How digital identity verification works: 8 vital data checks

Digital identity verification increases trust between consumers and companies. Here's how to make it a friction-free experience.

February 07, 2024

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Danielle Antosz

Danielle is a fintech industry writer who covers topics related to payments, identity verification, lending, and more. She's been writing about tech for over a decade and is passionate about the impact of tech on everyday life.

The identity 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 hundreds 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 selfies, 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. 

Manual review processes for identity verification done via scanned paperwork are complicated and time-consuming, which is impractical for fintechs that need to quickly onboard new users. Digital identity verification uses hundreds of data points to quickly analyze risk, making it faster and more secure. This faster ID verification process helps provide friction-free access to a range of products like mortgage applications, investment accounts, or budgeting apps.  

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 device ID was used in previous fraud attempts.

Online ID verification can improve compliance with KYC (know your customer) requirements, such as having a Customer Identification Program 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, performing identity verification online only takes a few minutes. 

Guide to calculating the value of identity verification

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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 the time to go in person. 

By performing digital verification online, users can quickly and easily prove they are a real person using information from their device, email address, 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. 

Other benefits of doing identity verification online 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? Plaid Identity Verification consistently achieves pass rates of 90% or greater.

How does digital identity verification work? 8 vital data checks

Digital identity verification works by examining a variety of data sources, ID documents, and even selfie videos to ensure a person is who they say they are. These data sources are difficult to fake, making them the most secure and reliable way to verify identity online.

Plaid also looks at digital 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. In many cases, customers don't even know this data is there, making it more secure and more difficult to fake. 

Then, companies are provided with an assessment of the risk a user presents. Based on a customizable risk level and other verification checks, the user may be able to complete verification or a company may require the user to undergo additional review to complete the process. 

Digital identity verification platforms verify a range of data points, including: 

1. Digital fingerprinting 

When a customer wants to use a new financial app or service, as part of the onboarding process a company may require that customer to verify their identity. With the customer's permission, Plaid IDV looks at dozens of "fingerprints" related to their online activity, including: 

  • Location 

  • Browser settings 

  • Cookies 

  • Battery usage 

  • Screen resolution 

  • WebGL parameters 

Each of these data points is compared to other data about the customer to verify they are a real person and determine the risk of fraud, 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 

  • Incognito session 

  • Blocked cookies 

  • Proxy or VPN usage 

Using multiple data points is crucial to ensuring the accuracy of online identity verification, which is why Plaid looks at many different data points to determine fraud risk. 

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 to, 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 Facebook, 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 phone and email, 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, making it easier to detect fraud.  

For example, if a user creates two separate online 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 online Identity Verification process, Plaid tracks how they interact with the app or site, 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. Digital ID verification and liveness/selfie verification 

Many companies, especially in fintech, still need to collect government-issued IDs. Digital ID verification makes this process easier. With Plaid Identity Verification, for example, users simply snap a photo of their ID with their phone and upload it. Then, they 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 the person is real and looks like the person on the ID. 

Read our article on how selfie verification works to learn more.

8. Database verification  

Database ID verification compares information provided by the user with information stored in issuing databases. These databases store information about consumers, such as their social security number, date of birth, location, and email address. Comparing this information with information shared by the consumer can help verify identification.  

Plaid's Identity Verification is a customizable online ID verification platform that helps companies reduce fraud risk and meet KYC and AML requirements in one easy-to-use solution. It verifies identity data by comparing it against regulated data sources, authenticates hundreds of different ID documents, and confirms liveliness through selfie verification. By analyzing hundreds of risk signals, Plaid helps reduce fraud losses while protecting the customer experience and increasing conversions. 

Real-time digital identity verification reduces fraud risk 

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. 

→ Learn more about Plaid’s fraud and compliance solutions

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How to verify someone's identity

Verifying a user's identity is a crucial step in reducing the risk of fraud. There are multiple ways to verify someone's identity, each with its pros and cons. Below, we'll explore how to verify someone's identity. 

  • Digital identity verification: Online identity verification uses identity verification companies to verify identity documents the user provides and compare the information they provide with databases. Checks may also include device and IP checks, email account checks, and behavioral analytics. 

  • Knowledge-based identification: Knowledge-based ID verification uses security questions the user selected in the past to verify their identity. For example, questions may ask for their first pet's name or where they met their spouse. These questions are selected during onboarding to ensure the user is the original account holder. Because this type of online identity check is used for re-verification, it is often paired with other ID methods.  

  • Credit score identification: Credit bureaus store large amounts of data about consumers, including their name, social security number, address, and date of birth. Comparing data provided by consumers with credit score data can help verify identity. However, it's not as useful for users with no or thin credit files. 

  • Two-factor authentication: Two-factor authentication uses something consumers know (such as their login information) with something they have (such as a cell phone or access to an email address.) Requiring two different verification features drastically reduces the risk of fraud, but cannot be used to meet KYC regulations.  

  • Biometric-based identification: Biometric identification uses physical characteristics to verify identity, including fingerprints, retina scans, and facial recognition. Anyone who uses Face ID on their Apple device has used biometrical-based identification. To be successful, however, biometric data must be provided to the platform before it can be used. 

While there are many different ways to verify a person's identity, most cannot be used alone to confirm identity during the signup process. Two-factor authentication, for example, is often used to verify re-logins after initial setup. Online identity verification, however, can be used as a stand-alone process when setting up a new account.