Top 5 Identity Verification Methods: Pros and Cons

Can you really be sure your customers are who they claim to be?

With fraud on the rise, identity verification is no longer a nice-to-have; it’s a critical defense against financial loss, reputational damage, and security threats.

Knowing how to verify an identity is therefore crucial for businesses of all industries and sizes.

Without it, you leave yourself open to compliance risks, fraud, reputational damage, and loss of customer trust.

That’s why 91% of businesses recognise the value of increasing their expenditure on identity verification, according to a report by Identity Week.

At the core of identity document verification are three essential questions:

• What is on the ID? – How can you instantly, automatically, and with no errors, use the ID details?
• Is the ID real? – Can the software reliably and quickly verify the document’s authenticity without the need for manual checks?
• Is the person presenting the ID the actual owner? – Is there a match between the individual and the document?

Balancing security with efficiency is key.

While identity verification can help to prevent fraud, it must also provide a seamless experience for legitimate customers. Businesses need to weigh factors such as regulatory compliance, user friction, cost, and technological capabilities when selecting the right identity verification solution.

Here, we explore five identity verification methods, their pros and cons, and how they can be used – either alone or in conjunction with one another – to shape security and compliance.

1. Document verification: the popular approach

Document verification remains one of the most popular and effective methods for identity verification. It’s widely used across many industries, but some of the most common include travel (border control checks), retail and ecommerce (for the sale of age-restricted goods), and last mile delivery (ensuring delivery to the right recipient). It’s also common in financial and banking services and hospitality.

Document verification can be either a manual or automated process.

Manual verification is where a business employee, such as a delivery person, reviews a customer’s ID document by eye, and uses their judgment on whether it meets the necessary criteria.

Automated document verification, on the other hand, uses technology to provide a more reliable and accurate result compared to a manual check. It removes the chances of human error and bias from the process.

Automated identity verification software works by:

1. Extracting information from the ID document (such as a passport, driver’s license, or national ID cards).
2. Checking the information extracted against certain pre-specified criteria (for example, is the holder over 18?).
3. Checking to see if the ID is fake or not.

Automated verification is typically used to ensure secure customer transactions or user onboarding, and prevents fraudulent document submissions.

Pros:

• Instant checking against the criteria, and verification of the document’s authenticity.
• Provides a high level of accuracy in verifying IDs (99.9% based on more than 100,000 weekly ID document scans from Scandit customers).
• ID information can be cross-referenced against databases, and the software can verify security features like watermarks, holograms, barcodes, and machine-readable zones (MRZ) when required.
• Can be easier to set up compared to other solutions, provided the right provider is chosen.
• Can be used for first-time and one-time authentication, meaning the customer doesn’t need to be known prior to having their ID scanned.
• No training required; automatically run fake ID detection checks that are not possible with the human eye.

Cons:

• Requires regular updates to keep up with new document types and security features.
• Document verification software can be affected by poor image quality or lighting conditions.
• Can only verify if a document is authentic and is really there (liveness), not if the person presenting the document owns that document.

2. Biometric verification: the personal touch

Biometric verification has become increasingly sophisticated and widely adopted, particularly in high assurance cases such as those requiring high security. This can include financial services, insurance, healthcare, and government services.

This method uses unique physical characteristics to confirm an individual’s identity.

Key examples of biometric verification include facial recognition (for example, matching user selfies to registered photos), fingerprint recognition, iris scanning, voice recognition, and liveness detection (verifying that the person is really there).

Pros:

• Offers high security and assurance that a person is real.
• Biometrics are non-transferable, making it difficult for fraudsters to impersonate users.
• Can be used for first-time and one-time authentication.

Cons:

• Biometric data can be affected by physical changes, injuries, or aging.
• Requires high security for businesses holding biometric information.
• Biometrics can’t be used as a standalone identity check – it needs to be checked against something (such as an ID document).
• Raises privacy concerns and requires careful data handling.

3. Knowledge-based authentication: security questions

Knowledge-based authentication (KBA) requires users to answer personal questions to prove their identity. It is most commonly used by financial services organizations, utilities and telecommunications providers, and in digital services.

This method has been widely used for decades and comes in two main forms: static KBA and dynamic KBA.

For static KBA, users pre-select questions and provide memorable answers during account setup. These are stored and used later for verification. Common examples include mother’s maiden name, first pet’s name, place of birth, or name of first school.

In dynamic KBA, the security questions are generated in real-time based on information from public and private data sources, making it more difficult for attackers to guess or research answers. For example, users might be asked about a recent financial transaction or a question about a credit limit.

Pros:

• User-friendly for online and over-the-phone use cases, as the questions are typically easy for legitimate users to remember and answer.
• Implementing KBA is generally inexpensive compared to other authentication methods.
• Flexible and can be tailored to different security levels and recall rates.

Cons:

• Vulnerable to social engineering, as answers to static KBA questions may be easily obtainable through social media or public records.
• May be seen as intrusive due to its use of personal financial and historical data.
  Relies on the user remembering answers to the questions.
• Susceptible to data breaches, because if KBA information is compromised in one system, it could be used to access other accounts.
• Not suitable for first-time or one-time authentication, due to a lack of pre-existing information.
• Mostly suitable for online and over-the-phone transactions.

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4. Video-based verification: virtual face-to-face

Video-based verification has gained traction as a convenient method for remote identity confirmation. This approach typically involves the user (for example, a consumer) having a live video call with a verification expert.

It’s used by some financial organizations, insurance companies, and in the healthcare industry. It might also be used for online gaming and gambling customer onboarding.

During the call, the expert will conduct real-time document checks and facial comparisons to verify the person’s identity.

Pros:

• Allows face-to-face interaction for identity confirmation.
• Enhances security by making impersonation more difficult.
• Enables real-time document checks and facial comparisons.
• Global businesses can hire employees around the world to complete the checks, providing multi-language support.

Cons:

• Can lead to poor customer experience if the process is too lengthy or complex.
• Subject to technological limitations such as poor lighting or camera quality.
• May raise data privacy concerns due to the collection of video data.
• More expensive than other methods, as you need to hire and pay for the people completing the video checks.
• May not be particularly robust, as it typically relies on a human decision, and therefore may be impacted by human error.

5. Database verification: the big data method

Database verification involves cross-checking provided information against various databases and watchlists. This method is typically used for Anti-Money Laundering (AML) screening, Know Your Customer (KYC) compliance, and fraud prevention.

It’s prevalent in industries that require high security and a high degree of confidence. Identity checks for financial services, cross-border travel, real estate, and healthcare, will all typically involve database verification.

Pros:

• Essential for AML and KYC compliance in some industries.
• Can process vast amounts of data for comprehensive fraud prevention.
• Allows for cross-checking information against multiple sources.

Cons:

• Effectiveness can vary depending on the region and availability of reliable databases.
• May be subject to errors or outdated information in databases.
• Requires careful handling of sensitive personal information to comply with data protection regulations.
• Can be expensive and difficult to set up.

Which identity verification method is best for your organization?

As identity verification methods continue to evolve, businesses are increasingly adopting multi-layered approaches. By choosing one or more of these methods, you can create robust verification systems that balance security, user experience, and compliance needs.

The choice of verification method often depends on your specific industry’s requirements, regulatory compliance needs, and the level of security desired.

To help you determine which identity verification method(s) are best for your organization, consider these key questions:

1. Do you need or want to keep your customers’ ID data that you scan?

• Decide if you need to keep the data, as this opens you up to risk of security breaches and means you must be prepared to be audited to demonstrate that you are able to handle the data effectively.
• Assess the potential consequences of a security breach in your industry.
• Consider the value of the assets or information you’re protecting.
• If you don’t need to keep the data, consider a solution that works offline, meaning no data is stored or transmitted and therefore protects the end user from risk of security breaches and keeps the company compliant with audits. With security in mind, all Scandit solutions provide offline, on-device processing by default.

2. What are your regulatory compliance requirements?

• Identify specific regulations that apply to your industry.
• Determine the minimum verification standards required by these regulations.

3. How important is user experience in your verification process?

• Evaluate the impact of verification on customer onboarding and retention.
• Consider your target audience’s technical proficiency and preferences.

4. What is your budget for identity verification?

• Factor in initial implementation costs, ongoing maintenance, and potential scalability.
• Consider the long-term ROI of the solution.

5. How much implementation effort do you want to dedicate?

• Assess the compatibility of different integration methods with your current infrastructure.
• Consider the technical expertise required to implement and maintain each method.
• Scandit provides different solutions to adapt to your organization’s needs, such as a full SDK, or pre-built low-code solutions like ID Bolt.