their personal information.

Despite the efforts to prevent fraudsters with stolen identities, forged documents, or worse, money laundering tactics that went unnoticed, companies struggle to find the right identity verification solution that would offer security and convenience to their customers. Many factors should be considered, for example, the market you’re operating in, the scale of your business operations, different flows, and situations that perhaps would require additional verification measures.

We discuss these and additional topics below showcasing the top identity verification options available in the market today.

How Does the Identity Verification Process Work?

Identity verification is a process that is designed to confirm a person’s identity and to see that they’re not lying about their personal information. Typically, it works by asking the user to upload a government-issued ID document and record a video selfie. This is a common method in high-risk industries, which are regulated. For example, crypto platforms and iGaming institutions are required by law to verify their users’ identities, sometimes including other aspects, such as their address data or age.

Verifying a customer for a business means that they’re ensuring that the customer is genuine and that they are who they claim to be. This is important because all profitable businesses have money flowing. So, not only large-scale banks but also small enterprises need to ensure that the customers conducting the transactions are real and that they aren’t using them to commit financial crimes.

What is Know Your Customer (KYC)?

Know Your Customer (KYC) is a process of verifying customer identities and assessing the potential risks of getting into a business relationship with them. A KYC check is part of the customer due diligence (CDD) process and can involve a document verification check. In this case, the process verifies that the customer has provided a legitimate ID document, that it belongs to them, and that their personal information matches the data on another government database.

KYC compliance helps companies achieve three main goals:

Establish the customer’s identity.
Understand their financial activities and ensure their funds are legitimate.
Assess various risks linked to their transactions while monitoring activities.

KYC verification is also also a crucial part of anti-money laundering (AML) compliance. It helps companies detect fraudulent identities, such as users trying to submit fake or altered documents, and other fraudulent acts, such as identity theft, money laundering, and other financial crimes.

The Main KYC Requirements

Over the years, identity verification requirements became stricter due to the regulatory loopholes and crimes left unnoticed by major banks and other financial institutions worldwide. One of the first KYC requirements was established in the USA through the Bank Secrecy Act (BSA) in 1970 as a way to prevent money laundering. After the 9/11 attacks, major changes were integrated, aiming to focus more on the prevention of terrorism financing.

As of today, a robust KYC program should follow the risk-based approach. This means that the business has to:

Implement a customer identification program (CIP). It should involve collecting, verifying, and identifying customer data, such as their name, date of birth, address and identification number.
Perform customer due diligence (CDD). This part is designed to help the company assess customer risks, including verifying their identities, developing risk profiles and continuously monitoring their activities and transactions.
Conduct ongoing monitoring. This is an ongoing process that involves continuously monitoring key customer data and, if needed, reporting suspicious activity to relevant authorities as a way to detect and deter financial crime in an effective and timely manner.

Why is Identity Verification Necessary?

Identity verification is a vital process both in terms of ensuring compliance with KYC/AML regulations and securing the company’s network. It ensures that all transactions and money flowing in the business come from legitimate resources. Identity verification is important because it essentially ensures that no fraudulent activities happen while reducing risks like financial loss, adverse media, legal damages, and reputational loss.

The main use cases of ID verification include:

Many industries, like fintech and crypto, are governed by strict regulations. These are high-risk industries that carry personal information, are prone to money laundering; therefore, require identity verification checks during the onboarding process, as well as continuous due diligence throughout the whole business relationship with the customer.

Some industries, such as e-commerce platforms that sell age-restricted goods like alcohol, require identity and age verification checks to confirm that their buyers are of age and can legally purchase such items online. However, it’s not only about the legal requirements and the business interests. Automated ID verification solutions can help enhance the user experience and make the registration and account opening process seamless. As a bonus, this helps increase satisfaction and customer loyalty.

The Key Identity Verification Methods

The identity verification market has grown over the years, now offering numerous ways to onboard clients and improve user experience, no matter the industry or the requested type of verification. Despite that, depending on the business, certain specifics need to be considered when building our own KYC flow. For example, you don’t want to overburden low-risk customers with numerous verification checks and, vice versa, high-risk clients with a single background check.

So, as companies grow, they need proper identity verification methods, which would help them scale and adapt to new compliance regulations and emerging fraud threats. This constantly changing landscape requires knowing which identity verification practice you should implement.

Here are some examples of the five most common identity verification methods:

1. Two-Factor Authentication

Two-factor authentication (2FA), sometimes called multi-factor authentication (MFA), is a security measure that requires two forms of identification and is designed to protect against identity theft or any form of breach in case the first line of defense is compromised. During this form of verification, the user is asked to enter a code sent to their phone or email. This way, the system checks if they’ve entered the data correctly and if not, the user isn’t granted access.

Essentially, two-factor authentication is an extra step and serves as a critical barrier against identity theft or account takeover (ATO) fraud. 2FA is often used for the initial account creation process, and password resets later on during the customer’s lifespan. It can also serve as a reverification measure, particularly with biometric 2FA. In this case, AI algorithms use a smartphone camera to verify the user’s face.

2. Document Verification

Document verification is the process of checking a government-issued ID document for authenticity. It involves examining security features and other specific attributes, ensuring that the document isn’t fake or hasn’t been tampered with. This type of verification is used by regulated industries, such as banking and luxury goods, helping companies detect potential risks and ensure KYC/AML compliance.

Document verification involves checking both physical and digital features of the documents, including format and the machine-readable zone (MRZ). Typically, this process involves a few steps:

Registration. The customer provides personal information, such as name, date of birth, and address.
Document submission. The customer submits documents, such as a birth certificate, passport, ID card, or utility bill, for verification.
Verification check. The system compares the submitted personal details with the uploaded document to ensure they are authentic.
Decision. If the document is verified as genuine, the customer is considered legitimate, and they can access the services.

Today’s document verification solutions use AI and optical character recognition (OCR) in order to extract data from the document automatically. This technology also helps compliance specialists and internal KYC teams detect forgeries and subtle alterations more accurately and, more importantly, in less time.

3. Selfie Verification

Selfie verification uses biometrics to confirm a user’s identity through a selfie. Users take a selfie with their smartphones while following the guidelines provided by AI software on the screen. While not foolproof, selfie verification serves as an extra layer of defense when combined with other ID verification methods like government-issued document checks.

However, robust selfie verification solutions use liveness detection technology, which detects pose-based selfies and fraudulent replicas that try to use non-living spoofs like masks or prints during the selfie recording process. The technology assesses skin texture, shadows, reflections, and other factors, detecting even AI-generated selfies, another emerging threat that scammers like to use to bypass verification measures.

There are two types of liveness checks:

Active liveness. Users perform actions, like smiling or shifting their gaze, in front of the camera to confirm their presence.
Passive liveness. Users don’t perform specific actions. The system detects fraud by analyzing motion, skin texture, and other red flags.

Many businesses now use selfie verification and facial recognition technology not only to onboard new users and reverify existing customers during high-risk moments, for example, before a large transaction or if the customer shows atypical behavior, like changing their whole profile and personal details, such as address data.

Related: What is Identity Proofing?

4. Database Verification

Database verification is a type of KYC verification measure used to authenticate government-issued ID documents and extra information from various official sources, such as government registries. Companies that use database verification methods often check information online, including public records or proprietary databases.

Database verification is also a common second-layer defense alongside document verification techniques, such as verifying driver’s licenses, passports, or ID cards. For example, a person’s name and photo can be matched with government records before enrolling in financial services or setting up any online account.

Database verification has multiple use cases, including:

Address verification. The customer’s personal information can be checked along with address data by conducting proof of address (PoA) checks, which can be based on utility bill checks and other documents later used to verify the person’s identity while cross-referencing addresses with reliable databases.
Age verification. Certain e-marketplaces and e-commerce platforms, as well as social media sites and adult entertainment platforms, are required by law to check their users’ ages and ensure that only legitimate adult users are accessing their services. Companies use database verification by incorporating extra date-of-birth data checks and granting or denying them access to various age-restricted items or services.

This vital ID verification measure can quickly and efficiently cross-reference the customer’s personal details, including details like tax numbers or residential addresses, against trusted sources. The biggest benefits of such database checks are ensured AML and KYC compliance, a clear data log and documentation, and a low-friction onboarding process that reduces the need for multiple document uploads or form fillings.

5. Credit Bureau-Based Authentication

A credit bureau-based authentication method is a verification method that uses information collected from credit bureaus to verify a person’s identity. Similar to database verification, this method compares the user’s personal information with data from credit bureaus. Financial institutions use this identity verification method because of its user-friendliness, as the user’s credit score can be matched to the user’s personal details without asking them to complete any additional steps.

Typically, credit bureau-based authentication helps verify the identity of individuals opening bank accounts. This includes checking details such as names, addresses, and social security numbers against credit histories and financial records. Lending companies use this method to evaluate a person’s creditworthiness. This method can be also used as an alternative to a standard document and vice versa since some people have limited credit histories, especially if they’re young or have recently immigrated.

➡️ Bonus: iDenfy’s AI-Powered Identity Verification Solution

iDenfy’s RegTech platform offers multiple fully automated ID verification tools (both biometric and document checks, with an option to use manual KYC checks conducted by our in-house KYC specialists), including extra features like age verification, address verification, built-in AML checks (PEPs and sanctions, adverse media, global watchlists), business verification for corporate clients, with other fraud prevention tools, such as customer risk assessment.

And this is all under a single platform. Book a free demo so we can give you a hands-on experience and the best-fitting KYC solution customized to your industry and needs.