Open Banking
Open Banking
May 15, 2024
5 min

Digital Identity Verification Guide: How It Benefits Your Business


If you’ve ever had to upload a picture of your passport or take a selfie while opening a bank account through an app, then you have participated in digital identity verification. Like account verification, this process is fundamental to the financial ecosystem and the result of strict regulations like Know Your Customer (KYC) and Anti-Money Laundering (AML). According to the US Federal Trade Commission, nationwide fraud losses increased 14% year-over-year in 2023, amounting to $10 billion, of which the top contributors are imposters or identity theft (particularly in credit card payments).

This alarming trend is why verifying a user’s identity is so crucial. Sometimes, all it takes is publicly posted information on social media (like a place of work) for a hacker to stage an account takeover. Financial institutions and businesses need updated tools, policies, and internal checks to screen potential clients to ensure they’re not servicing cybercriminals. In this guide, we’ll give an overview of digital ID verification, how it works, the different methods used, and how it benefits businesses.

What Is Digital Identity Verification and How Does It Work?

Digital ID verification involves collecting, validating, and analyzing personal data, such as date of birth and address, to confirm a potential customer’s identity during onboarding. For example, banks and FinTechs use a combination of identity document verification (e.g., passport, driver’s license) and biometrics (e.g., facial recognition, fingerprints) to find an exact match. Aside from financial services, the most common use cases for online identity verification include healthcare, e-commerce, government services, and telecommunications.

Online verification often asks customers to upload an identity document to the site/app. The information is then cross-checked in real-time against existing bank-vetted databases. For example, Trustly ID uses bank-grade data to match potential users against bank account holders instantly. Trustly’s proprietary Open Banking platform pulls readily available information, including legal names, emails, and addresses, from banks that collate this data as part of their KYC compliance.

Aside from fulfilling anti-fraud and security measures, the goal of online ID verification is frictionless customer onboarding and enhanced user experience. This is especially important if a business has multiple apps or platforms because having potential clients repeat the same identity verification process can contribute to drop-offs. 

In a 2022 survey, it was discovered that 26% of potential customers didn’t go through with the sign-up because there were too many manual steps. Plus, 26% pinpointed identity proofing as a significant pain point, which is why businesses need to find the right solution that’s thorough without being tedious.

5 Digital Identity Verification Methods

Identity verification solutions often incorporate several methods that comprise various data sources. Taken as a whole, these data checkpoints are difficult to fake. A hacker may gain access to one data point, but it is highly unlikely that they can bypass all of them.

Here are the most commonly used methods:

  1. Data verification. This is typically the first step because it requires users to submit information that can be easily confirmed through regulated global databases, including government portals, credit bureaus, and even essential services like telcos. Identity verification solutions often use artificial intelligence/machine learning (AI/ML) to quickly scan uploaded ID documents. These algorithms classify, extract, and cross-check information in seconds through optical character recognition (OCR). If you’ve ever scanned your ID through an app and saw your details automatically filled out afterward, that’s OCR in action.
  2. Biometric verification. Fingerprints, facial features, and irises are attributes unique to each person and are often the strongest security measure. Once an ID photo is uploaded, not only is it analyzed for signs of fraud (e.g., incorrect/tampered seals), but it’s also compared against the provided selfie, where AI/ML can analyze something as minute as the space between the eyes. Even if fraudsters are able to copy an official ID, they won’t be able to bypass the liveness check, where users are instructed to move their heads during selfie capture.
  3. Email verification. Sending a verification link to an email is standard protocol to test if the user really has access to it. Email addresses are also checked to determine if they have recently been involved in a data breach. In addition, the email domain is analyzed to confirm that there’s a real website behind it, including how long it has been operating.
  4. Phone number verification. Aside from one-time passwords or pins (OTPs), a phone number is verified if it’s used in other accounts, like social media or utilities. This usually signifies that the number is being legitimately used. The number is also cross-checked with the network carrier’s database to see whether the account is active, if it had any fraudulent incidents, or if it has been recently purchased.
  5. Social verification/trusted identity. If a potential customer has opened accounts on major sites, it will be easy to cross-check their details with these platforms. Some commonly used trusted identity providers include Google and social media companies like Facebook and Twitter (X).

How Is ID Verification Different From Authentication?

Identity verification and authentication may seem similar at first glance, but there is a crucial difference. While both are used to prevent identity fraud, verification is done only once for new customers during the onboarding process. Once verified, authentication is required every time a user logs in to their account.

For example, mobile banking apps would send an OTP to the user’s verified phone number on top of requiring login credentials. They might also use permissioned biometric data to automate recognition. This feature, called multi-factor authentication, was developed to ensure security checkboxes are ticked off before a user is allowed entry into a business’ network.

3 Major Benefits of Digital ID Verification for Businesses

Identity verification provides value for businesses in three major areas ― compliance, onboarding, and cybersecurity. More importantly, a comprehensive verification system signals that a company prioritizes customer data safety.

Here’s how identity verification benefits merchants.

Enables Regulation Compliance 

Aside from AML, the Customer Identification Program (CIP) (part of the KYC strategy) requires U.S. businesses to perform Customer Due Diligence. It involves procedures that merchants must follow for identity verification (including obtaining customer consent for data sharing). While banks and brokers typically fall under the CIP, other companies are also under its regulation, including insurance agencies, gambling services, crypto exchanges, and travel agencies. Even if they’re not required by law, many companies adopt the CIP to protect their customers and their business from financial crimes.

Enhances the Customer Experience With Faster Onboarding

An intuitive digital verification system enables customers to verify just once across all the business’s related services and platforms, eliminating friction and frustration. As more people adopt online financial services, merchants need to keep up with demands for seamless onboarding, including tools that can autofill customer details, remember preferences, and provide near-instant verification. For example, Trustly’s AI-powered ID solution and connections with 12,000 banks make onboarding 5x faster.

Strengthens Risk Management and Customer Trust 

Advanced ID verification solutions use AI/ML to flag irregular patterns and behavior, such as how long it’s taking a potential user to input their details or if they are pasting answers instead of typing them out. In addition, a constantly updated risk engine and the capability to continuously monitor customer behavior even beyond onboarding demonstrate that a company takes cybersecurity seriously. For example, Trustly uses ML models to continuously analyze patterns across our 8,000+ merchant base to flag fraudulent behavior.

Digital Identity Verification Just Got Easier

Identity verification is crucial for businesses that want to comply with regulations, reduce their onboarding drop-offs, and prioritize fraud prevention. As fraud techniques become more sophisticated, companies need to keep up to protect their clients and brand reputation. With Trustly ID, businesses are assured they have a robust identity verification solution that has instant access to vetted customer information. In addition, Trustly performs regular data quality checks to maintain accuracy and security.

Trustly’s suite of connected solutions also enables merchants to seamlessly verify and authenticate accounts, onboard consumers, and facilitate secure payments and transactions.

Request a demo today.

Stay in the know

Get exclusive insights and updates on all things Open Banking and Payments.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Relevant pages and resources

Open Banking
Financial Services
June 17, 2024
5 min
How Open Banking Connectivity Increases Customer Conversion
Open Banking
June 6, 2024
5 min
How Open Banking Makes Consumer Account Verification Easy
Financial Services
Open Banking
June 5, 2024
7 Benefits of Real-Time Payments That Can Fuel Business Growth