Fraud Prevention

What is proof of identity and how it can affect your business

January 20, 2023
Woman looking at her smartphone taking an Identity Proof with Facial Recognition as a step in the identity verification process.
Table of Content

Numerous and frequent incidents of data breach have provided fraudsters with vast amounts of personally identifiable information of consumers. Using this stolen data, fraudsters can impersonate genuine users to cause harm to businesses and consumers. 

Identity proofing is a crucial measure that can help prevent fraud and unauthorized access to sensitive information or critical resources. Learn all about identity proofing in this comprehensive guide.

What is Identity Proofing?

Identity proofing is the process of verifying digital identities to validate that the users are actually who they claim to be. It is fast becoming a popular security protocol at the new account registration and login stages to prevent identity theft, fraud, and unauthorized access to sensitive information. Businesses use numerous elements of user information such as government-issued IDs, biometric data, and historical records to establish a high level of confidence in an individual identity.

Why is Identity Proofing Important?

On an average, it takes companies about six months to detect a data breach. This is a significant amount of time for fraudsters to manipulate and use data for many different types of criminal activities. Data theft, compromised user accounts, and failure to comply with mandatory regulations cause financial and reputational losses to businesses. In the wake of these risks, identity proofing plays a crucial role in protecting business networks, digital transactions, and consumers.

Industries, such as financial services, gaming, and healthcare, have stringent legal and regulatory compliance requirements, mandating verification of user identities to prevent money laundering, fraud, and other unlawful activities. With effective identity proofing, businesses can accurately identify and stop malicious users from exploiting vulnerabilities in systems and causing harm.

Identity proofing creates a layer of security and trust, ensuring secure and reliable interactions in both physical and digital environments. It not only helps businesses mitigate fraud risks but also demonstrates a strong commitment towards user account security, data integrity, and regulatory compliance, thereby helping strengthen their market reputation. 

Challenges Associated with Identity Proofing

With the evolving digital landscape, identity proofing also faces several challenges. One of the biggest challenges impacting identity proofing are the increasing sophistication of techniques and tools available to cybercriminals. Bad actors are continually devising new methods to bypass traditional identity verification measures. For example, synthetic identities – fake identities of non-existent users that are created using a combination of fake and stolen user data – pose a formidable challenge in identity proofing. This is in addition to impersonation attempts using stolen personal data from data breaches.

Another significant challenge associated with identity proofing is striking a balance between security and user experience. Although stringent verification improves security, it introduces friction. Additional verification, therefore, can make the onboarding experiences cumbersome and time-consuming, and can even lead to consumer annoyance. Therefore, businesses face a big challenge trying to strike a balance between robust identity proofing and user convenience, without frustrating legitimate users.

While there are several identity proofing measures available, they have their own set of challenges. These include:

  • Multi-factor Authentication: Expensive to deploy, adds additional friction, and uses one-time passwords (OTP) sent via SMS that are prone to interception.
  • Password Update: Challenging for users to create unique passwords every time according to the defined length and complexity. for creating a new password. Old, recycled, and reused passwords can make digital accounts vulnerable to account takeover.
  • Partial Encryption: Passwords are only encrypted with customizable hashing salt. It does not allow decrypting the password, allowing anyone to access these one-way hashed passwords.
  • Controlled Access: Disrupts user experience due to false positives and false negatives.
  • CAPTCHA: Inadequate to fight advanced bots, end up adding friction for good users and disrupting user experience.

Steps to Follow for Identity Proofing

Organizations can use manual verification methods for identity proofing. However, in addition to costing a lot of time and effort, manual reviews are prone to human biases and not scalable. This can pose a problem for businesses with large volumes of incoming traffic. With automated identity proofing, businesses can authenticate users in real-time, without human intervention or degrading user experience.

The National Institute of Standards and Technology in its Digital Identity Guidelines prescribes three key processes for identity proofing, namely: resolution, validation, and verification. Identity proofing solutions perform these processes through the following steps:

  • Data Collection: Collect user’s personal information such as name, address, date of birth, and other identifying details, as well as official documents, like government-issued IDs, passports, or utility bills, to corroborate the provided information.
  • Document Verification: Ensure that the submitted documents are not forged or tampered with using optical character recognition (OCR), document watermark analysis, and other technologies.
  • Biometric Verification: Connect the individual with their unique identity using biometric parameters, such as fingerprint scans, facial recognition, or voice recognition.
  • Knowledge-Based Authentication (KBA): Authenticate users through specific knowledge-based questions that only the true identity holder would know.
  • Liveness Detection: Ensure the use is present live during the verification process to prevent the use of static images or recordings.
  • Risk Assessment: Assess the overall risk associated with the identity being verified, on parameters such as behavior patterns, historical data, and potential red flags.
  • Continuous Monitoring: Identify telltales of potential fraud with ongoing monitoring to detect changes in user behavior or identity status. 

Identity Proofing in Action

Identity proofing is a versatile tool that can adapt to numerous contexts where secure and reliable user identification is critical. Identity proofing is widely used across industries to prevent fraud, improve security and enhance trust in transactions. The examples below demonstrate identity proofing in action:

  • Financial Services: Prevent fraudulent applications and identity theft by verifying a user’s identity.
  • Online Platforms and eCommerce: Secure user accounts, prevent unauthorized access, and enhance the overall trustworthiness of the platform.
  • Gaming: Enhance security, prevent fraudulent in-game transactions, protect user accounts, secure an enjoyable gaming experience for players and create a safer, more trustworthy gaming community.
  • Telecommunications: Ensure that the person applying for a service such as mobile phone plan, is the legitimate account holder.
  • Healthcare: Safeguard sensitive medical information and ensure the confidentiality of medical data.
  • Travel and Transportation: Verify traveler identity to ensure the person boarding matches the ticket information.
  • Government Services: Ensure that the person applying for a government-issued ID is the legitimate holder of the identification.
  • Education: Verify student identity to maintain integrity of the examination process.

How Good Identity Proofing Drives Revenue

Good identity proofing practices prevent fraudulent activities, reduce fraud-related costs, offer personalized services, strengthen consumer trust, and enhance the overall customer experience. All these factors come together to improve engagement, strengthen customer loyalty, and ultimately drive revenue growth for the organization.

A robust identity proofing system helps businesses prevent unauthorized access, mitigate account takeover attempts and minimize fraudulent activities such as unauthorized transactions or false claims. This helps protect financial interests of both businesses and their customers, creating a more trustworthy environment that encourages repeat transactions and customer loyalty. Customers are more likely to engage in online transactions with businesses that they trust will protect their digital identities.

With accurate identity proofing, businesses are better-positioned to offer personalized services to their customers. They can tailor the marketing strategies, promotions, and product recommendations according to user preferences. This personalization not only adds to the user experience but also creates opportunities for upselling and cross-selling, thereby driving revenue growth.

In industries like financial services, eCommerce, and gaming, good identity proofing solutions help ensure compliance with legal and regulatory requirements, thereby avoiding fines or legal complications and eliminating the potential negative impact on a company's bottom line.

Conclusion

Identity proofing is a multifaceted tool that helps fight fraud, ensure user security, maintain data privacy, and strengthen customer trust. Identity proofing is widely used across industries to accurately verify digital identities and protect against fraud and unauthorized access.

Using identity proofing efficiently, businesses can strike a balance between stringent security measures and user-friendly experiences. From preventing fraud losses to driving revenue through enhanced customer trust and engagement, businesses can capitalize on the benefits of good identity proofing.

As the digital landscape continues to evolve, identity proofing measures will remain integral to protecting individuals and organizations, as well as to cultivate a secure and trustworthy environment for digital interactions.

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"What is proof of identity and how it can affect your business"