Back in 1960, the very first computer password was introduced. It was a simple yet groundbreaking step that marked the beginning of digital security. Fast forward 65 years, digital identity verification has transformed dramatically to meet the requirements of secure online services, digital onboarding, and global compliance.
Today, digital identity verification (IDV) is not just a security measure; it’s a foundational and crucial step that helps businesses verify their customers, prevent fraud, and remain compliant with know-your-customer (KYC) and anti-money-laundering (AML) regulations. In this blog, we’ll break down what digital identity verification is, why it matters, and its role in preventing fraud. But first, let’s understand how identity verification grows out of the need for KYC.
Identity verification in the context of KYC
KYC is exactly what it sounds like: companies need to know who their customers are and with whom they’re doing business. For companies working with individuals, this is primarily achieved through identity verification, a process that ensures companies are confident the person approaching them is real and trustworthy. From the user’s perspective, it also signals that your business is secure and trustworthy.
KYC continues throughout the entire customer relationship, from sign-up to the everyday use of the service. This helps companies stay aware and act quickly if something doesn’t seem right. As such, ongoing monitoring is an essential part of KYC, especially for banks, as it enables them to track user activity in real-time and identify any suspicious activity.
What are the components of digital identity verification?
Digital identity verification is the process of verifying a person’s identity online to confirm that they are who they claim to be. It typically employs a combination of data and document-based checks to verify a person’s identity. By verifying both identity documents and personal information against trusted sources, companies can confidently establish the authenticity of their customers. Various methods can be used to confirm one’s identity, depending on regulatory and practical requirements:
- ID and Biometric Verification: This method enables users to quickly verify their identity using a government-issued ID in combination with biometric data (such as facial recognition or fingerprint scanning). This is achieved by extracting and validating the identity data associated with the ID. Advanced technologies, including OCR, pattern recognition, and security feature analysis, are used to verify the document’s authenticity. Biometric verification adds a strong check, ensuring that the person is physically present and not using a photo, video, or deepfake.
- Document Forensics: This involves scanning and verifying supporting documents, such as utility bills or bank statements. Modern tools, such as OCR and AI algorithms, compare scanned documents against known templates and check for signs of tampering, forgery, or digital manipulation. These techniques help ensure that the documents submitted are authentic and unaltered, supporting the identity verification process.
- Identity Data Verification: Personal details (full name, date of birth, and address) are matched against trusted global databases, including government records, credit bureaus, and even mobile operator databases. Due to discrepancies in data recording worldwide, a robust system must compare multiple data points across various sources.
- Electronic Identities (eID): An eID is a digital ID that allows individuals to verify their identity through an app, using a personal code or a biometric check. It can also be used to sign documents and make secure online purchases.
- Phone and Email Verification: This method uses one-time passwords (OTP) or secure verification links sent via SMS or email to confirm a user’s contact information. It ensures the user has access to the registered phone number or email address, helping prevent fake or mistyped entries.
Enabling compliance through identity verification
Regulations and laws regarding identity verification, data protection, and KYC differ globally. Still, it’s essential for businesses to comply with these requirements when operating in other countries or serving users across borders. We will take an exemplary look at the situation in Europe and the US:
FAFT Standard
FATF (Financial Action Task Force) sets international standards for AML and KYC practices. Its recommendations guide how countries implement customer due diligence (CDD), identity verification, and suspicious activity reporting. While not legally binding, the FATF’s framework shapes national AML laws across the globe.
United States
While the US has numerous laws related to KYC and AML, two are particularly relevant.
Patriot Act
The USA PATRIOT Act of 2001, drafted in response to the 9/11 terrorist attacks, implemented new measures against terrorism and money laundering, and helped put new KYC requirements on the map, including the Customer Identification Program (CIP) and Customer Due Diligence (CDD).
AMLA
In 2020, the Anti-Money Laundering Act (AMLA) broadened the mandate of authorities on financial crime to keep up with globalization and advancing technology.
European Union
The European Union has taken significant steps to harmonize and strengthen its AML and KYC framework across member states.
6AMLD
The 6AMLD (Sixth Anti-Money Laundering Directive), which came into effect in December 2020, expanded the scope of AML offenses and introduced tougher penalties for non-compliance. It clarified the definition of money laundering, added new predicate offenses (such as cybercrime and environmental crime), and emphasized the liability of legal persons, making it clear that companies—not just individuals—can be held accountable for their actions.
New AMLA
To ensure consistent enforcement across the EU, the European Commission is establishing a centralized Anti-Money Laundering Authority (AMLA). Unlike previous directives that required individual countries to transpose rules into national law, AMLA will have direct supervisory powers over high-risk financial institutions and will coordinate national authorities. This shift from directives to directly applicable regulations marks a significant evolution in the EU’s approach to financial crime.
eIDAS regulation
eIDAS (Electronic Identification, Authentication and Trust Services) is an EU regulation that sets the standards for safe and reliable digital interactions across EU countries. It ensures that individuals, businesses, and governments can securely use digital IDs and trust services, whether they’re accessing online services or interacting across borders.
Together, these initiatives reflect the EU’s commitment to a unified, technology-forward approach to AML and KYC compliance—one that balances regulatory rigor with digital innovation.
Bring trust and compliance to your company
Digital identity verification is about building trust with users. Whether onboarding new customers, securing transactions, or protecting sensitive information, digital identity verification enables faster and safer processes. The choice of identity verification method can be tailored to the business. From document scanning and biometric checks to eIDs, there are flexible and secure options to meet compliance needs and user expectations.
To implement digital identity verification into your customer onboarding, contact us.