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Published: Aug 03, 2023 15 min read

Identity verification is the process of confirming that someone is who they say they are. This is typically achieved by requiring an individual to submit a valid form of identification (e.g., driver’s license, passport or other government-issued document) or biometric information like fingerprints or facial recognition.

In other cases, it can be as simple as asking the individual to answer a few security questions, enter a password or enter a code sent to their email address or mobile device via SMS. Identity verification is used when it’s important to authenticate someone’s identity, like when making purchases, opening a bank account or filing taxes.

What is identity verification?

Identity refers to a set of characteristics that specify an individual and aid in differentiating them from others. These characteristics can include names, birthdates, addresses or even biometric data like fingerprints and facial features.

There are various reasons why identity verification is necessary in both the public and private sectors. In the public sector, verifying your identity is required for tasks like the issuance of passports or driver's licenses, for confirming voting records or for allowing entry to secure places.

On the other hand, the private sector uses identity verification to safeguard customers, companies and data from fraud and identity theft. One example is when banks and other financial institutions require customers to complete an identity verification process before making transactions or opening new accounts.

There’s no shortage of laws and regulations dictating the types of identity verification processes that private or public organizations must use to protect customers and data. What is and isn't legally required largely depends on the industry, the type of data being collected and the specific jurisdiction for these activities. For example, European banking regulations require banks to use two-factor authentication to verify customers' identities when they access their accounts or make payments online.

How does identity verification work?

Identity verification is the process of capturing specific information from an individual and then verifying that information against a trusted data source to confirm its accuracy. This process involves collecting two pieces of data: one from the person being verified (e.g., a password, biometric data, driver’s license, etc.) and one from the data source to confirm the information collected from the individual (e.g., customer database, government database, etc.).

The two pieces of information must match in order for the identity verification process to be successful. In some cases, additional steps are taken to verify the identity more thoroughly. This could involve sending an email or text message with a one-time code, requiring a selfie to be taken or scanning your fingerprints. The more points of reference that are used in the identity verification process, the more secure it becomes.

Methods of identity verification

There are numerous identity verification processes. While some existed for identity verification before the integration of digital technology, digital identity verification methods are only possible due to the advent of the internet and various technological advances.

The following section surveys a few of the most common methods, including how they work, their applications and any specific advantages or drawbacks.

Document-based verification

Everyone remembers turning 21. That’s largely because it was the first time you got to use your driver’s license to verify that you were old enough to purchase alcohol.

In a nutshell, that’s document-based verification, one of the most traditional forms of identity verification. It requires physical documents — like a passport, driver’s license or birth certificate — to be presented and verified by another party. This form of identification is commonly seen at airports, during visa applications or when accessing certain services.

Document-based verification can be used for both physical and digital access. For example, a passport or driver’s license could be scanned and used to verify someone's identity online. Similarly, physical documents can be checked by an employee at a store or other business location.

Government-based document verification is generally a secure way of verifying identity, but it does have some disadvantages. First, physical documents can be counterfeited or stolen. Second, a physical document can potentially be used by someone other than its owner. Finally, some individuals may face difficulty in acquiring such documents, which can hinder their access to certain services and opportunities.

Biometric verification

Remember the “Mission Impossible” movies, when Tom Cruise’s character would use retinal scanning devices for high-security access? Similar technology is now commonplace.

Biometric verification, or biometrics, is a type of identity verification that uses unique physical characteristics to verify someone’s identity. Common examples include fingerprints, facial recognition or voice analysis.

Biometric verification can be used in both physical and digital contexts. For example, utilizing physical records of fingerprints has been a method of keeping criminal records since the 1890s. More recently, digital biometric verification has become increasingly popular for unlocking a mobile phone, accessing protected digital accounts and even gaining access to one's home or office.

Many experts believe biometric verification is one of the most secure methods of verifying identity as it's extremely difficult to duplicate. It also eliminates the need to remember passwords or carry physical identification. However, it can be costly to implement and has raised privacy concerns regarding how companies use biometric data. Moreover, if someone's biometric data is compromised, they may not be able to easily regain secure access.

Two-factor authentication (2FA)

Two-factor authentication (2FA) is a form of identity verification that requires two elements to verify someone’s identity. One element is typically something the person knows, like a password or PIN, and the other element is usually something the person has, like a mobile phone, email address or biometric marker.

By requiring two elements for verification, the process is significantly more secure than traditional single-factor authentication methods. Recently, more companies and services are implementing 2FA, as it’s a relatively simple and effective way to improve security.

Where is identity verification used?

Whether you're logging into a secure financial website or simply unlocking your phone, identity verification is now commonplace. Banks, credit card companies, healthcare providers, online retailers and government services all use various forms of identity verification technology to protect customers and ensure that only authorized users can access sensitive information.

The following section examines some circumstances in which identity verification is typically used.

Employment background checks

Employers have a responsibility to protect their business, employees and customers by conducting comprehensive background checks. This includes verifying identity documents like driver's licenses or passports, checking references, collecting and verifying Social Security numbers and running criminal background checks.

In the past, employee identity verifications were conducted manually and often took days to complete. However, with the advent of modern identity verification technology, employers can utilize identity verification services to quickly and accurately verify an individual’s identity in just minutes.

Beyond basic background checks, some employers are legally required to verify the identity and criminal history of all new hires. For example, in Florida, certain types of businesses and organizations must perform Level 2 background checks, which include fingerprinting and a search of the FBI's criminal database. This is typically conducted for prospective employees who will regularly interact with vulnerable or at-risk populations.

Rental background checks

When renting a property, landlords must be certain that the person who is applying to rent it is in fact who they claim to be. This often requires verifying acceptable documents like a driver's license, passport or other forms of ID. Many of the best background check sites that employers use also offer tenant screening services for landlords. Not only do they provide a comprehensive identity verification solution, but they often also provide credit history and criminal background checks to give landlords a better idea of who they’re renting their property to.

Online services and platforms

Online services and platforms like e-commerce stores and social media websites also utilize various forms of identity verification and authentication. As opposed to strict identity documentation verification, these websites use a variety of less intrusive methods to verify users' information, like email address validation or phone number verification. However, with many social media sites, users can remain anonymous if they so choose.

Banking and financial transactions

When it comes to identity verification, banking and finance is one of the most heavily regulated industries. In the U.S., these regulations come from the FDIC’s Customer Identification Program (CIP), which stipulates that banking and financial institutions must have a "reasonable belief" that a person is who they claim to be. Customers must go through a rigorous process of validating their identities before being allowed to open an account or complete a transaction.

These processes typically involve having customers provide proof of identity with documents like passports, driver’s licenses and utility bills. Some financial institutions even employ the use of biometric authentication, where customers are able to provide a fingerprint scan or other physical verification as an extra form of security.

Banks and financial institutions also employ a number of other security protocols like email and phone verification, 2FA and strong password policies to help ensure the security of customers’ accounts.

Government and public services

Government and public services are another sector where identity verification is heavily regulated. Customers are typically required to provide proof of identity in the form of government-issued identification like a driver’s license or passport. When using certain services, users may also need to provide additional personal information — like their address, date of birth and Social Security number — which can be required for things like obtaining a passport, submitting taxes or registering a vehicle.

The challenges of identity verification

Identity verification is an integral function for many industries, but it can be difficult for businesses and customers alike. There are challenges related to data security, privacy and high costs, making it a resource-intensive and time-consuming process. The following section outlines some of the most common problems associated with identity verification.

Privacy concerns and data protection

One of the main challenges associated with identity verification is the risk of data breaches or unauthorized access to sensitive customer information. As customers are often required to provide that sensitive information, organizations must be sure to implement strong security protocols and adhere to data protection practices to safeguard customer data. This often requires a significant investment in terms of resources, training and technology.

There’s also no guarantee that efforts to protect customer data will be successful. With large and well-respected companies like Experian and Marriott suffering alarming data breaches in the past few years, it’s clear that even the most robust security measures don’t guarantee complete protection.

False positives and false negatives

Another challenge with identity verification is false positives and false negatives. False negatives occur when a customer is incorrectly flagged as fraudulent, while false positives are when a fraudulent customer is incorrectly approved.

False positives can have severe financial impacts, as organizations are then liable for any fraud which occurs as a result of their mistake. False negatives, on the other hand, can result in customer frustration and lost sales as customers are denied access to services.

Organizations must be able to balance the need for security with the desire to offer customer-friendly services and good customer experiences. To achieve this, organizations should strive for the lowest possible false negative and positive rates, while still maintaining the highest possible security standards. Implementing AI-assisted technologies like machine learning as well as the latest identity verification solutions can help organizations achieve this balance.

Compliance with legal and regulatory requirements

Due to the rise in data breaches and privacy concerns, organizations are facing more pressure to comply with constantly evolving legal and regulatory requirements. Laws like the Health Insurance Portability and Accountability Act (HIPAA), California Consumer Privacy Act (CCPA) and the European General Data Protection Regulation (GDPR) impose limits on how organizations manage and safeguard customer data. These laws require organizations to remain vigilant, stay up to date with the latest regulations and be diligent in protecting customer data from misuse.

Summary of Money's what is identity verification

As we move further into the digital age, identity verification is likely to become more integrated into the way we do business and interact with various organizations and services. By utilizing a mix of traditional and modern identity verification techniques, organizations can ensure customers are both legitimate and secure without sacrificing convenience.

While some security protocols are relatively affordable and easy to implement (e.g., 2FA), others may require a deeper dive into new technologies like machine learning to ensure the highest security standards are maintained. By keeping current with the latest trends and technologies in identity verification solutions, you can ensure you’re protecting both your customers and your organization from the threat of identity theft and various forms of online identity fraud.