Types of Identity Verification Explained

Identity verification (ID&V) is more than just a security measure, it's a critical component of protecting businesses and their customers. Whether it’s in financial services, online gambling, e-commerce, or telecommunications, ensuring that customers are who they claim to be is essential for reducing fraud, complying with regulations, and building trust.

But what exactly are the different types of identity verification, and how can businesses choose the right methods? In this blog, we’ll explore the key identity verification techniques, their importance, and how they help regulated businesses meet evolving standards.

What is Identity Verification?

At its core, identity verification confirms that a person is who they say they are. This process prevents fraudsters from assuming false identities and ensures businesses only grant access to legitimate customers. However, the terms used around IDV, like identity proofing vs identity verification and identity validation vs verification, can often be confusing.

• Identity proofing vs identity verification: Identity proofing refers to establishing that the attempt to verify identity is legitimate, for example that it’s not coming from a bot attempt. Whereas identity verification is the process of confirming that the information provided is correct and belongs to the person attempting to verified.
• Identity validation vs verification: While validation ensures the accuracy of submitted data (like checking a name against government records), verification ties this data to the individual through things like photo ID or biometrics.

With various types of identity verification techniques, businesses can customise their approach to align with their specific compliance needs.

Why is Identity Verification Important?

In an era of rapidly increasing online interactions, identity verification serves as the first line of defence against fraud and identity theft. Identity verification and authentication are often paired to create a seamless but secure experience. Once an identity is verified, authentication ensures that users can access sensitive data or perform actions like transactions.

Businesses across various industries and jurisdictions must balance user experience with security. For instance, while frictionless processes improve customer satisfaction, inadequate IDV can expose a business to security breaches and regulatory penalties.

Compliance is another critical factor. Regulated industries like finance or healthcare face strict rules, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, requiring businesses to implement thorough identity verification checks. Let’s dive deeper into the steps involved in a full identity verification process.

The Full Identity Verification Process & Types of IDV

The identity verification process usually involves multiple layers to ensure maximum accuracy and security. Here’s an overview of how businesses can structure their verification process:‍

KYC Data Checks

The first step in any robust IDV process is a Know Your Customer (KYC) data check. This involves collecting personal information from the customer—such as name, address, date of birth, and government-issued identification numbers—and validating it against trusted databases. This ensures that the data provided matches official records.

In addition to validating this data, KYC checks are often required by law in sectors like banking, where regulations demand stringent identity proofing to prevent fraud and financial crime.

Document Verification and Biometrics

Once the initial KYC check is complete, businesses can move on to document verification. This involves having the customer submit physical or digital copies of official documents like a passport, driver’s license, or national ID card. Document verification tools use advanced technologies, including artificial intelligence, to scan for forgery or tampering. This ensures the legitimacy of the documents provided.

Beyond document checks, businesses increasingly turn to biometric identity verification for an additional layer of security. Biometrics identity verification systems use facial recognition, fingerprints, or even voice recognition to confirm that the person submitting the documents is the same individual. This reduces the risk of fraud through impersonation or stolen identities.

Anti-Money Laundering (AML) Checks

To further enhance security and ensure compliance, businesses must also ensure that Anti-Money Laundering (AML) and identity verification work in harmony. These involve screening individuals against databases of Politically Exposed Persons (PEPs), sanctions lists, and adverse media reports. AML checks help businesses identify high-risk individuals or entities that could be involved in financial crime or corruption.

• PEPs checks focus on identifying individuals in positions of political power, who may be at a higher risk of corruption.
• Sanctions checks ensure that businesses are not engaging with individuals or companies flagged by governments or international organisations for criminal activities.
• Adverse media checks search for negative news coverage or reports linked to a person’s involvement in illegal or unethical behaviour.

Anti-Fraud Checks

Another critical component of the identity verification process is performing anti-fraud checks. These checks are designed to detect potentially suspicious behaviour or patterns that could indicate fraudulent activity. Anti-fraud systems often rely on machine learning algorithms to analyse transactions, device fingerprints, and geolocation data, allowing businesses to spot inconsistencies that could signal fraud.

Re-screening and Ongoing Monitoring

Identity verification doesn’t end after the initial onboarding process. Businesses must conduct periodic re-screening of their customers to monitor for changes in risk status. For instance, a customer may initially pass all verification checks but later be added to a sanctions list, become a PEP, or appear in adverse media.

Re-screening helps businesses stay compliant with regulations, as well as stay ahead of evolving threats. It ensures that any changes to a customer’s risk profile are detected early, minimising exposure to potential fraud or reputational damage.

What are the IDV Challenges That Regulated Businesses Face?

Regulated industries such as finance, healthcare, and telecom face unique challenges in implementing identity verification solutions. Compliance with laws like the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA), along with stringent KYC and AML regulations, requires businesses to handle sensitive customer data with care while avoiding regulatory penalties.

Additionally, balancing security with customer experience is a common hurdle. Lengthy or complicated verification processes can result in lost business due to customer friction, while weak processes expose businesses to risk. Moreover, businesses must stay updated with rapidly evolving fraud tactics, which require regular updates to verification systems.

Will AI Be a Key Factor in Identity Verification Moving Forward?

Artificial intelligence (AI) is playing an increasingly vital role in identity verification. AI-driven systems can analyse large volumes of data, perform document verification, and detect anomalies in real-time, helping businesses streamline IDV without compromising security.

Biometrics identity verification systems are a prime example of how AI is used to improve both security and user experience. Facial recognition technology can verify identities in seconds, and machine learning algorithms improve with every interaction, refining their accuracy over time.

AI also enables continuous monitoring, allowing businesses to stay ahead of emerging fraud tactics and adapt to new threats more effectively.

What Regulations Do Businesses Need to Be Aware of for Identity Verification?

Businesses operating in highly regulated industries must comply with various global regulations surrounding identity verification. These include:

• Know Your Customer (KYC) laws, which mandate that businesses collect and verify customer information to prevent identity fraud and financial crime.
• Anti-Money Laundering (AML) regulations, including the 6^th Anti-Money Laundering Directive (6AMLD) in the EU, which require businesses to screen customers against sanctions, PEPs lists, and other high-risk categories.
• GDPR and CCPA are privacy laws that dictate how businesses handle personal data, including identity verification records.

Staying compliant with these laws is not only a legal requirement but a crucial part of building customer trust and protecting sensitive information.

Future Identity Verification Trends

The future of identity verification will likely be shaped by a combination of emerging technologies and tightening regulations. Some trends to watch include:

• Blockchain for identity verification: Blockchain offers a decentralised, tamper-proof system for storing identity data, making it difficult for fraudsters to manipulate information.
• Biometric identity verification: The adoption of biometrics will continue to grow, with biometrics identity verification systems becoming the norm for fast, secure authentication.
• Increased regulation: As fraud continues to rise, regulatory frameworks around identity verification will become more stringent, pushing businesses to adopt even more robust verification systems.

Understanding the different types of identity verification is crucial for businesses to protect themselves and their customers from fraud. From KYC checks and biometric identity verification to AML screening and anti-fraud checks, each stage in the IDV process adds a layer of security, ensuring that only legitimate customers gain access to sensitive services.

By staying compliant with regulations and adopting cutting-edge technologies like AI and blockchain, businesses can future-proof their identity verification processes and mitigate risk in an increasingly digital world.

Want to learn more about how you can use identity verification as a driver of compliance with regulation and revenue generation? Contact FullCircl today for a demonstration of our automated identity verification software.