What are the forces shaping the future of online identity verification?
As society and businesses move further online, online identify verification is vital if you want to run a profitable organisation, reduce fraud and stay compliant with international regulations.
But with business models and behaviours changing so fast, how do you know you are ready for what the future holds?
In this guide we cover all the trends you need to know about. We look at why people are attempting to fake their identity online. We also examine the current and emerging technology you can use to counter their attempts at fraud.
Specifically, we cover:
- The rise of digital business and the need for identity verification
- Growth in identity fraud and data breaches
- The need to verify employee identity
- Increasing regulations for online identity verification
We also look at:
- The role of artificial intelligence and machine learning in digital identity verification
- Optical Character Recognition (OCR) and online identity verification
- The need for multiple biometric checks for online identity verification
The rise of digital business and the need for identity verification
The way we all use the internet to interact with businesses has been growing steadily over the last decade, particularly in the way we buy goods and services and manage our money. Covid19 has now turbocharged that growth.
Online retail sales grew by at least 3% a year since 2010. In 2020, sales grew by three times that rate (10%).
In developed countries, the number of people using online banking services doubled between 2010 and 2020. Last year, there was a threefold growth in the number of adults opening a digital-only bank account.
There’s little doubt that these trends will stick. For Gen Z and millennials in particular, these behaviours aren’t the new normal: they are simply all they have ever known.
Overall, this increase in online activity is set to double the market for online identity verification by 2025.
This is not just because businesses want to reduce fraud. Good online identity verification – which enables you to onboard new customers and businesses quickly, accurately and efficiently – is vital if you want remove barriers to transactions and long-term customer relationships. As the graphic below shows, the impact on profit margin can be profound.
In effect, online verification is emerging as the cornerstone of how modern business is done. Other areas where there is a strong need include healthcare services, dating apps, cryptocurrency exchanges, marketplaces and property transactions – or any scenario where you are looking to protect finances, goods, services or data.
Growth in identity fraud and data breaches
Of course, reducing and preventing fraud is the main factor that defines the need for online identity verification. According to figures from Experian, more than 2 in 5 consumers worldwide have experienced a fraudulent event at least once. Over 55% of businesses reported a recent increase in online fraud-related losses, predominantly around account origination and account takeover attacks. Another report by PwC has found that all regions globally experienced customer fraud in the last two years, with the Middle East (47% up from 27%) and North America (41% up from 32%) seeing the biggest increases.
Overall, Identity fraud has risen by over a third since 2015. The vast majority is carried out by criminals online with the specific aim of obtaining a bank card or bank account. Many other businesses, from telcos to social care providers, also need to beware of bad actors that want to steal personal, medical or financial information.
Criminals usually obtain this private information by physical theft, accessing public information, or through data breaches that have more than doubled in the last decade. Data breaches usually happen when a hacker gains access to a data¬base that contains users’ private information. A survey by Risk Based Security has estimated that 36 billion records were exposed during data breaches in 2020 alone.
The threat to you, as a business, is that hackers will then seek to use the fake identity they’ve obtained to access your services illegally.
The other big danger is that hackers, some of whom are state-sponsored, are increasingly exploiting tools such as machine learning and Artificial Intelligence (AI). For example, hackers use AI technologies to create malware capable of mimicking trusted internal systems and execute undetectable attacks.
Data breaches – carried out by these increasingly sophisticated means – expose the weakness in traditional security methods like passwords. They also highlight the importance of having advanced online identity verification that enables you to ensure the people trying to access your services are who they say they are.
The need to verify employee identity
For the most part in this blog we’re talking about verifying the identity of customers and businesses for onboarding. There is also a growing need for businesses to verify the identity of employees. This helps to avoid non-compliance caused by forged Right to Work documents, breaches of Agency Workers Regulations or serious offences like modern slavery.
Know Your Employee (KYE) checks, as they are increasingly becoming known, are a concern for both businesses and public sector organisations that have recently been exacerbated by the pandemic. In the UK, for example, the NHS issued new temporary pre-employment check requirements for NHS employers that need to hire new staff while ensuring all employees are safe and legal to work.
It is becoming increasingly important for all businesses to know who their employees are – particularly when they are onboarding new remote staff that they have never seen in person.
The rise of new disruptive models and the gig economy is also causing issues. There have been cases, for example. where takeaway delivery drivers for businesses like Deliveroo and Uber Eats have used someone else’s identity to register for employment online illegally.
All this reinforces the fact that online identity verification is becoming increasingly critical to running a modern business or organisation.
Increasing regulations for online identity verification
Over previous decades, regulations like Know Your Customer (KYC), Know Your Business (KYB) and Anti-Money Laundering (AML) checks have become vital for banks and many other businesses that want to remain compliant and avoid fines. Essentially, these regulations mean you have to have a watertight process for proving you know your consumer and business customers are who they say they are.
Requirements in this area vary by jurisdiction. The list of required controls set out by the UK government provides a good example of what you need currently. However, regulators are increasingly changing compliance requirements in line with emerging trends in financial fraud and money laundering.
The main thing is to stay on top of these regulations and review regularly – you can find out more about how to do this on this blog.
Just as importantly, you also need to make sure you are using advanced technology for online identity verification that can adapt to changes in rules.
In the following sections, we look at what that technology includes and where it is heading.
The fundamentals of online identify verification
Online identity verification aims to prove:
- That someone online exists in the real world
- That the individual is who they claim to be
- That they are genuinely present while using the identity
Today, this process is enabled by advances in smartphone technology and verification software. It works like this:
The software that manages this process needs to include advanced features for key areas like face matching. You can find out much more on these features in our blog on the best way to verify customer identity.
Artificial intelligence and machine learning in online identity verification
Underneath the surface, there are other advanced technologies that are shaping the future of online identity verification. Chief among them are Artificial Intelligence (AI) and Machine Learning (ML) systems, which incorporate computer algorithms that improve processes automatically through experience and by use of data. In the context of identity verification, AI enables software to improve the way it spots flaws in ID documents, images and video streams with every check.
AI-driven verification systems can analyse images and data far more quickly and accurately than a human. They also eliminate the possibility of human error. This is important, because the margin for error with even highly trained people like passport control officers completing checks face to face is 14%. The best digital identity verification systems are 99.99% accurate.
Ultimately, fully automated AI-driven systems are more accurate, quicker and less expensive to run than manual or semi-automated checks. They are undoubtedly the future of online identity verification.
Optical Character Recognition (OCR) and online identity Verification
OCR is the technology that converts printed text into digital data. OCR has already shaped identity verification, enabling printed information on an ID document to be cross-referenced automatically with corresponding data on external databases.
Today, OCR is also increasingly being used to improve customer experience by smoothing out the form-fill process. OCR systems automatically extract information like address and date of birth from ID documents, so customers don’t have to type the details in themself. This speeds up the onboarding process, Crucially, it also reduces the chance of human error and mistypes.
For example, you can have your customers use their smartphone to scan your bank card, rather than entering the long card number and expiry date by hand. This reduces onboarding failures, which in turn increases customer satisfaction, conversion rates and sales.
In the future, where businesses are going to stand or fall by their ability to deliver great online customer experiences, this kind of capability is key.
Biometrics and online identity verification
Biometric facial recognition is already one of the main forces shaping online verification. It is commonly used to match the unique features of a face in a smartphone photo to the photo on an official ID.
As attempts at fraud get more sophisticated, you can also use biometric systems to carry out video spoof assessments and detect ‘liveness’.
This can be done using either ‘active’ or ‘passive’ liveness detection systems. Active liveness detection involves getting someone to follow instructions, such as to smile, move their head, or repeat a sequence of numbers to prove they are present. Passive liveness detection is more technically advanced, requires no action by the user, and is increasingly preferred by businesses that want to reduce friction in onboarding and login processes.
Once the process (either active or passive) has been completed, online verification systems then analyse the live video stream to identify typical fraud attack vectors.
Increasingly, this kind of system also includes an additional layer of verification that looks for human characteristics rather than just action-based detection, including:
- Skin level textual analysis
- User interaction models
- 3D face modelling
- Heart rate analysis (photoplethysmography)
As we move forward, this combination of biometric techniques is going to be crucial to tackling emerging attempts at fraud.
Best practice in online identity verification
Online identify verification is a continually developing and complex area. To fulfil both your present and future needs, you will need to choose a system that includes:
- AI and machine learning capability that requires no human intervention and is not susceptible to human error
- Advanced OCR technology that extracts data from ID documents automatically and improves customer experience
- Verification that combines multiple biometric techniques, including facial recognition and liveness detection
- Options for both active and passive liveness detection
- The ability to adapt as threats change
At OCR Labs, we are ready to meet all your future needs. Our Enterprise and Self Service solutions are powered by AI and requires no human intervention.
We deliver a service for you and your customers that is accurate, fast and scalable. Unlike other online verification providers who rely on third party technology, we also have complete control over the roadmap for our core technology, so we can adapt our system and algorithms easily as needs change.
Learn more about how we can help you shape the future of your online identity verification by contacting us via our demo form or firstname.lastname@example.org.