What is Identity Verification?

What Is Identity Verification?

Identity verification is a process done to check if a person is accurate in who they are claiming to be. Typical tools used for identity verification are government-issued documents, biometrics, or digital credentials. Confirming the identity of your customers is an important step of KYC and AML compliance. In this blog post, we’ll be talking about types of verification methods, the purpose of identity verification, and more.

What is Digital Identity Verification?

The digitalized version of the identity verification process uses AI-powered tools to verify users without needing face-to-face contact and physical documents. The tools achieve this by analyzing ID documents, facial biometrics, IP addresses, and device fingerprints. These tools ensure that you complete the verification process faster and with less errors.

According to AuthenticID’s report, identity fraud rates reached 2.1% of transactions in 2024 (up from 1.27% in 2022) across financial institutions. The rise is linked to increased use of AI/deepfake tools by fraudsters. 

Benefits of Digital Identity Verification

There are several benefits to using digital identity verification for your company’s customers. The process fraud detection since it easily identifies forged documents as well as synthetic identities. KYC and AML compliance is reached thanks to this verification process, with the process verifying user information automatically against global watchlists and databases. Conducting the identity verification process digitally will also enable faster onboarding, satisfying both your company and customers. Since this process is completed digitally, there will be less paperwork and automation will also help reduce operational costs. 

What Is an Identity Verification Solution?

An identity verification solution is an automated system of software that is designed to verify a person’s identity with the help of technologies like OCR, biometrics, and database checks. These solutions are known for their sanctions and PEP screening, risk scoring, and document verification features which strengthen AML/KYC compliance. 

Sanctions and PEP screening ensures that you’re not onboarding a sanctioned party, or warns you against politically exposed persons (PEPs) so that your company can take appropriate action for those customers. Risk scoring collects these data to then assign scores to customers, which helps your company give more attention to higher-risk ones. 

Primary Uses of Identity Verification

Identity verification is there to increase security, compliance, and user trust. The process helps prevent fraud since it’s able to detect and block fake or stolen identities before fraud occurs. Identity verification also ensures that your company is aligning itself with AML and KYC standards. To reduce both internal and external security risks, the process is needed to allow access control. Access control allows only authorized users to enter secure systems and platforms, therefore creating a safer environment. 

For regulated sectors, age checks are needed. These age checks can be done thanks to the identity verification processes companies implement. During customer onboarding, having a fast and efficient identity verification system will prevent you from losing customers. While making sure customers are satisfied, the verification process also strengthens transaction security since it is another layer of authentication for criminals to struggle with. 

City National Bank (U.S.) was fined around US$65 million in 2024 for deficiencies in its AML program, which included customer due diligence and verification weaknesses.  The importance of identity verification for companies is highlighted by the severity of penalties when non-compliance rules the company. 

Identity Verification Methods

Several methods are used to create a fast and secure identity verification process. Document scanning verifies IDs, passports, and driver’s licenses and it does so by extracting and analyzing data using optical character recognition (OCR) and authenticity marker checks. Biometric methods like facial recognition and fingerprint scanning achieve higher accuracy by matching physical traits of customers to stored records. 

Database matching takes user information and cross-checks it against government or commercial databases. Two-factor authentication (2FA) uses SMS codes or app-based verification to create a second layer of protection. Knowledge-based Authentication (KBA) enhances security by asking security questions that only the customer should be able to know. 

Device fingerprinting uses unique device characteristics to identify users, and behavioural biometrics that track typing patterns or mouse movements to spot anomalies. Video KYC is the final method we’ll mention, which enables live or recorded verification by AI or humans to ensure compliance.

Why Identity Verification Matters?

Identity verification is a detailed process that helps prevent financial crime like identity theft. The process also ensures that AML and KYC compliance is reached. Keeping customer trust is one other benefit that shows how important identity verification is. The process also helps reduce fraud and chargebacks, helping keep the financial system safe. According to Regula, 91% of organizations are planning to increase their identity verification solutions spending in the next three years, which shows how companies are taking fraud threats and customer safety seriously. 

How Identity Verification Works Step-by-Step

Step 1: User Initiates Verification

The process of identity verification starts with the user looking to sign up for an account or initiate a transaction. These actions require verification, which is what starts the process. 

Step 2: Data Collection

For this step, the system collects important personal information from the customer like their name, date of birth, address, identification number, phone number, and email. These information need to be accurate and complete for them to contribute towards a stronger KYC/AML program.

Step 3: Document Upload & OCR

During this step, the customer needs to upload identification documents like passports, driver’s licenses, and IDs. Optical character recognition (OCR) is then used to extract information from these documents, which are then used to check for consistency with the details the customer previously shared. This step is important since it detects signs of forgery of tampering. 

Step 4: Liveness Detection and Biometric Matching

The verification process uses the help of liveness detection to check that the user is actually present. The typical method used is a face scan. After the face scan is completed, AI algorithms use the scan to match it with the photo on the ID document. This step helps detect spoofing attempts like masks or photos. 

Step 5: Database Cross-Check

After the data is collected from the user, it is cross-referenced against government records, credit bureaus, telecom data, and civil registries. This helps validate the information shared by the customer, proving that they are giving out consistent information.

Step 6: PEP, Sanctions, and Watchlist Screening

Once the person is identified, your company will then need to screen the user against global watchlists like PEPs, OFAC, UN, EU, and other sanctions lists. This step is done to ensure compliance with global regulations as well as detecting any sanctioned parties or high-risk individuals.

Step 7: Verification Outcome

After completing all the steps, the system gives you an outcome depending on the data processed. The user will be approved if the identity is verified, rejected if there are red flags present. In complex cases, an extra layer of verification is needed using Enhanced Due Diligence (EDD) and results are fiven after manual review.

Types of Identity Verification Methods

There are different types of verification methods that help different sectors and situations. Document based verification like scanning passports, driver’s licenses, and IDs is used frequently used in banking and fintech since it gives high accuracy. Biometric verification like facial recognition and fingerprint scanning is ideal for crypto platforms and onboarding since strong authentication is required and these methods give accurate results. 

Knowledge-Based Authentication (KBA) is done with security questions and it unfortunately has lower accuracy, which means its usage is limited to legacy systems. Database matching compares the information the customer provided against government, telecom, and credit databases. The method offers medium to high accuracy and is used commonly in telecom and e-commerce sectors. 

Social footprint analysis is done by examining a user’s online presence. The technique provides medium accuracy, and it is used to detect marketplace fraud as well as assessing behavioural consistency. 

Identity Verification vs. Identity Authentication

Identity verification and authentication are similar but they have their differences that make them separately important for digital security. Identity verification aims to uncover the true identity of the user, and it is typically done during onboarding or account creation. The process is done using methods like passport and driver’s licenses checks as well as facial recognition. 

However, identity authentication is done during every login or transaction to make sure no red flag is missed. The process’ aim is to confirm that the person who is attempting access is the verified individual. Authentication uses methods like passwords, two-factor authentication (2FA), and biometrics. With this process, proper access rights are ensured and unauthorized account use is prevented. 

Industry Use Cases for Identity Verification

Banking and Fintech

In the banking and fintech sector, identity verification is important for KYC, sanctions screening, and compliance with AML regulations like the Bank Secrecy Act (BSA), Anti-Money Laundering Regulation (AMLR), and AUSTRAC guidelines. The process helps prevent financial crime, secure onboarding, and ensure consistency in domestic and international transactions.

Crypto Exchanges & Wallets

When it comes to streaming platforms, identity verification helps support compliance with the FATF Travel Rule. The rule ensures that wallet addresses are linked to verified users. The process also helps Virtual Asset Service Providers (VASPs) meet regulatory requirements and monitor suspicious transactions. 

E-commerce & Marketplaces

In e-commerce and online marketplaces, identity verification is used to stop fake accounts, fraudulent sellers, and identity theft. The techniques used are social footprint analysis and document checks, which improve customer trust and legitimacy. Both buyer and sellers benefit from these safer transactions.

Gaming & Gambling

Gaming and gambling platforms use identity verification for age checks, since it is an important issue for these sectors to prevent underage access. The process also helps reach regulatory compliance with authorities like the UKGC and MGA. The identity verification process helps ensure safe gaming practices.

Challenges in Identity Verification

Identity verification has its own difficulties, both technological limitations and complex fraud tactics. One of these difficulties is false positives that come from customers being wrongfully flagged, which creates problems both for the company and the customer. Cross-border document issues are a problem since IDs vary in format, language, and security features from country to country. 

The effectiveness of online verification can be affected by digital access gaps, where customers lack smartphones, internet connectivity, or digital literacy. Complex fraud techniques like deepfakes and synthetic IDs create problems for companies as well. These problems are usually sovles using AI and anti-spoofing methods.

The Social Security Administration (USA) announced that starting March 31, 2025, people who cannot verify their identity via the online system must visit a field office in person, as tighter identity-proofing measures to reduce fraud. 

The Role of Identity Verification in KYC and AML Programs

Identity verification is an important part of KYC and AML programs since it is the first step to customer due diligence (CDD) and enhanced due diligence (EDD). The process helps identify customers and screens them against sanctions lists, PEPs, and watchlists. By verifying customers, you can also monitor them for suspicious activities and act accordingly if there are any red flags raised. 

The process also helps generate detailed audit trails for potential investigations and other regulatory reporting. Our Sanction Scanner experts predicted that digital identity verification checks were projected to exceed 70 billion in 2024, up from 61 billion in the prior year. 

How to Choose the Right Identity Verification Solution

There are several features to consider when choosing the right identity verification solution for your company. The solution should be able to support AML and KYC regulations to ensure your company is in compliance. Checks against global sanctions, PEPs lists, and risk databases help immensely. Global document and language support is another helpful feature for companies that operate internationally, allowing you to verify users with different ID formats.

Fraud detection AI is another feature that should be used to identify forged documents as well as deepfakes and synthetic identities. Quick and easy API integration helps companies fit the solution smoothly into their existing model. A strong user experience (UX) makes sure that your customers are satisfied and there are minimal difficulties during onboarding.

Moreover, well constructed and reliable service-level agreements (SLA) are expected by customers and create a strong relationship between your company and the customer. Customer support is also needed to ensure that the user can get their problems solved quickly if anything goes wrong during the verification process. Transparent pricing should be established by these companies who offer these solutions, ensuring that institutions can implement verification tools without unexpected costs.

Best Practices for Identity Verification in 2025

In 2025, best practices for the identity verification process should be combining both technology developments and regulatory compliance. Integrating biometrics with document verification can help strengthen accuracy while preventing fraud. AI-driven liveness detection is another feature that add an extra layer of security, since the feature helps verify that the user is actually present during the process. 

Partnering with compliant vendors will help your company by keeping standards high, reducing legal risk. While doing all of this, another important goal should be respecting data privacy laws. Laws like GDPR, CCPA, and PDPA will ensure that the user’s information is kept safe. 

We help companies strengthen compliance while also preventing fraud. Some features that our Sanction Scanner solution use are real-time screening of clients, risk scoring, and audit-ready onboarding which makes sure the whole process is documented and compliant with AML, KYC, and sanctions regulations. Sanction Scanner supports more than 45 languages, making it a suitable tool for international companies that need cross-border verification.