Ways to Verify User Identity

January 29, 2025

Incidents of identity theft are increasing, with data revealing that a significant number of these crimes target financial institutions. Identity fraud imposes heavy costs on businesses, consumers, and regulatory bodies alike.

If left unchecked, repeated fraudulent activities and inadequate preventative measures can threaten the stability of your organization. To combat this, the Federal Trade Commission enforces the Red Flags Rule, requiring companies to implement measures to deter identity fraud. For banks and financial institutions aiming to securely onboard and serve customers online, understanding how to verify identities safely is essential.

Document-based Verification

Document-based verification serves as the backbone of customer identity checks, especially within the banking industry, where strict KYC (Know Your Customer) protocols are mandatory. This approach commonly involves employing ID scanning tools to capture, extract, and verify details from physical identity documents like passports and driver’s licenses.

These documents are issued by government authorities and act as a trustworthy source of data, offering a range of information that can be validated for authenticity. Driver’s licenses are another frequently used form of identification, especially for domestic identity verification. Beyond their role in certifying driving eligibility, they are often used as key identity proof.

A drivers license scanner can read the barcodes and magnetic strips on many driver’s licenses, extracting critical data for identity checks. This is especially vital in banking, where accurately verifying a customer’s identity is of utmost importance.

Authentication Based on Knowledge

Knowledge-based authentication (KBA) plays a vital role in protecting digital identities and is often integrated into a well-rounded identity verification process. This approach relies on the idea that only the verified individual possesses certain pieces of information.

Security questions represent a traditional form of KBA. Here, users answer personal questions believed to be known only to them. Examples commonly include questions about a person’s first pet, childhood street, or favorite teacher.

The reliability of security questions depends on the assumption that their answers cannot be easily guessed or discovered by others. However, this method can be vulnerable to tactics like social engineering or exposure to publicly available details, especially through social media platforms.

Authentication Using Credit Bureau Data

Authentication methods relying on credit bureau data are vital for financial institutions and businesses in verifying that individuals opening accounts or conducting transactions are who they claim to be.

These methods compare the personal details users provide, such as their name, address, and Social Security number, against the expansive records maintained by credit bureaus, which include credit histories and other financial data.

While not entirely foolproof, this cross-checking process plays a critical role in reducing the likelihood of fraud and identity theft. Often, this system is supplemented with additional measures like knowledge-based authentication, where users answer personal questions tied to their credit profiles, further enhancing security.

Two-Factor Verification

Two-factor authentication is a widely-used alternative to methods that rely on personal information. Users create an account, and a numeric code is sent to one or more of their contact options to confirm the account and, ideally, their identity. This approach is effective at blocking scammers from accessing existing accounts. However, it has limitations when verifying new users.

For instance, an identity thief could exploit the process by gaining access to their target’s email or phone. Additionally, advanced hackers may intercept the messages exchanged between your system and the user’s device.

Endnote

Ensuring user identity is verified is crucial in today’s digital world, vital for security, meeting regulatory standards, and fostering trust. While conventional methods are still used, they frequently struggle to balance security with a smooth user experience. The rise of AI presents exciting opportunities, improving verification through automation, greater accuracy, and effortless integration.

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