What’s the Role of Identity Verification?

Identity verification plays a vital role in better enabling trust in today's interconnected, digital world. As we become more dependent on digital channels to help manage nearly every aspect of our lives, it’s critical organizations better verify people are who they claim to be before granting them access to systems, data and transactions. The role of identity verification is to help uphold security, protect institutional and customer data and privacy, ensure compliance with regulatory standards, and foster trust among customers and businesses.

Why is identity verification important?

Identity verification helps safeguard businesses and also builds customer trust by better enabling more secure, seamless digital experiences. Identity verification is an important factor in:

• Fraud prevention: Identity theft and fraud are significant concerns for organizations managing a high volume of digital transactions. By implementing more robust identity verification solutions, companies can better protect themselves and their customers from fraudulent activities and associated costs.

• Regulatory compliance: Many industries are required to comply with regulations, such as know your customer (KYC) and General Data Protection Regulation (GDPR). Identity verification helps organizations meet these legal requirements.

• Customer trust: When customers know a business has strong identity verification measures in place, they’re more likely to trust their personal information is secure.

• Operational efficiency: Automated identity verification processes can help streamline operations, reduce manual efforts and the need for resources allocated to fraud detection and fraud resolution. 

• Customer experience: Well-designed identity verification processes enhance security while helping to avoid excessive friction into the customer journey. Delivering greater security in tandem with a smoother customer experience can reduce false positives and increase customer loyalty.

What are the risks of not using identity verification?

Failing to implement more effective identity verification systems can expose organizations to significant risks — both financially and reputationally. Here are some primary risks:

• Identity fraud: Without robust identity verification, businesses become vulnerable to various forms of identity fraud, including new account fraud, account takeover fraud (ATO) and synthetic identity fraud. Identity fraud detection and prevention systems, including identity verification, are essential to helping mitigate these risks.

• Financial losses: Identity fraud can result in substantial financial losses. ATO fraud, where criminals gain unauthorized access to customer accounts, can lead to direct financial theft and subsequent losses. Similarly, synthetic fraud, where fraudsters create fake identities using a blend of real and fictitious information, can lead to fraudulent account creation and transactions and credit losses.

• Reputational damage: The fallout from identity fraud extends beyond financial loss. Organizations that fail to protect their customers' identities risk severe reputational damage. Loss of customer trust can result in decreased customer retention, revenue loss and a tarnished brand image.

• Regulatory penalties: Non-compliance with regulations like KYC can result in hefty fines and legal consequences. Regulatory bodies enforce strict penalties on institutions that fail to adhere to prescribed identity verification standards.

How does identity verification combat identity fraud?

Identity verification systems are at the forefront of combating identity fraud. By employing more advanced technologies and methodologies, these systems better ensure individuals are authenticated more accurately and securely. These include:

• Identity proofing solutions: This involves better verifying the authenticity of the customer’s personal information and identity documents. By validating prospective customers’ personal information (such as phone numbers or email addresses) against trusted databases, organizations can better confirm their authenticity and accuracy. The process can also include document-centric identity proofing that entails scanning and verifying government-issued IDs using advanced technologies like optical character recognition (OCR) and hologram detection.

• Device intelligence: This process helps establish if the device is trustworthy, whether a real person is using the device to perform the transaction, and if that person is who they claim to be.

• Synthetic identity detection: Designed to better identify and prevent the creation and use of fraudulent identities that combine real and fake information, synthetic identity detection employs several more advanced techniques like cross-referencing authoritative data sources, including data consortiums, geolocation, behavioral analysis and device fingerprinting.

• Biometric identity verification: A more effective method in the identity verification process is biometric identity verification. By using unique physical characteristics, such as fingerprints, facial recognition or iris scans, businesses can better authenticate individuals with a higher degree of accuracy. This reduces the risk of identity takeover and helps ensure the person accessing a system or initiating a transaction is indeed who they claim to be.

• Multi-factor authentication (MFA): Implementing MFA adds an extra layer of security by requiring individuals to provide multiple forms of identification before accessing sensitive information. This can include something they know (for example, their password), something they have (commonly a security token), and/or something they are (for example, a form of biometric verification).

• Behavioral analysis: More advanced identity verification software often incorporates behavioral analysis to help detect anomalies in user behavior. By monitoring patterns, such as typing speed, navigation habits and device usage, these systems can flag suspicious activities that may indicate attempts at fraud.

• Continuous monitoring: Identity verification is not a one-time process. Continuous monitoring better ensures any signs of account takeover or unauthorized access are detected in real time. This proactive approach better allows organizations to respond swiftly to potential threats and reduce the impact of fraud.