Identity Proofing – What Is It and How Does It Work?

Identity Proofing: What a Business Needs to Know

Jun 3, 2019

Gone are the days when internet-based services worked as a free-for all. Now, savvy businesses will need to up their game when it comes to identity proofing. Also known as customer verification, this important set of steps spans multiple services, from trivial goods purchases to large-scale transfers of value and other payment-related activities.

What Makes Identity Proofing Work

Identity proofing is a mix of business and technological processes, for any new account protected by a password. The business side of the process may include various tiers of verification, ranging from the simple creation of a password and an email verification. Other steps may involve a phone number verification, or a deeper form of authentication such as an ID scan. Fraud prevention may also involve steps such as live video verification, although this solution is the most involved one. But the chain of steps means that data gathering and management should be on the mind for any business, both as a means of fraud prevention, and as a form of legal compliance depending on the country where a company is located.

Identity and Authentication Before the Internet

“Who are you” has been a question since ancient times. In the modern era, some form of identity verification may be encountered daily. Identity is always supported by personal documents. Later, forms of biometrics became integral to issuing new passports. Airports, national borders, or other institutions have always been the gatekeepers. The most notable new development for businesses and users was the Patriot Act, a law passed back in 2001 to require a “know-your-customer” (KYC) procedure for businesses. The procedure was aimed at preventing money laundering, financial fraud, or crime or terrorism financing. With the spreading of online services, a secure KYC procedure started to become the norm for most users. Security keeps increasing, as previously anonymous services are beginning to include at least some steps of account authentication and identity proofing.

Users and Digital Identity

The latest requirements for a reliable digital identity, which is also connected to a real personal identity, follow the growth of global online retail, as well as money transfer services or other financial portals. A digital identity is a form of incomplete identity proofing, which bears the highest risk for fraud. The demand for KYC procedures as a form of compliance with the Patriot Act further increased the needs to match a digital identity to a real-world identity. In the past few years, even social media are starting to offer ID-proofing, as a way to verify the information and prevent parodies or outright fraud. But as more businesses adopted a form of user authentication and proofing, another problem arose. Identity theft threatened users, and business management faced the challenge of adopting a truly robust KYC and data storage procedure. Leaked data of online identities, as well as passport or picture IDs are a problem for any industry, requiring more robust, tailored solutions for both ease of use, and security. The task of achieving reliable, customer-friendly identity proofing seems daunting for any business. But ready-made solutions are now available, and they order and combine the steps to authentication in a manner that does not disrupt customer onboarding, or the usage of the service or product. Mandatory or optional, identity proofing solutions may simplify the task for the business.

Security, Identities and Technology

Identity proofing through a ready-made solution takes care of all the points of authentication. Applying multiple techniques of authentication is possible in an orderly manner, suitable to the goals of the business or service. Technology offers multiple additions to user authentication. Those include safe encryption to avoid data leaks. AI approaches are also key to authenticating data, as well as ensuring a compliant format. Finally, a human-centric process also needs to be orderly and risk-free. Biometrics is probably the most promising field of user authentication, with multiple use cases. With more national passports carrying biometric data, user authentication through passport in effect uses a form of biometric identity proofing. But ad hoc biometric solutions may also be available for user authentication. In the later years, two-factor authentication is also gaining ground, being used in mass retail services. The most basic form is a phone-based authentication process. A 2FA process ensures protection against account fraud, account theft and other risks. Those types of authentication tools are most often used to avoid fraudulent transactions or account appropriation, especially in virtual finance or fintech services. Identity proofing thus becomes infinitely customizable for businesses wishing to add the most relevant technologies and processes. Identity proofing is also an integral part of compliance, and may be mandatory for some activities, once again related to international capital controls and constraints on financing and the transfer of value.

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