What is Identity Verification and How Does it Work?

Bad actors are constantly developing new and sophisticated methods to exploit vulnerabilities in digital systems to carry out identity fraud, leading to devastating consequences for both businesses and individuals. The Federal Trade Commission received 5.4 million fraud reports in 2023 with reported losses of more than $10 billion, a record high and a 14% increase over 2022. With many institutions still relying on legacy identity verification solutions, it’s no surprise the FTC also noted a 33% increase in reports on the number of forged government documents, including a 14% rise in fake driver’s licenses.

Read on to discover how identity verification mitigates fraud and learn how adopting cutting-edge solutions can help businesses protect their customers and unlock new opportunities for growth and innovation.

The Importance of Identity Verification in the Digital Economy

Identity verification is essential for any business seeking to distinguish scammers from genuine customers and build digital trust within their environment — from opening a new account at a bank to signing up for an online gaming account. Establishing digital trust requires verifying that the individuals online are real people — who are who they say they are — rather than bad actors using stolen or synthetic identities.

By bridging the digital trust gap and enabling billions of secure and seamless experiences daily across a wide range of industries, identity verification solutions have become a critical driver of a global digital economy that is estimated to make up 15% of the world’s gross domestic product (GDP) and predicted to account for 30% by 2030.

ID verification also provides organizations with a protective mechanism that helps ensure compliance with an ever-expanding catalog of standards, regulations, and internal policies, such as Know Your Customer (KYC) and anti-money laundering (AML) requirements, and Section 326 of the USA PATRIOT Act.

What’s more, with the overwhelming shift toward digital channels, it is both a business and ethical imperative for identity verification solutions to accommodate a diverse range of customers. From Gen Z users with limited credit histories to marginalized individuals with thin digital footprint, effective identity verification can promote financial inclusion and equitable access to digital services across the global economy.

What is Identity Verification?

Identity verification is a process designed to confirm that an individual is a real person, that their claimed identity matches their actual identity, and that it is safe to do business with them. This is achieved by verifying personal information or credentials against credible sources and ensuring the information is submitted by a real individual in real time. The primary goals include establishing trust, preventing identity fraud, and ensuring compliance.

Identity verification is not a new concept, but it has significantly evolved in recent years to meet the demands of the digital age. This has involved expanding beyond the use of traditional biographic samples and government-issued identification to encompass a wide array of data points, including:

• Document verification
• Facial recognition
• Knowledge-based authentication (KBA)
• Two-factor authentication (2FA)
• Device intelligence
• Behavioral biometrics
• Liveness detection
• Social logins
• Digital identity wallets and federation

Socure’s identity graph incorporates all of this information and more, providing a holistic 360-degree view of digital identity. Using advanced Artificial Intelligence and predictive analytics that maps new data submission to an extensive digital identity atlas, Socure can construct these comprehensive profiles in real time, identifying patterns and anomalies that may indicate fraudulent activity to streamline the verification process and reduce friction for legitimate users. With this comprehensive picture, businesses can make more informed decisions about who to trust.

Why Is Identity Verification Needed?

Identity verification has become an indispensable tool for businesses across all industries. Let’s examine why organizations should prioritize the use of robust identity verification solutions.

Risk Management:

Identity verification is a critical component of a comprehensive risk management strategy. By thoroughly vetting the identities of users, businesses can better assess and mitigate the potential risks associated with onboarding new customers, changes in the account, authentication throughout the customer lifecycle, transaction processing, and more. Socure’s platform provides actionable risk insights to help businesses make informed decisions, reduce financial losses, and protect their reputation.

Fraud Prevention:

One of the primary drivers of identity verification is the need to combat the ever-growing threat of fraud. By accurately verifying the identities of their users, businesses can prevent fraudulent activities such as account takeovers, synthetic identity fraud, money laundering, and more. This not only protects the organization’s financial interests but also safeguards its customers from the devastating consequences of identity theft.

Regulatory Compliance:

The stringent regulations that govern many industries, such as financial services, online marketplaces, and online gaming, mandate the implementation of identity verification processes. Failure to comply can result in significant fines, legal action, and reputational damage. With its comprehensive compliance suite, Socure helps businesses meet evolving regulatory requirements like KYC and AML.

Enhanced User Experience:

By simplifying and accelerating the identity verification process, businesses can make it easier for legitimate users to instantly access their services, resulting in increased customer satisfaction and loyalty. The most advanced identity verification solutions, such as Socure’s Sigma Identity Fraud, offer an extensive suite of passive verifications that provide the most accurate assessment of identity and help avoid false positives that trigger account lockouts and other frustrating user experiences.

Inclusivity and Bias Reduction:

With around 45 million credit-invisible adults in the US, traditional identity verification methods can exclude certain demographics. Young adults, immigrants, and low-income individuals may have limited credit histories or thin digital footprints.

However, modern identity verification solutions can leverage alternative data sources and advanced analytics to provide more inclusive and equitable access to digital services. For example, Socure applies the principles of equitable and fair identity verification to each machine learning model solution, from feature selection to entity resolution, as well as investments in meticulous data acquisition strategies.

Providing accurate identity verification empowers businesses and consumers to interact with trust and ensures a healthy digital economy. Investing in cutting-edge identity verification solutions also means businesses can innovate with confidence and lay a solid foundation for growth.

Types of Identity Verification Methods

Today’s identity verification solutions can assess a wide range of personal data points, including biographic information, government-issued identification, biometric data, digital footprints, and behavioral patterns. These can be roughly assigned to three categories: active, passive, and hybrid.

Active Identity Verification

This requires user interaction to verify identity through submitting copies of government-issued documents and matching facial biometrics. While it adds a layer of security in high-risk situations and where compliance requirements are enforced across various applications, it can introduce friction to the user experience, potentially leading to increased customer churn, when done poorly. The best solutions in the market integrate this method into a comprehensive identity verification strategy.

Passive Identity Verification

Passive verification provides a seamless way to verify users by analyzing their historic digital patterns, such as device, browser, IP geolocation, email, address, phone, and much more, without requiring them to take any additional steps. This method promotes a seamless user experience by reducing friction and preventing identity fraud. However, each method in isolation is limited in its effectiveness, and should also be layered into a comprehensive identity verification strategy combining multiple techniques and approaches.

Hybrid Identity Verification

Combines both active and passive methods to provide a more comprehensive and accurate assessment of an individual’s digital identity. Security and trust are a lifelong foundation for digital interactions. Depending on the use case, different verification methods can be applied to an interaction between the user and the business, so both parties are best protected and the excellent user experience remains at the center of digital product design.

Here are some of the most common identity verification methods used today:

1. Document verification:

Users submit a photo or scan of their government-issued identification, such as a passport, driver’s license, or national ID card. The document verification solution then analyzes the document to ensure its authenticity and matches the information provided by the user. Socure Predictive DocV offers instant document verification with 98% auto-decisioning.

2. Facial recognition:

Requires users to take a selfie, a video, perform an on-screen prompt, or participate in a short video call. The identity verification solution then compares the user’s presented facial features to their government-issued ID to confirm their identity.

3. Knowledge-based authentication (KBA):

Users must answer a series of security questions based on information that only they should know, such as their previous addresses, phone numbers, and more.

4. Two-factor authentication (2FA):

Requires users to provide a second form of identification in addition to their username and password, such as a one-time code sent to their phone or email address.

5. Device intelligence:

Verifies device integrity, including its connection and location, for frictionless sign-up and provides continuous validation to prevent unauthorized account changes.

6. Behavioral biometrics:

Refers to the analysis of unique patterns in how individuals interact with their devices, such as typing cadence, mouse movements, and gesture behavior.

7. Liveness Detection:

Involves analyzing a user’s behavior and environment to ensure that they are physically present and not attempting to spoof the identity verification process with a photo, video, or mask. Socure’s Predictive DocV carries out background “passive” liveness checks, with no action required from the user, minimizing friction while protecting against sophisticated presentation attacks.

8. Social logins:

Users verify their identity by logging in through a trusted social media platform, such as Facebook or Google. The identity verification solution can then access the user’s social media data to confirm their digital identity.

9. Digital identity wallets and federation:

A secure digital wallet stores a user’s verified identity information. The user can then use this digital identity to access multiple services and platforms without having to go through the identity verification process each time.

Issues with Legacy Solutions

While identity verification is essential for fraud prevention and ensuring regulatory compliance, many existing solutions come with significant challenges that can undermine their effectiveness and usability, leaving the business vulnerable to fraud and non-compliance.

Here are some of the most common issues with legacy identity verification solutions:

Accuracy and precision:

Most organizations lack visibility into fraud events outside of their immediate submission of user data. Limited by factors such as a reliance on public source data, siloed information, technological gaps, or even manual reviews, legacy identity verification tools lack the sophistication required to identify new and emerging fraud attacks. Additionally, as most legacy solutions operate without consortium feedback, due to the weak signal that any one risk event can provide, identifying fraud can rarely catch an isolated incident, and leads to poor performance, resulting in missed fraud and high false positive rates that decelerate business growth.

Friction and user experience:

Legacy identity verification solutions can be time-consuming and frustrating for users. This friction can lead to high abandonment rates, 25% of financial services applications are abandoned by users impatient with lengthy and complex identity verification processes. In an environment where users have so many options, businesses must prioritize seamless and user-friendly identity verification experiences to keep customers engaged and satisfied.

Operational costs and scalability:

Identity verification can be costly and resource-intensive, particularly for businesses with large and growing user bases.

In an attempt to capture identity fraud, many providers use conservative decisioning thresholds, which leads to a high number of false positives and the rejection of many good users, stalling business growth. The operational burden on businesses to verify the individuals whom the technology failed, further negatively impacts profits.

Manual identity verification processes, such as reviewing documents, verifying users where the automated systems failed to provide conclusive results, or conducting video interviews, require significant human resources, are difficult to scale as a business expands, and can also be inherently inaccurate. Additionally, legacy systems and infrastructure may struggle to keep up with the demands of modern identity verification, leading to inefficiencies and higher costs.

Thin credit file populations and bias:

Approximately 850 million people around the world lack any form of ID, digital or otherwise, and certain demographics, such as young adults, new-to-country, and other marginalized populations, may have shorter credit histories or an insufficient digital footprint, making it difficult for them to pass traditional identity verification checks. This not only limits their access to essential services but also perpetuates systemic biases and inequalities.

Fraud prevention in the face of Generative AI attacks:

Fraudsters can now use generative AI-powered tools to create highly realistic fake identities, documents, and even biometric data, making it increasingly difficult for legacy solutions to detect and prevent fraud. Most providers lack the sophisticated innovative AI and expertise needed to identify deep fakes and other generative AI-sourced identity fraud.

Ever-changing regulatory landscape:

From data privacy laws like GDPR and CCPA to regulations for KYC and AML, businesses must navigate a wide range of compliance requirements when implementing identity verification solutions. Keeping up with stringent mandates across industries and geographies is challenging with disparate point solutions that are not purpose-built for the global digital age.

What Does a Great Identity Verification Solution Look Like?

The best solution should not only provide the highest levels of accuracy but also deliver a customer experience so seamless and user-friendly that it can actually help spur growth. Here are some key characteristics that define a top-tier identity verification solution:

Exceptional performance and accuracy:

A great identity verification solution should deliver the highest degree of classification accuracy in the industry. Socure’s Sigma Identity Fraud generates up to 25-30% false positive reduction relative to its previous version and almost 6x more accuracy compared to credit bureaus and other leading providers.

By leveraging advanced AI and machine learning technologies and predictive analysis, Socure analyzes vast amounts of data in real time, identifying even the most subtle patterns and anomalies that may indicate fraudulent activity. This not only helps prevent fraud and mitigate risk but also reduces the need for manual reviews and interventions, saving time and resources.

Automation through AI:

Manual identity verification processes are not only time-consuming and costly but also prone to human error and bias. Socure’s solutions are fully automated, powered by advanced AI that analyzes billions of data points in real time, enabling faster and more consistent decision-making. By continuously learning and adapting to new trends and patterns, Socure stays ahead of evolving identity fraud tactics and provides the most accurate and reliable results.

Socure has invested over a decade and hundreds of millions of dollars in data science R&D to produce the most precise models, automatically ingesting internal, consortium, and external data sources to differentiate legitimate identities from fraudulent ones.

Continuous innovation and latest technologies:

An effective identity verification provider should be at the forefront of technological advancements, constantly exploring new and emerging technologies to proactively enhance the security and usability of their solutions.

Socure’s Sigma Identity Fraud introduces two groundbreaking features: Entity Profiler, which goes beyond standard identity verification by integrating digital footprints with authoritative data, and Integrated Behavioral Anomaly Detection, which assesses behavioral patterns at the company, industry, and financial network level to adapt to Generative AI attacks.

By leading the vanguard, Socure helps businesses stay ahead of fraudsters and meet the challenges of tomorrow.

Comprehensive regulatory compliance

A reliable identity verification solution should provide businesses with built-in compliance products and expert guidance to ensure that they are meeting all relevant standards and regulations.

Socure offers comprehensive compliance solutions across the customer lifecycle, ensuring adherence to regulations through automated tools and real-time analytics. It brings together key components like Global Watchlist Screening, eCBSV for Social Security number (SSN) verification, and a Decisioning and Control Center to align policy with process and prevent fraud. The platform also provides continuous sanctions and adverse media screening with real-time alerts and updates, helping organizations avoid compliance penalties and enhance identity verification processes.

A flexible and rich offering:

Any business taking part in the digital economy will need to have a set of digital identity verification methods at their disposal that they can introduce across their users based on each use case. These methods should seamlessly connect with each other, removing silos, and creating a comprehensive digital identity strategy that scales with the business and provides the highest levels of fraud protection, compliance, and user experience. Additionally, a great solution should integrate seamlessly with existing systems and workflows, minimizing disruption and maximizing efficiency.

Socure offers the industry’s most comprehensive identity verification platform with integrated modules for:

• Fraud protection: Sigma Identity Fraud, Sigma Synthetic Fraud, First-Party Fraud, Email, Phone, Address RiskScores.
• Compliance: Socure Verify, Global Watchlist Screening & Monitoring, Deceased Check, eCBSV, Portfolio Scrub
• Document verification: Predictive DocV
• Account intelligence

A holistic and comprehensive view of digital identity:

From biographic and biometric data to digital footprint and behavioral patterns, identity verification solutions should incorporate and correlate all available and historic sources of information to enable advanced feature engineering, the most accurate machine learning models, and ultimately informed and confident decisioning.

Socure’s platform offers a 360-degree view of the consumer’s identity, analyzing every dimension, including PII, digital footprint, device, velocity, network intelligence, and behavioral attributes that lie at the foundation of the industry’s all-encompassing, vertically integrated solution.

Trusted by industry leaders and experts:

When evaluating potential providers, businesses should look for solutions that have a proven track record of success, with endorsements and case studies from leading companies and organizations. The solution should be battle-tested and trusted by top enterprises with the highest standards for accuracy, data security, privacy, and compliance. Socure is trusted by 4 of the top 5 banks, 7 of the top 10 credit card issuers, top fintechs, and hundreds of other leading businesses across various industries and geographies.

Embrace the Future of Identity Verification With Socure

In the rapidly escalating arms race between bad actors and identity verification solutions, businesses need a partner they can trust to provide the most advanced, accurate, and innovative verification solutions available. That’s where Socure comes in.

Draw on experience and expertise

With over a decade of experience and hundreds of millions invested in R&D, Socure has unmatched expertise in applying advanced machine learning to identity verification. A quarter of all Socure employees are data scientists, a figure maintained since the company’s founding.

Leverage the most innovative technologies

At the core of Socure’s success is its commitment to data science and artificial intelligence. Socure’s models ingest authoritative data from over 400 third-party data sources alongside proprietary consortium feedback data shared by over 2,300 customers over 10 years to build the most comprehensive and accurate identity graph in the industry. Socure has cultivated a data ecosystem that is meticulously enriched and enhanced and which provides leading indicators to new types of fraud schemes before they gain traction, protecting customers’ business.

All these data sources are combined with Socure’s patented entity resolution capabilities to cover more than 99% of mainstream populations, including 94% of Gen Z.

Rely on a commitment to innovation

Socure’s commitment to innovation is demonstrated by rapidly developing and updating models and solutions. The Socure ID+ platform is self-learning and gets smarter with each identity verified, thanks to a feedback loop enabled by the Socure Risk Insights Network.

Gain a 360-view of digital identity

Rather than relying on a single data point or identity verification method, Socure takes every aspect of an individual’s identity into account, from their personal and demographic information to their historic digital footprint and behavioral patterns. This multi-layered approach provides a more accurate and nuanced understanding of each user, enabling precise and confident identity verification decisions.

Deploy a full product suite

Unlike single-point solutions, Socure’s full product suite covers every part of the customer journey from signup and beyond in the industry’s first vertically integrated, end-to-end identity verification solution. This comprehensive approach ensures seamless integration and a complete view of identities, setting Socure apart from platforms that only address specific aspects of the identity verification process, or combine disparate solutions that do not talk to each other.

Choose Socure for Unmatched Performance

Socure’s platform delivers unmatched results in its compliance, fraud, and document verification product suites. This translates into real business benefits for Socure’s customers, including reduced fraud losses, enhanced customer acquisition and retention, improved innovation cycles, and lower operational costs. The exceptional performance enables enterprises to consistently achieve a 20x or greater return on investment.

With its deep expertise, cutting-edge technology, and unwavering commitment to innovation, Socure is a partner that can ensure the world’s largest businesses across a multitude of industries stay up-to-date with the latest trends and technologies, and provide their customers with the most secure and seamless identity verification experiences possible.

Learn more about how Socure can help businesses stay ahead of the curve and build a stronger and more profitable digital future.