What is Identity Verification? Comprehensive Guide

Identity verification, also referred to as IDV, isn’t a new concept. In fact, it’s been around for thousands of years.

For example, the ancient Babylonians are known to have used fingerprints to seal business transactions on clay tablets, while the earliest recorded passport-style documents can be traced as far back as 450BC in ancient Persia.

Today, IDV is more important than ever for business and organizations, as well as their customers and consumers. With 79% of businesses having fallen victim to identity fraud, IDV is an essential defence.

For businesses, the key benefits of IDV are:

• Fraud prevention: It helps prevent unauthorized access to accounts and reduces the likelihood of identity theft, protecting businesses from financial losses.
• Regulatory compliance: Many industries must adhere to strict regulations, for example when providing age-restricted goods and services. Identity verification ensures compliance, avoiding hefty fines and legal issues.
• Enhanced security: It improves overall security by ensuring only verified individuals can access sensitive information, services, or goods, and perform transactions.
• Customer trust: Proper identity verification builds trust between businesses and customers, which is essential for long-term relationships and customer loyalty.
• Reputation protection: By preventing fraud and ensuring security, businesses can protect their reputation and brand image.

Automated identity verification – which uses software to verify the person’s identity – can provide additional benefits and advantages for businesses and consumers.

• Customer experience: IDV enables smoother customer onboarding and transactions, reducing friction for legitimate customers while flagging suspicious activities.
• Operational efficiency: Automated identity verification processes are faster and more accurate than manual methods, streamlining operations.
• Competitive advantage: Implementing advanced identity verification technologies can differentiate businesses in the market, offering cutting-edge solutions to customers, as well as opening up new revenue streams and the potential for expansion into new territories.
• Enhanced security: It protects consumers from identity theft, fraud, and financial loss, by safeguarding their personal and financial information from unauthorized access.
• Improved trust: Robust verification processes build consumer confidence in digital interactions and transactions.
• Faster access to services: Real-time authentication enables immediate access to services and information, eliminating long wait times for approval.
• Protection of sensitive data: Advanced encryption and security measures used in digital identity verification protect consumers' personal information from potential data breaches.
• Compliance benefits: Consumers indirectly benefit from businesses' compliance with regulations, as it ensures their interactions are legally protected and secure.
• Streamlined user experience: Digital identity verification allows customers to establish their identity quickly and conveniently from home, making account creation and access faster and easier.
• Personalized experiences: Accurate identity verification can lead to more tailored and relevant services from businesses.

You’ve experienced identity verification (IDV) many times yourself. Perhaps you’ve been challenged to provide proof of your age to buy a bottle of wine, or asked to send a selfie and a copy of your passport to open a bank account.

IDV is a necessity in many scenarios, such as:

• Grocery retailers: Stores use IDV when they need to confirm a customer’s identity for the sale of age-restricted  goods such as alcohol, tobacco, or cannabis. This is necessary during buy online, pick up in-store (BOPIS) and cashier transactions, as well as curbside collection and deliveries.
• Other retailers (like fashion stores): Require identity verification checks for instances such as customers filling in a tax-free form, loyalty scheme signups, or for opening store credit cards.
• E-commerce: Online retailers use IDV to prevent fraud, secure transactions, and authenticate customer identities during account registration
• Post and last mile delivery: Delivery companies and couriers use IDV to confirm a recipient’s identity for high-value goods and/or proof of delivery. It’s also used to ensure age-restricted goods are handed over to someone of legal age.
• Travel: IDV is used at booking and check-in, both online and on-site, and at border control to confirm traveller identities.
• Hospitality: Accommodation providers may use identity verification during the customer booking process, self check-in online, or to check-in identities at the property.
• Financial services: IDV is crucial for opening bank accounts, applying for loans, and performing Know Your Customer (KYC) procedures. It helps prevent fraud, money laundering, and ensures regulatory compliance.
• Utilities (telecommunications and energy): Telecom and utilities companies use IDV for scenarios like SIM card activation, phone number porting, and preventing unauthorized usage.
• Healthcare: IDV is used for verifying patient identities, for example, during telemedicine consultations and accessing electronic health records.
• Government services: IDV ensures that benefits and services are provided to entitled individuals. It can also be used for law enforcement purposes and access to restricted buildings or documents.
• Corporate settings: Companies use IDV for employee and vendor verification to protect company data and control access to sensitive areas.

Put simply, there are two ways to verify an individual’s identity: the old way, or the new way.

The old way refers to manual methods (such as manual data entry with pen and paper, or checking an identity document by eye), whereas automated IDV uses technology to make the process more efficient, secure, and accurate. 

A manual IDV process is performed by a human, who verifies the person’s identity by reviewing their ID documents either in-person, over the phone, or via video call. The risk with manual IDV is that it is prone to human error and bias, meaning it can be unreliable.

Alternatively, automated identity verification uses technology and software to perform the checks. This eliminates the risk of human error, and can also often speed up the process significantly.

Here’s a real-world example:

1. A delivery driver stops at an address to deliver a grocery order which contains alcohol.
2. The customer answers the door to accept the delivery.
3. The driver asks for a photo ID to confirm the recipient is over the legal alcohol purchase age.
4. The customer provides a driver’s license, which the delivery person scans using a smart device powered with IDV software.
5. The software reviews the data from the ID against pre-specified criteria (in this case, that the recipient must be aged 21+).
6. The data meets the criteria, the software also verifies that the license is genuine, and the ID document passes the verification check.
7. The driver hands over the goods.

In this scenario, the automated check provides several benefits over a manual process:

• It reduces the chance of the driver missing something during a manual check of the ID. The software instantly shows whether the customer is the correct age, and also whether the ID is genuine – especially helpful considering that fake IDs are getting harder to spot by eye.
• It ensures a quick process – taking seconds to complete the check and hand over the goods.
• It provides a digital audit trail that confirms the goods have been handed over legally, reducing the risks of a compliance breach.

The choice of verification method often depends on specific industry requirements, regulatory compliance needs, and the level of security desired.

Here are five key identity verification methods:

• Document verification: A popular method involving manual or automated processes to extract and check information from IDs like passports and driver's licenses. Automated document verification offers high accuracy, instant checking, and verification of security features.
• Biometric verification: Uses unique physical characteristics like facial, fingerprint, iris, or voice recognition to confirm identity. It offers high security, but raises privacy concerns and needs to be checked against something else, like an ID document.
• Knowledge-based authentication (KBA): Requires users to answer personal questions to prove their identity. Static KBA uses pre-selected questions, while dynamic KBA generates real-time questions.
• Video-based verification: Involves a live video call with a verification expert who conducts real-time document checks and facial comparisons.
• Database verification: Cross-checks provided information against various databases and watchlists for AML screening, KYC compliance, and fraud prevention.

The verification method (or methods) you select for your organization will depend on your industry’s requirements, compliance considerations. You’ll also need to consider security, efficiency, user adoption and the accuracy of the solution, as well as the resources required to integrate it with your systems and workflows.

When conducting identity verification checks, it’s important to balance security, efficiency, and user experience. At the same time, addressing privacy concerns, ensuring data security, and preventing fraud is essential.

Privacy concerns

One of the most significant challenges in identity verification is maintaining user privacy. Collecting and storing personally identifiable information (PII) can raise concerns about how this data is used, shared, and protected.

Regulatory frameworks such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) require businesses to implement strict measures to safeguard user data and respect consumer rights.

Transparency is key here – companies must clearly communicate their data collection and usage policies to gain user trust.

Regulatory compliance

As well as compliance with laws such as GDPR and CCPA, organizations must also consider industry-specific regulations which ensure legal accountability and protect both businesses and consumers.

Companies must stay informed about changing legal requirements and integrate compliance measures into their verification processes.

Data security

With increasing cyber threats, data security is a huge priority in identity verification.

Organizations must implement robust security measures to protect sensitive information from breaches, leaks, and unauthorized access. Encryption, on-device processing, and security protocols are essential to prevent data compromise.

Additionally, businesses should conduct regular security audits,stay updated with evolving cybersecurity best practices to mitigate risks, and have the necessary certifications such as ISO27001.

Evolving fraud risks and cybercrime tactics

Scandit’s research discovered that fake ID fraud is widespread among young adults in the United States.

Meanwhile, 30% of young adults admitted they have considered or purchased a fake ID themselves.

Identity fraud continues to evolve, with cybercriminals using sophisticated tactics such as deepfakes, synthetic identities, and phishing attacks to bypass verification systems.

Organizations must adopt advanced fraud detection techniques and robust ID verification software to identify and mitigate fraudulent activities. Implementing real-time identity verification checks and behavioral analytics can help enhance security and reduce the risk of fraud.

Balancing security and user experience

While robust security measures are necessary, they should not create friction for legitimate users. A cumbersome identity verification process can lead to user frustration and abandonment.

Businesses should strive to streamline verification procedures by leveraging user-friendly technologies such as document scanning and automated identity verification solutions. This makes it as seamless as possible for the end user (customer) and the employee conducting the checks.

But how can you successfully implement IDV within your business? When selecting and integrating an identity verification solution, consider the following:

• Efficiency and accuracy: ID scanning should be accurate and fast. Aim for a solution that maintains accuracy without compromising speed. As a benchmark, look for at least 95% accuracy, with a maximum scan speed of two seconds.
• Security: The software should operate securely, reducing or eliminating risk of data loss in the event of a security breach. Consider a solution that processes data on-device and works offline, without the need to store customer personally identifiable information (PII).
• Document coverage: The solution should provide support for a wide range of documents, including passports, drivers’ licenses, and state cards.
• Easy to integrate: Select a solution that supports your existing systems, platforms, devices, and development frameworks. It should also be quick to implement, without the need for extensive development resources.

Scandit’s ID scanning software meets all of these criteria, offering:

• ID scans in 1 second with 100% accuracy for most document types (minimum 95% accuracy across all documents).
• Industry-leading 99.9% ID verification accuracy (based on more than 100,000 weekly ID document scans from Scandit customers).
• Works offline, with on-device processing, meaning no PII data is transmitted to third parties or stored on cloud servers. Scandit is also ISO27001 certified.
• Support for 2,500+ ID document types.
• Fully customizable Native and web SDKs and low-code, ready-to-go (ID Bolt) scanning options.
• Support for all major programming languages, frameworks, and operating systems.
• Works on any smart device with a camera, including smartphones and handheld computers.