ID and Document Verification

Identity Proofing Solution: What Is It and Why Does It Matter?

October 13, 2023
Identity Proofing Solution: What Is It and Why Does It Matter?

Identity theft is a severe threat that affects millions of people every year. In 2022, the FTC received over 1.1 million reports of identity theft. Shockingly, around 34% of those affected reported losses ranging from $100 to $500. 

These staggering numbers highlight the urgent need for organizations to implement robust identity proofing solutions to protect their customers and clients. By using such systems, organizations can safeguard their reputation, keep their customers safe, and conduct their operations smoothly. 

Let’s delve into the details of identity proofing and how it works.

What is identity proofing?

Identity proofing ensures a user’s claimed identity is their true identity. When creating an account with a business or an organization, users provide their personal information, which must be verified to confirm it belongs to the person opening the account.

However, identity proofing doesn’t stop at the initial verification process. The process continues throughout the user’s account lifetime, ensuring only the genuine account holder can access it, not imposters. 

This is particularly crucial in financial institutions, where bad actors may create accounts under fake names for money laundering or other financial crimes. By verifying the identity of their account holders and removing the risk of imposters, banks can protect themselves and their customers from fraudulent activities.

Social media platforms also use identity proofing to verify the authenticity of their users so they can gain that coveted blue checkmark. Individuals must submit their ID documents to prove the account belongs to a real person. If the platform notices any suspicious activity, they may ask the user to verify their identity again to confirm hackers haven’t gained access.

Identity proofing is essential in preventing identity theft and other fraudulent activities. Its implementation helps businesses and organizations ensure the safety and security of their customers’ personal information.

What’s the difference between identity proofing and authentication?

Identity proofing involves verifying that a person’s claimed identity is legitimate. This can be done by asking the person to provide government-issued identification documents or using biometric authentication methods such as facial recognition. 

On the other hand, authentication is verifying that a person or user has been granted access to a specific service or system. This is typically done by asking the user to provide a username and password or using more advanced methods such as two-factor authentication.

While there are some overlaps between identity proofing and authentication, the main difference is that authentication doesn’t necessarily concern the actual identity of a user. Identity proofing is often performed when onboarding a new client, whereas authentication is performed whenever clients want to access their accounts or services.

Overall, both identity proofing and authentication are crucial components of any security framework.

Why identity proofing matters

Unfortunately, in 2023, more than 5 million cases of identity theft and fraud were reported to the FTC, resulting in a loss of over $10.2 billion for the victims. These crimes have tripled in the last decade and are expected to grow as more people purchase products and access services online.

Governments worldwide have developed regulations mandating identity proofing in many industries to protect customers from these frauds. For instance, the General Data Protection Regulation (GDPR) in the EU grants citizens the “Right to Be Forgotten,” the “Right to Access” one’s own personal information, and the “Right to Correct” information. If a user wishes to exercise these rights, GDPR mandates that companies take all reasonable measures to ensure that the request comes from the actual user and not an imposter. It’s important to note that the process may look like a single step instead of multiple in an automated system.

Anti-money laundering (AML) and counter-terrorist financing (CTF) regulations also require companies to follow strict identity proofing methods. Besides regulations, identity fraud or data theft can negatively impact a company’s reputation. Customers may lose trust in the organization to store their data securely or even conduct business with them.

In addition to protecting their users, advanced identity proofing solutions can also offer a better customer experience. For example, by quickly verifying customer identity, hotels can offer seamless check-ins, and airlines can offer quicker boarding experiences.

The cost of identity fraud 

The ramifications of online identity theft can extend far beyond the boundaries of the platform it occurs on.

Besides monetary losses to the customers and the users, identity fraud can cost businesses in the long run. In 2021 alone, identity fraud cost US businesses around $52 billion. If customers lose faith in a platform, they will not make purchases or online transactions. 

Types of identity proofing 

Different types of identity proofing solutions offer different levels of accuracy and applications. When choosing a system, make sure it meets the requirements of your business and the regulations that apply to it. 

Identity document verification 

In this method, the user has to submit a government-issued ID document to verify their identity. It could be a driver’s license, passport, or other government-issued document. 

This approach works to a large extent and can help deter most identity thieves. Even if imposters attempt to use fake ID documents, advanced customer identity verification software can detect them. It can be scaled with a robust ID document verification solution as the business grows. 

The problem with this ID proofing approach is it can only verify if an ID document is authentic and in the user’s possession. It cannot detect stolen ID documents.  

Knowledge-based authentication 

Knowledge-based authentication is based on something a user knows and, ideally, no one else does. For instance, they could ask for the last four digits of a user’s social security number or the school their grandparents went to. 

But as you can imagine, there are many drawbacks to this approach. For starters, the verifying party must know the answers to these questions. Secondly, no one else should have this sensitive information. 

Unless the question is deeply personal, most hackers can find answers to these questions with a bit of digging. 

Biometric verification 

Biometric verification is a security process using an individual’s physical or behavioral characteristics to authenticate their identity. This process relies on unique biological traits, such as fingerprints, facial recognition, voice patterns, or retina/iris scans, to verify a person’s identity. 

Each type of biometric has its own advantages and disadvantages, but using multiple biometrics can increase the accuracy and security of identity verification processes.

Multi-factor identity proofing 

Multi-factor authentication is a security measure requiring users to provide multiple forms of identification, such as a password and a code sent to the user’s phone or facial recognition. It’s important because it provides an additional layer of security beyond traditional username and password authentication, making it more difficult for bad actors to access user accounts. 

How identity proofing works 

With more and more transactions taking place online, it’s important to ensure the person on the other end of the transaction is who they say they are. That said, let’s take a closer look at how identity proofing works and the different methods used to verify an individual’s identity.

Data collection 

During the initial stage of the customer onboarding process, the system collects all the relevant information about the customer. This information can include both user-provided data and what the system has from other databases. 

To prevent fraud, the system may use an ID scanning app to collect data from the documents the user provides. The system may also need to collect personally identifiable information, such as life history, to come up with security questions only the customer would know the answers to.

Data validation

In this step of the ID proofing process, the system validates the collected data. The system may verify the ID documents’ authenticity and the accuracy of provided customer information. 

It’s important to note that, at this point, the system only verifies whether the claimed identity exists. It doesn’t verify if this ID belongs to the person who submitted it. 

Customer identity verification

In this step, the verified identity is linked to a customer. Depending on the system, determining ownership of a document can be as straightforward as verifying the person who presented it or may require additional steps. For instance, some solutions perform a facial scan to check if the photo on the document matches the actual person. 

Continued authentication 

Identity proofing doesn’t end after onboarding the customer. Customers may be asked to authenticate their identities regularly, depending on the risk factors. For example, organizations may ask customers to change their passwords monthly or enable multi-step verification if the account hasn’t been accessed in a long time. 

Period re-authentication ensures that only verified users access a service, product, or information.  

Identity proofing protects what matters most

Identity proofing solutions prevent unauthorized individuals from accessing services or sensitive information. These systems play a huge role in protecting customers and their data and maintaining the general public’s trust in the organization. 

Robust identity proofing solutions tailored to a business’s requirement can protect its customers without causing unnecessary inconvenience. They offer the perfect blend of blocking bad actors and offering a seamless process for customers. Invest in identity proofing and keep your business and customers safe by requesting a free trial.

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