A digital identity is a collection of information about a person that exists online. When this information is grouped together it can provide a digital representation of an individual. Businesses can use that information to establish the identity of their customers.
There are different ways to verify digital identity, ranging from database checks, to document verification, identity verification, and biometric verification. Once a user has verified their identity, this unlocks access to online services like banking, investing, gaming and travel.
Digital identity definition: what is it?
A digital identity, or digital ID, is a representation of a person’s real self, online. Just like in the real world, there are many unique identifiers that can make up a digital identity. These include:
Personal information, like name and date of birth
Usernames and passwords
Social Security numbers
Online search activities
Purchasing history or behavior
These unique identifiers and behaviors make it possible for businesses to determine who individuals are.
Digital identity in cyberspace: how digital identities came about
Go back twenty years and the concept of a digital identity was fairly unheard of. Then cue the invention of the internet. When once it was normal to head to your local bank branch to open an account, or approve a transaction, many of these operations moved online.
As a result, there became a much greater need for identification in cyberspace. A critical challenge came about in cybersecurity — how to accurately determine the identity of a person in cyberspace. In other words, how to tell who is who, or is someone who they say they are, online?
Fast forward twenty years and we’ve all accepted a digital-first way of life. Digital identities now form the foundation of many online interactions, transactions and activities. Plus we’ve gotten much better at being able to verify people’s identities online.
Digital identity explained: why is it important?
When all the online information about a person comes together online, this provides a picture of who they are in the real world. The process of identifying who someone is online via their digital identity is known as digital identity verification. Without this process, businesses would have no way of identifying who they are doing business with online.
Verifying the identities of customers is important for several reasons:
Meeting regulatory compliance: Regulated industries need to meet know your customer (KYC) regulations, and conduct customer due diligence (CDD). They’re required to do this by law when entering into business-customer relationships to help prevent things like money laundering and other financial crimes.
Offering a better customer experience: When businesses have a better picture of who their customers are, what their interests are, and what their buying patterns look like, they can offer them more tailored, personalized services.
Preventing fraud: A more accurate view of their customers means businesses are better equipped for fraud detection. For example, if someone attempting to log into an account doesn’t match the profile of the person the account belongs to, this could be a sign of account takeover fraud.
Reducing the costs of acquiring new customers: A more streamlined approach to identity verification can help automate more internal processes. In turn, this not only allows businesses to onboard more customers, but to do so more efficiently, lowering the cost of customer acquisition.
How to verify digital identity
Given digital identity is made up of many things, there are several ways businesses can verify the identity of their customers online. These methods provide different levels of assurance in determining — is this person who they’re claiming to be online? Does their digital identity match who they are in real life?
Looking at one element of a digital identity in isolation is going to provide a low level of assurance of that person’s real identity. For example usernames and passwords alone are not enough to verify who a person is.
The best approach to verifying digital identity will encompass a range of checks. These could include a combination of the following:
ID Record Check (database checks): A low friction approach for customers, background database checks validate user information against comprehensive databases, which can include voter registers, consumer, credit, and utility databases.
Proof of Address Check: Establishing proof of address is a primary measure to meet many AML directives at the point of onboarding new customers.
Document Check: Whether it's due to regulatory mandates, susceptibility to fraud, or lack of coverage, database checks alone can't always satisfy assurance in a customer's identity. Document verification offers a higher level of confidence in a customer’s identity by verifying a legal document.
Face Check: Helps ensure that the person presenting an identity document is its genuine owner. Matching a customer’s facial biometrics to those on the identity document enhances security, meets compliance requirements and can facilitate biometric authentication in the future.
Watchlist Check: Continue to screen users after onboarding by re-screening customers against multiple sanctions, politically exposed persons (PEPs), and other data sources.
Find out more about how to verify identity, and the pros and cons of different approaches.
Digital identity for financial services
In a digital world where consumers value convenience and instant access, a physical-first banking experience won’t cut it. Customers now expect online banking services as a given.
But digitizing banking experiences isn’t as simple as moving money management services online. For financial services, digital means new challenges, whether that’s combatting online fraud, maintaining user privacy or reducing friction in the customer experience.
Fraudsters can easily access leaked SSNs and personal information on the dark web and use information like this to set up fake accounts. Plus, consumers need to have trust in the onboarding process. Up to 43% of customers will abandon at account creation if they feel their data is not secure, the process is too invasive or onboarding takes too long. Customers will no longer accept long wait times to access financial services when user verification can grant them access in minutes.
By making digital identity verification a central part of their digital strategies, banks can meet the demands of modern customers while simultaneously safeguarding the business and its customers.
Biometric digital identity solutions
As we touched on earlier, different approaches to verifying a customer offer different levels of assurance in their digital identity. Biometric verification in particular has proven effective in helping verify customers’ digital identities, for several reasons.
Firstly, it’s an established piece of technology that customers are familiar with. Many of us use biometrics to unlock our phones every day. The more familiar we all become with this type of technology, the more comfortable people become using it. Take online banking as an example — twenty years ago it was a new concept that many people were skeptical about, now we all use it.
Customers also like biometrics. According to our Digital by Default survey, 8 in 10 customers find biometrics both convenient and secure. Clearly, biometrics are the way to go in terms of meeting modern-day customers’ expectations.
Finally, biometrics are an excellent way to prevent fraud. The average fraud rates for selfie and video checks in 2021 were 1.54% and 0.17% respectively, compared to 5.9% for document fraud, as outlined in our Identity Fraud Report 2022.
Plus, by matching a customer’s facial biometrics to those on the identity document, businesses know that the identity document belongs to the person presenting it, to protect against things like stolen IDs. Biometrics can also help protect businesses against synthetic identity theft, the fastest-growing form of fraud in the US.
Digital identity verification service: what to look for in a provider
The process of establishing identity becomes much more difficult in the digital world than it is in the physical. In the real world, people present an identity document or another form of documentation, and the person reviewing can do a direct, in-person comparison.
There are far more security attributes to analyze on a physical document for example, than on an image of a document. And unless they’re a skilled fraudster, able to create a high-quality fake ID, it will become obvious quite quickly if someone is using an identity document that doesn’t belong to them.
It’s also far easier for fraudsters to launch multiple attacks in the digital world. They can hide behind a computer and attempt to brute force the system with hundreds of attempts until one manages to get through.
So when analyzing digital identity verification services, businesses need to take all these things into account. As well as asking the fundamental question — what value is this going to bring to my business?
Some things to look for in a digital identity verification service are:
Experience providing identity verification services to established businesses that meet their obligations for KYC and AML. For heavily regulated industries like financial services, they need an identity solution that helps them meet compliance requirements, without sacrificing the customer experience.
Range of checks that support a business's expansion to multiple markets. Can the identity verification service scale with your business? Businesses should ensure any identity solution they opt for offers a range of checks, from database checks, to document and biometrics, to watchlist monitoring, and more. This will benefit them as they grow and adopt new cases, and expand into new markets.
Able to accurately detect fraud. Any identity solution should be able to accurately detect and flag fraud. This will help prevent things like document fraud and synthetic identity fraud. A hybrid approach, that combines the best of artificial intelligence and human expertise can help accurately detect more fraud.
Product roadmap that takes into account market trends. New technologies like NFC are constantly emerging and can offer several benefits. For example, they can not only build that assurance in a customer's identity but also make the process easier for the customer. Fraudsters are also always developing new ways to attack businesses. So any digital identity solution should be able to innovate and keep pace with this.
To find out more about Onfido’s digital identity verification solution and the value it could bring to your business, take a look at Forrester's report The Total Economic Impact of Onfido.