Digital identity verification is an important element of digital presence when using different services and platforms. It helps check the user’s identity and prevent fraud when setting up a new account, for example, on an online banking platform. Such verification enables secure access to one’s account and data in the selected services. This article explains what digital identity verification is and discusses the main points of the process based on Neontri’s experience.
What is digital identity verification?
When we skip the “digital” part of identity verification, we think about the traditional way of proving one’s identity. In the past, everyone who wanted to open a bank account or get credit had to go to the bank office and present an ID that was valid in the region. Then, the employee asked a few questions, compared the photo to the person, and proceeded with the request. Nowadays, there are tools and systems that do that instead. Still, they vary depending on the institution, country, and even document.
Digital identity verification uses multiple digital data points, such as digital ID platforms, in order to verify a person’s identity. The discussed identity verification in the digital world is mostly part of new account opening and activation. The verification process takes place when a person tries to register for online services or use a service that requires a legal identity check, like applying for a loan. The same case is when we talk about identity verification for digital onboarding in the financial sector. The person’s identity must be verified by specific tools and systems that are highly regulated.
Role of digital identity verification
Digital identity verification has an important role in many aspects of our online presence. It helps mitigate fraud, prevent identity theft, and streamline the KYC compliance processes. The importance of digital identity verification is backed by its huge value of $15.2 bn globally in 2024.
Fraud reduction
Fraud is one of the most crucial concerns for online businesses and their customers. That’s why ensuring only customers who are legitimate and verified have access to specific digital services. This is especially important for those concerning financial processes and personal information.
In the real-life scenario, bank employees were the ones responsible for checking if the person who wanted to withdraw money had the right to access the account. So, when a long-haired, tall blonde came to the branch and presented an ID with a photo of a short-haired petit woman, this would be flagged as a fraud attempt. That’s why more and more IDs use biometric photos to facilitate personal identification.
Nowadays, proper customer identification programs are often the first step in preventing money laundering and fighting fraud. These measures involve verification through a trusted third party, like a bank that has already verified the person’s identity and checked their physical ID on site. These programs replace the people who were responsible for identity verification in the first place. The fraud risk is growing as attempts by individuals are more sophisticated, leading to human errors.
Preventing identity theft
Digital identity verification is also necessary to fight the rising identity theft cases. In the US, where each state has a unique ID, it’s especially relevant. The Real ID Act was implemented to decrease the risk of identity theft in the states. Identity theft usually happens when someone uses another person’s personal information illegally and without permission.
In the non-digital scenario, identity theft means someone gained access to someone else’s government-issued documents and used them on their behalf for illegal purposes, such as withdrawing money or getting a loan. In such cases, fraudsters change their look to resemble the stolen identity.
Digital identity verification helps prevent such situations by blocking identity fraud attempts and access to stolen personal data. In such cases, customers are protected against unauthorized access to their data and financial information, but it also helps financial institutions minimize such fraud attempts, which may result in money laundering or other illegal actions.
Streamlined KYC
Digital ID verification is also a necessary step in KYC processes used by financial institutions, which is a highly regulated sector. KYC (Know Your Customer) helps assess potential fraud risks and meet regulatory compliance and is often implemented for risk management purposes. It involves collecting customer information and verifying it using valid documents. Digital ID verification speeds up this step and streamlines the whole process.
Thanks to robust digital identity verification, financial institutions can prevent illegal activities and make sure that their customers are legitimate. The verification process also prevents the use of falsified documents. KYC processes require in-person or digital verification using dedicated verification systems. In the financial sector, failing to comply with identity verification regulations can lead to painful consequences, such as financially straining penalties.
The process of digital identity verification
Digital identity verification uses a few methods for authentication. First, through a trusted third party, and the other with a verification of a document and a picture of the person to compare.
Trusted third party
Trusted third parties are qualified entities that issue digital certificates for electronic signatures or offer other related services. Such signatures are considered equally legal as handwritten ones. In the EU, the eIDAS Regulation sets up the standards for electronic identification.
Trusted third parties or trust service providers (TSP) have the power to legally confirm one’s identity through a digital certificate or an electronic signature. Such certificates link the person’s identity to a cryptographic key, which enables secure electronic activity. The trusted third party is, for example, a bank that has already confirmed the identity of a person with a real-life verification of identity documents. Banks require persons to present their official identity documents to set up a bank account.
In the case of digital identity verification, the process is initiated by the person through a trusted third party, like an official national digital identity verification solution:
- In Poland, citizens can use Profil Zaufany (Trusted Profile) for verification.
- In Belgium, people can use a mobile app called itsme.
- In Sweden, residents can identify themselves using Freja eID.
- In Germany, people can use the IDnow platform for this purpose.
Another way to digitally authenticate is to use an official provider of a qualified signature, like
Szafir. The Szafir electronic signature can be used as a legally binding digital signature under EU laws and regulations. The mSzafir solution for mobiles was delivered by Neontri’s specialists at the request of KIR, the national clearing house in Poland. The mSzafir app is accessed through a cell phone to confirm one’s identity.
Other legal digital identity verification methods
In some cases, financial service providers don’t use a trusted third party for user verification. Instead, they use different solutions to verify one’s identity. This is applied, for example, in international banks such as Revolut. To use Revolut’s services, user identity is verified through eIDV, document verification, and selfie or video verification to comply with international KYC and AML regulations.
Electronic Identity Verification (eIDV) is used in the customer onboarding process to help set up an account. Revolut uses real-time verification by cross-referencing multiple identity data sources with the help of its partner. Moreover, Revolut requires users to upload official documents, such as IDs, passports, or driver’s licenses.
To further investigate the identity, users are sometimes asked to take a selfie or record a video as part of the liveness detection method to confirm their identity using facial recognition or knowledge-based authentication. Then, the picture or video is compared to the uploaded documents for ID verification. Some providers also use biometric data verification processes, like facial biometrics using real-time photos.
Challenges in digital identity verification
There is no doubt that the process of identity verification is complex and needs to be performed under special circumstances and regulations. That’s why it’s necessary to find a provider who can address the most common issues that may arise and also take care of great customer experience.
Ensuring compliance with laws
Depending on the country and region, there are different legal requirements and compliance to fulfill. For example, in the EU, GDPR is mandatory and requires businesses to secure personal data and privacy with specific security measures. In the USA, the Real ID Act of 2005 established the requirements for identification documents issued by the U.S. KYC and AML regulations also need to be fulfilled by financial institutions.
| Regulations and processes | Description |
| GDPR | General Data Protection Regulation (GDPR) is a European law that protects the data of citizens across European countries. Under GDPR, organizations must collect, store, and process personal information under strict rules, such as data minimization. |
| KYC | Know Your Customer is a process carried out by businesses to verify their clients’ data to prevent illegal actions like money laundering. It’s mostly used in the financial sector to assess the risk of illegal intentions. |
| AML | Anti-money laundering laws and procedures ensure criminals can’t use illegal funds as legitimate income. It is strongly connected to KYC processes. |
| Real ID Act | Real ID Act is a law in the US that sets standards for government-issued identity documents such as driving licenses and identification cards to decrease the use of fraudulent identification and fake identities. |
| CCPA | California Consumer Privacy Act is a state law enhancing the privacy rights of Californian residents. |
| NIST | The National Institute of Standards and Technology (NIST) is an American federal agency focused on information security standards. It provides guidelines and frameworks, such as the NIST Cybersecurity Frameworks. |
| eIDAS | Electronic IDentification, Authentication and trust Services is an EU regulation governing electronic identification and trust services for electronic transactions. It regulates electronic signatures and transactions. |
Choosing the right technology
The provider needs to carry out a technological audit to know which technologies can be implemented and which solutions will be safe and scalable. Integration capabilities of the existing systems need proper verification as well. It may be necessary to update the systems, code, and infrastructure to add legal identity verification solutions.
The best option is to find a provider who already dealt with such implementations and has experience in fintech and dedicated solutions for financial institutions. Neontri has already worked on a government-approved solution for legal identity verification, and our specialists have the necessary expertise for such systems.
Adapting to a changing environment
Looking at the rapidly changing tech and legislation environment and requirements, as well as the evolving cybersecurity threats, regular testing, monitoring, and updates are necessary for any financial software. That’s why implementing a robust digital identity verification system is so important. Such solutions ensure safety thanks to constant updates to prevent sophisticated fraud options. They also ensure the identity verification processes comply with changing regulatory requirements, such as GDPR or eIDAS in Europe.
Trust issues
Nowadays, more and more platforms require personal data from the users. In fact, with the rising awareness of not sharing personal information, people are reluctant to let their identity be verified unless necessary. With the rising popularity of BNPL (Buy Now Pay Later) options and digital banking, some service providers require users to share their selfies or a photo of their ID, which should raise concerns about the safety and security of such data after submission. Implementing robust digital identity verification programs can definitely improve customer trust.
Neontri, your identity verification solution provider
With over 10 years of experience in fintech, we know all the intricacies of implementing robust and complex identity verification solutions. Our experts co-created a technological platform and mobile application for strong authentication (SCA) accepted across Europe. Our solution enables the authorization of operations with the use of one-time passcodes. It was designed for the Polish clearing house, the key financial institution in the country.
The mSzafir app complies with UE laws and is accepted as an official, qualified signature source by Polish government platforms and other European countries. Our experts have experience in developing similar solutions with compliance and safety in mind. If you need a solution for identity verification and don’t want to worry about complex legal requirements, we have all you need. Reach out to get a development plan and pricing for a dedicated system for your organization.
Final thoughts
Legal digital identity verification is a complex process that needs to be addressed with specific laws and regulations. It is necessary to block fraud attempts, prevent identity theft, and decrease other financial-related threats. There are many ways the digital identity can be verified, depending on the choices made by financial institutions or credit bureaus and where it’s based. Yet, the process is not unified in the US or EU. Each country relies on different documents and solutions.
Looking at the growing role of online presence, it seems the systems used across regions will require a common solution. The US is already working towards the unification of documents across states, while in Europe, citizens can have a biometric document issued that may open up more possibilities for their users.
FAQ
How accurate are digital identity verification solutions?
Digital identity verification solutions must be adjusted to modern security practices and infrastructures so these methods are highly accurate. Still, the final effectiveness depends on systems and ongoing changes in the technology and cybersecurity environments. The verified data sets are cross-checked in different data points, like banks using sophisticated technology, such as complex biometric solutions, advanced algorithms, and two-factor authentication. That’s why sometimes the identity verification process may be time-consuming, as a real person needs to cross-check the person’s facial image to see if it matches other data sources.
How does digital identity verification ensure compliance with regulations (e.g., GDPR, KYC)?
- Digital identity verification ensures compliance with regulations such as GDPR, KYC, etc., by enforcing them in the verification solutions. All these regulations aim to ensure proper identification processes by businesses and financial institutions. They include proper storage of personal data, identity checks, continuous verification processes, and recent technological solutions.
What is the cost of implementing digital identity verification solutions?
- The cost of implementing digital identity verification solutions varies depending on the region, possible implementation, and complexity of the software, which would prevent any illegal data extraction and help ensure the same person is accessing the account in, for instance, digital wallets. The initial cost may range from $50,000 to $100,000 for initial setup. Then, each verification process has a separate cost that can range from $0,1 to $4 per query, depending on the amount of queries made. Some solutions offer subscription-based verifications, starting from $300 per month.
How does identity verification differ for individuals vs. businesses?
- Identity verification differs for individuals and businesses. The purpose of the verification is the same, but the process is different. Individuals need to request identity verification via a trusted third party, while businesses need to implement a solution that makes the verification possible. For example, people can request identity verification through a mobile device. Businesses also use verification for KYC and AML purposes and to check if the person requesting access is the same individual they claim to be.
Dorota Jasińska
