What is digital identity verification, and why does it matter for your business?
Identity theft is on the rise. The FTC received more than 1.1 million reports of identity theft in 2024, with consumers losing more than $12.5 billion to fraud over the course of the year. But the financial toll is only part of the story.
The hidden costs of weak digital identity verification systems run deeper and wider. Beyond direct monetary loss, organizations face increased operational burdens from fraudulent account creation, customer service backlogs, and compliance risks. Perhaps more damaging is the hit to brand reputation and customer trust: a single security breach or verification failure can erode hard-earned confidence and drive loyal users away.
In today’s digital-first world, implementing a robust and reliable digital ID verification systems is a critical enabler of trust, efficiency, and long-term resilience.
But what exactly does the process of digital verification look like? How have customer identities evolved, where does trust come into play, and why are verification systems at the heart of it all? How have customer identities evolved, where does trust factor into the equation, and why are verification systems so critical in this process? Here’s what businesses need to know about the evolution, operation, and impact of digital identity verification.
What is digital identity verification?
Digital identity verification is the set of processes an online business uses to verify a person’s identity in a digital setting, such as a website or mobile application. In other words, it’s how online businesses determine whether a user is who they say they are — and whether they should have access to the products, services, content, or platform. It’s also sometimes called online identity proofing or electronic KYC (eKYC).
Digital ID verification typically happens during account creation, but it can also take place at other key junctures in the customer relationship, For example, when a user attempts to change sensitive information in their profile or complete an otherwise risky action.
This process is typically completed through some combination of government ID verification, selfie verification, document verification, and database verification. Other techniques, such as link analysis and passive signal collection, can also help.
Digital verification shifts the identity verification process out of the physical world by allowing customers to prove their identity online through information provided by the individual, signals from official watchlists and reports, and more.
The evolving role of identity for digital ID verification
Identity refers to specific characteristics that set individuals apart from one another, such as their name, date of birth, height, weight, hair, and eye color. Unique identifiers assigned by the government — such as driver’s licenses, Social Security numbers, or passport numbers — are also considered part of our identity.
Historically, identity has been verified in person. Individuals visited physical locations with identity documents in hand, and staff compared what they saw with what they were provided.
Today, however, many transactions (and subsequently their required verifications) happen online. Underpinned by the increasing adoption of mobile devices and fueled by pandemic pressures, digital interactions have increased substantially. Consider the boost to digital banking: More than 50 percent of the U.S. population now use some form of digital banking, which is astonishing when you consider that just under 10 percent of individuals worldwide were comfortable conducting digital banking transactions in 2010.
The result is a rapidly changing digital ID verification landscape. The state of identity has evolved over time: What was once verified in person now needs to be able to be verified digitally.
The increasing impact of trust and how online identity verification services help
The goal of any company is to create a long-term relationship with customers, and every relationship starts with trust.
Both the customer and company must trust each other to get the most from the relationship. On the business side, verification is essential to ensure that legitimate customer accounts aren’t being compromised and the company isn’t putting itself at risk of fraudulent transactions.
Customers, meanwhile, need to trust that companies are doing all they can to prevent identity fraud and theft.
Digital identity verification is the first step in cultivating this trust. If customers feel like the process is safe, accurate, and fast, they’re more likely to return for further transactions. And if companies are confident that customers are who they say they are, they can focus on things like providing the best experience possible.
In other words, while a digital verification system is now necessary, a great ID verification system can make all the difference in building long-term trust.
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Digital ID verification methods
Unlike in-person identity verification, which relies on face-to-face interaction and direct examination of identity documents, digital identity verification occurs remotely through a user’s electronic device, such as their laptop or smartphone.
Which specific identity verification tools and methods a business chooses to leverage should ultimately be informed by:
The regulations it is subject to
Its customers’ expectations
The identity assurance level it needs to reach
Its risk tolerance
Common identity verification methods include:
Government ID verification: The user is prompted to take a photo of their government ID. The ID is authenticated, and relevant data (typically their name, address, date of birth, and photo) is extracted from the ID. Optionally, this information can be cross-checked against an issuing database to help identify forgeries and adulterated IDs.
Selfie verification: The user is prompted to take a selfie or a series of selfies. The selfie is analyzed to detect physical and digital spoofs. Then, the photo is compared against a known photo of the individual (for example, the portrait contained in an ID). Often paired with ID verification.
Database verification: The information provided by a user is cross-checked against the data in issuing or authoritative databases to identify inconsistencies or errors, which may point to fraud. Often paired with ID verification.
Link analysis: Data collected from the individual — including passive signals such as IP address, device fingerprint, and browser fingerprint — is analyzed and compared against the business’s broader database of users. This allows the business to identify suspicious links to other users or known bad actors, which may point to fraud.
3 electronic identity verification use cases
Electronic identity verification is fairly widespread and used in a variety of industries for a number of different use cases. Some common examples include:
Mobile or digital banking: In order to provide a bank account to users who cannot or don’t want to visit a physical bank branch, those institutions must first verify the person’s identity digitally.
Digital health: To prevent insurance fraud and secure protected health information (PHI), digital health platforms must digitally verify a patient’s identity during onboarding and before releasing any protected data.
E-commerce: Platforms or websites selling age-restricted goods like alcohol or tobacco must have measures in place to digitally verify both the user’s identity and age.
Importance of digital verification for businesses
Online businesses leverage digital verification for many reasons. In some industries, it’s a requirement. In others, it isn’t, but it can help limit fraud, protect customers, and establish trust. Benefits of identity verification for businesses include:
Regulatory compliance
Businesses across various industries are obligated to verify their users. This obligation extends to their online operations, making digital identity verification essential. For example:
Financial institutions like banks are required to perform Know Your Customer (KYC) on new customers to comply with Anti-Money Laundering (AML) regulations
Online marketplaces in many jurisdictions (including the US, with the INFORM Consumers Act) are required to perform Know Your Seller (KYS) verification for sellers who earn a certain amount of revenue or complete a certain number of sales in a given year
Social media platforms are increasingly required to conduct age assurance with age verification systems to ensure that underage users cannot create accounts on their platforms
Likewise, as privacy guidelines evolve worldwide — from GDPR to CCPA, LGPD, and POPI — businesses must be prepared to comply with those regulations as well. Digital verification tools can help provide proof of due diligence: auditable evidence that companies are taking steps to thoroughly verify customer data before authorizing account creation or approving transactions.
Established trust
Trust is essential for online businesses. If users don’t trust your platform, they’re not going to use it — never mind refer others to help your business grow. This is true whether you run an ecommerce website, social media platform, or online marketplace; without trust, users simply won’t come.
Digital identity verification helps you establish this trust in several ways. First, it helps you minimize fraud on your platform, which improves the user experience for legitimate users. Second, it gives the impression of safety. By undergoing verification, a user comes to realize that all other users have also had their identity verified, which in turn makes them feel safer.
Reduced business risk
As noted above, verifying digital users helps businesses identify and mitigate various types of fraud, such as:
This helps protect the business’s legitimate users. It also protects the bottom line, limiting costs associated with those types of fraud. By verifying (and reverifying) identities, companies can prevent fraud from happening in the first place, rather than scrambling to fix incidents that have already occurred.
Increased consumer confidence
Consumers are often willing to share personal and financial data with companies to help reduce friction and streamline transactions. For example, they may let a website save their credit card number so they don’t have to enter it every time they want to purchase something. However, according to Cisco’s 2024 Consumer Privacy Survey, 75 percent of consumers state that they “will not purchase from organizations [they] don't trust with [their] data.”
Secure and transparent online identity verification services can help customers feel more comfortable with the process by limiting the need for company representatives to manually review their personal information and ensuring their data is well-protected.
Identity verification vs. authentication: Key differences
Although the terms identity verification and authentication are sometimes used interchangeably, they actually refer to two related but different sets of processes.
At its simplest, identity verification is the process of determining whether or not a person is who they say they are. Identity authentication, on the other hand, is the process of determining whether or not a person should have access to a restricted account, platform, data, or other service.
Characteristic | Identity verification | Identity authentication |
|---|---|---|
Purpose | To determine if a person is who they say they are | To determine if someone should have access to something |
When it occurs | During initial onboarding and periodic reverification | When logging into an account or accessing restricted data, platforms, and services |
Common methods | Government ID verification, digital ID verification, document verification, database verification, selfie verification | Password protection, two-factor (2FA) or multi-factor (MFA) authentication, knowledge-based authentication (KBA), device-based authentication, biometrics |
Read also: Identity verification vs. identity authentication
Options for digital ID verification systems
As the number of digital transactions increases exponentially, so does the market for digital ID verification. From homegrown IDV solutions to all-in-one verification options and more robust ID verification systems, companies have a number of options to choose from. If you’re feeling overwhelmed, here are some criteria you should look for as you evaluate and select a platform:
PII storage
Much of the information you need to collect and store to perform identity verification is considered personally identifiable information (PII) — which is subject to protection under a variety of different data privacy and security laws. To save yourself the headache of additional compliance requirements, look for a platform that can handle PII storage for you so you can focus on running your business.
Customizability
“All-in-one solutions” are rarely that. Built with no single business or industry in mind, they often lack the key features and functionalities needed in specific industries. With this in mind, it’s a good idea to choose a platform with a flexible identity infrastructure that empowers you to mix and match different verification options as you see fit — from government ID verification to document verification, selfie verification, database verification, and more.
Scalability
In selecting a digital identity verification platform, it’s important to consider whether or not it will be able to meet both your current needs as well as your future requirements. Look for digital identity verification companies with a platform that is capable of handling your existing volume of customers and users while also being capable of scaling and handling the volumes you expect to see as you grow.
Leverage Persona’s online identity verification services
Persona makes it easy to digitally verify your customers at scale without sacrificing security. With coverage across more than 200 countries and territories in over 20 languages, customizable verification options, and natively secure code, Persona lets you tailor digital ID verification to meet your needs and get accurate answers in seconds, not hours or days.
Ready to learn more about how Persona can help you get digital identity verification right? Contact us to book a demo or register with Persona today.
FAQs
What industries benefit most from digital identity verification?
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Businesses in certain industries are required to perform digital identity verification by law, such as:
Online gaming platforms
Others, like adult entertainment services, ecommerce websites selling age-restricted goods, and, increasingly, social media platforms, are required to perform age assurance on users.
That said, any business that operates online and requires its users or customers to create an account can benefit from digital identity verification.
How effective are digital ID verification systems?
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ID verification systems can be incredibly effective as long as they’re tailored to your unique needs as a business.
A good digital ID verification system should allow you to design your IDV strategy based on:
The types of fraud your business is most exposed to
The customers or users you serve
The jurisdictions you operate within
The products or services you provide
It should also allow you to leverage multiple forms of verification to make it harder for bad actors to slip through the cracks.
Read also: Red Flags Rule: Your business’s role in preventing identity theft
What are the steps involved in digital ID verification?
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The specific steps involved in digital ID verification will vary significantly depending on the types of verification you ultimately choose to leverage. That said, the process can largely be boiled down to the following steps:
The user provides identity information (name, email address, date of birth, etc.) and evidence (such as an ID or selfie)
The business determines the validity of the identity evidence to ensure it is valid, accurate, current, and free of tampering
The user-provided information is compared against the information contained in the identity evidence and potentially against other authoritative databases
The user is either approved or denied, depending on the results of the analysis
Again, it’s important to note that the above steps are very broad strokes. Government ID verification, selfie verification, document verification, and database verification all work slightly differently.
Are there privacy concerns with digital verification?
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In order to perform digital verification, businesses must collect and often store sensitive information and evidence about users and customers. If this personally identifiable information (PII) is not stored and secured properly, it can lead to privacy concerns — especially if it is inappropriately accessed by bad actors who might use it for identity theft or to create synthetic ID fraud.
With this in mind, it can be a good idea to choose an identity verification service that will handle PII storage and security for you, like Persona.
