Identity Verification (IDV) is constantly evolving, with Know Your Customer (KYC) providers aiming to find new ways to improve the process every day. The newest development in this is digital identity, which could change the game for how IDV is applied to services.
What is Digital Identity?
For years, the term digital identity referred to people’s representation online, i.e. their digital identities and the information they chose to share on the digital world. However, with advancements made to identity verification and many countries creating legislature for these processes, the term has been redefined. For example, Australia’s proposed Digital ID Bill defines the digital ID of an individual as a distinct electronic representation of the individual that enables the individual to be sufficiently distinguished when interacting online with services. “Sufficiently distinguished” here is the key to how digital ID is changing the game for KYC.
In this case, a digital ID is data that allows people to get verified quicker. Users can create a digital ID to verify their identity and share selected personal information. This reusable digital ID minimises the need to repeatedly provide documents like passports and driver’s licenses to various organisations.
This shift to digital ID aims to create a standardised and secure identity verification system, reducing the reliance on manual checks and paperwork. Digital IDs not only speed up transactions but also eliminate the need to carry physical documents, thereby reducing the risk of loss, theft, fraud, and identity theft.
How Does Digital ID Work?
Digital IDs work similarly to authentication tools. They start with identity verification, however, instead of having to complete IDV again for every business and service, this singular verification then creates a sort of profile for a person, which can be used as proof they passed identity verification.
Once identity verification is completed, users can share the details with any organisation that accepts this method. As many digital ID legislatures stress consent, users are warned of which data points a company needs before authorisation.
How to Verify Digital Identity
Digital identity comprises many elements, and businesses can choose various methods to verify their customers’ online identities. These methods provide different levels of assurance in determining if a person is who they claim to be online.
Verifying one element in isolation provides low assurance. The best approach layers multiple identity data checks, such as:
The most popular identity verification methods include:
Biometric Verification:
- Fingerprint Scanning: Uses unique fingerprint patterns to verify identity.
- Facial Recognition: Matches facial features with stored images.
- Iris Scanning: Analyzes unique patterns in the colored ring of the eye.
- Voice Recognition: Identifies individuals based on voice patterns.
Identity Document Verification:
- Passport: Uses passport details to verify identity.
- Driver’s License: Verifies identity through a driver’s license.
- National ID Card: Utilizes government-issued ID cards for verification.
Two-Factor Authentication (2FA):
- SMS Verification: Sends a code via text message for additional verification.
- Email Verification: Sends a code or link via email to confirm identity.
- Authenticator Apps: Uses apps like Google Authenticator to generate time-based codes.
Knowledge-Based Authentication (KBA):
- Security Questions: Asks pre-set questions that only the user should know.
- Personal Information: Verifies identity through personal data, such as address or social security number.
Behavioral Biometrics:
- Keystroke Dynamics: Analyzes typing patterns.
- Mouse Movements: Tracks how users move their mouse.
- Usage Patterns: Monitors how users interact with devices and applications.
Mobile Authentication:
- SIM Card Verification: Confirms identity using mobile network data.
- Mobile ID Apps: Uses apps like Singpass or itsme for identity verification.
Digital Identity Platforms:
- Single Sign-On (SSO): Allows users to log in once and access multiple services.
- Identity Providers (IdPs): Services like Google, Facebook, or LinkedIn provide authentication for other sites.
Blockchain-Based Verification:
- Decentralized Identity: Uses blockchain technology to create tamper-proof digital identities.
- Self-Sovereign Identity (SSI): Allows individuals to control their own digital identities without relying on a central authority.
These methods are often used in combination to enhance security and ensure accurate identity verification.
Benefits of Digital Identity
Digital identity offers convenience, including location-independence, allowing you to prove your identity digitally from anywhere. It also enhances security and fraud detection. With technological advancements, digitally verifying identity has become more secure and faster. AI-powered digital identity verification reduces manual verification, providing a quicker user experience. This security, ease, and speed can reduce drop-off and increase customer acquisition while protecting against fraud.
Common Uses for Digital Identity
Digital identity can verify identity in many cases, such as:
- Opening accounts: Verifying identity is essential to open an account online for financial services. Banks use digital identity verification technology for this purpose.
- Age verification: Many services and purchases require age verification, protecting businesses from violating laws.
- High-risk electronic transactions: Re-verifying digital identity is necessary for large transactions or high-stakes activities.
Digital Identities Around the World
While types of digital IDs are getting more accessible all over the globe, let’s take a look at the countries that have successfully had Digital ID processes for years.
Belgium: Belgium’s digital ID efforts began in 2003 with the BelPIC project. By 2021, over 28 million ID cards were issued. The itsme Mobile ID scheme has reached 6.7 million users, facilitating online services with a single sign-up.
Denmark: Denmark’s NemID was replaced by MitID in 2021, a digital-first system used by over 90% of the population for banking, taxes, and public sector interactions, eliminating the need for physical cards.
Estonia: Estonia’s eID has been in place for 20 years, with 99% of the population using it. It offers over 600 e-services to citizens and 2,400 to businesses, enabling activities from bill payments to voting, all secured by blockchain and biometric technologies.
India: Aadhaar, India’s digital ID system, is a 12-digit number issued by UIDAI, capturing biometric data in a centralized database. Used by 1.3 billion people, it serves as proof of identity and address in both physical and digital formats.
Netherlands: The Netherlands uses DigiD for citizens and eHerkenning for businesses. DigiD supports interactions with government entities, while eHerkenning bridges public and private services. DigiD serves 15 million citizens, with eHerkenning handling 13.3 million annual logins.
Nigeria: Nigeria’s National Identity Management Commission (NIMC) manages the National Identification Number (NIN) and the Bank Verification Number (BVN). Since 2014, nearly 100 million Nigerians have registered for a NIN, and 58 million have a BVN, despite facing funding and operational challenges.
Singapore: Singapore’s National Digital Identity (NDI) system, launched in 2003, is used by 97% of the population through the Singpass app. It facilitates digital document signing, important alerts, financial planning, and seamless data sharing via MyInfo.
Sweden: Sweden’s BankID functions as a digital passport, supporting online transactions like opening bank accounts and tax filings. It is used by 99.2% of citizens.
Last Thoughts
Digital IDs streamline the process of verifying identities, making it more efficient, secure, and user-friendly. They reduce the need for repetitive document submissions, enhance security, and offer convenience in a world that increasingly relies on digital interactions. As the technology continues to develop, the global adoption of digital identities will likely grow, offering enhanced security, reducing fraud, and simplifying the verification process.