The ID verification process is a necessary, but complicated, part of new account activation and onboarding processes. When services are primarily accessed online, digital identity verification is crucial to ensure customers are who they say they are and prevent fraud.
To simplify the process, many companies have begun using sophisticated technology that analyzes and compares dozens of data points to confirm an individual’s identity, streamline this process, and limit risk exposure.
In addition to simplifying the process, organizations can reduce fraud and identity theft, and more easily comply with KYC (know your customer) regulations. That's great news for fintech companies looking to prevent fraud—but it has a host of other uses as well.
Let's look at how the digital identity process works and how it improves user experience.
What is digital identity verification?
Digital identity verification uses digital data points to verify a person's identity when signing up for online services or logging into a digital platform. For example, Plaid Identity Verification uses information such as IP address, location, browser, cookies, and accounts associated with the user's email address to verify and confirm identity and help companies understand a user's risk level.
Whenever we use the internet, we leave breadcrumbs about who we are, what we like, even where we live. That data can be used (with permission) to verify a person's identity and provide friction-free access to a range of products like mortgage applications, investment accounts, or budgeting apps.
Previously, identity verification could be complicated, time-consuming, and opened the door for bad actors to exploit the process. Digital identity verification uses dozens of data points to understand risk, making it faster and more secure.
Watch the video below to see how Plaid's digital identity verification tool can offer a fast and secure onboarding experience to sign up new users at scale.
Why does online identity verification matter?
Online identity verification matters because fraud attempts are on the rise. In 2021, online fraud attempts increased by 25%. Online identity verification platforms can quickly gather and analyze data to determine how likely it is that someone is committing fraud—or trying to.
Companies can easily see, for example, that the same email address was used in previous fraud attempts or that the person opening a bank account is in a country the provider doesn't serve.
Online ID verification can improve compliance with KYC (know your customer) standards such as Customer Identification Programs for finance and finance adjacent companies by working to combat synthetic identities through additional data points. It's particularly important for fintechs and other start-ups that focus on providing a smoother onboarding process because, in most cases, it uses readily available information such as the user's browser or IP address.
Guide to calculating the value of identity verification
Prevent fraud, win users, and protect your bottom line
Benefits of digital ID verification: how it improves access and security
When it comes to the benefits of online ID verification, there's more than meets the eye. Online identity verification solves a crucial pain point for users—proving their identity is time-consuming and involves sharing sensitive documents. Some users feel uneasy about sharing this information while others may not have access to send in physical copies.
Using digital verification, users can quickly and easily prove who they are using information from their device, past login behavior, or biometrics, often right in the same app. Making the process easier is good for users who don't want to waste time and great for companies looking to increase conversions and provide a better customer experience.
In addition to making ID verification easier, other benefits include:
Improved access: Digital verification doesn't require sending in physical documentation or in-person meetings. This expands access for customers who are unable to send in documents so they can quickly access critical financial services.
Better security: Online verification uses more data points than conventional verification, helping improve security. Using multifactor authentication can provide an additional layer of security.
Seamless digital experiences: Customer experience is everything, especially for companies in competitive markets. When customers can quickly complete identity verification for digital onboarding, they are more likely to convert.
→ Want to reduce fraud during new customer onboarding without sacrificing conversion rates? Plaid Identity Verification is the lowest friction identity verification experience available.
How does digital ID verification work? 7 vital data checks in under 30 seconds
Digital ID verification works by using a variety of digital data points to detect fraud. In many cases, customers don't even know this data is there, making it more secure and more difficult to fake.
For example, when customers are ready to verify their identity, Plaid looks at attributes like the customer's browser, location, and whether their email was part of a data breach. No one data point is considered on its own; rather each point is part of a holistic check across multiple platforms.
Then, companies are provided with an assessment of the risk a user presents. Based on a customizable risk level, the user may be able to create their account or be required to undergo additional review to complete the process.
Digital ID verification platforms verify at a range of data points, including:
1. Digital fingerprinting
When customers are ready to verify their identity, they log in to Plaid's module. With the customer's permission, Plaid IDV looks at dozens of "fingerprints" related to their online activity, including:
Each of these data points is compared to other data about the customer to verify their identity. The data points are viewable in an easy-to-navigate dashboard, allowing companies to make more informed decisions about risk and fraud protection.
2. Device and IP checks
Plaid also checks the user's device and IP address. For example, it looks to see if the IP address is associated with a data center, which could signify fraudulent activity. It also looks to see if there is a time zone mismatch—meaning the device says it's in the Pacific time zone while the IP address is located in the Eastern time zone.
Other IP address checks include:
IP geolocation mismatch
Proxy or VPN usage
Using multiple data points is crucial to ensuring the accuracy of online identity verification, which is why Plaid gathers as much data as possible.
3. Email checks
When a user provides their email address, it enables Plaid IDV to associate their behavior with that address. The email address can then be checked for indications of fraud.
Email checks include:
Email deliverability: If the email is on a domain that isn't configured to receive email, that's a strong indication of fraud.
Disposable email: Plaid verifies whether the email is disposable, another high-risk indicator.
External account registration: If the email address is associated with accounts on popular social media, that's a strong indicator they are who they claim to be. For example, emails that have never been used to create a LinkedIn, Facebook, or Twitter account are more likely to be associated with fraud.
Recent domain registration checks: If the email address is associated with a domain that doesn't have a website or was purchased in recent weeks, it increases their chances of being associated with fraud.
Email data breaches: Finally, Plaid checks to see if the email address has been associated with a data breach. It analyzes how recent the breach was and how many times the email was uncovered. Surprisingly, the more data breaches an email has been exposed in, the better—because that means the address is likely to belong to a real person.
4. Phone checks
Phone number checks work similarly to email account checks. If the phone number is associated with several external accounts, say on Google or Twitter, that indicates the user is likely a real person. Phone numbers not associated with other accounts could be fraudulent or temporary numbers.
While you won't see the exact account, you will be able to see where the user has accounts using that same number, making it easier to spot risky users.
5. Network risk
Network risk checks detect if a current user has attempted to verify their identity from the same device before—even if it's been months since their last visit, making it easier to detect fraud.
For example, if a user creates two separate identity verification sessions from one device in the same day, they are likely at a higher risk than someone who creates two sessions from the same device 10 months apart. Granular details like these help organizations make smarter risk decisions based on verifiable data.
6. Behavioral analytics
As a user navigates the Identity Verification process, Plaid tracks how they interact with our platform, including how fast they type, whether data is copied and pasted or typed, and the order of input. People, for example, are likely to answer questions in order, while bots and bad actors may fill out information in less predictable patterns.
7. Online document uploading and selfie verification
Some companies, especially in fintech, still need to collect government-issued IDs. Digital identity verification makes this process easier. Users simply snap a photo of their ID with their phone and upload it then submit a selfie verification to show they are a real person and look like the person in the documents they provide.
Rather than replacing government ids (which are required for many financial accounts), selfie verification makes it easier to verify that government-issued documents are valid.
Digital identity verification is increasing security and improving the customer experience
Every day thousands of bad actors try to steal identities, take out fraudulent loans, and make unauthorized purchases. Digital identity verification is making it harder for bots and scammers to hit pay dirt. By analyzing thousands of data points across multiple platforms, Plaid Identity Verification helps protect consumers and the companies they do business with.
The benefits go beyond financial, however. Online verification is also easier for consumers—at least those who are who they say they are. By providing just a few pieces of information, such as their email address and phone number, they can quickly verify their identity and continue to navigate your site.