Digital Identity Verification

Online payments have become the norm for nearly all types of transactions.

While signing up for new products and services has become quick and easy, it has also opened doors to several security threats - for both businesses and consumers.

The key to maintaining security without adding friction is digital identity verification.

From verifying new users during onboarding to securing access during login, digital identity verification plays a critical role in protecting online payments.

In this post, we’ll explore the role of digital identity verification in safeguarding transactions.

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What is digital identity verification?

Digital identity verification in online payments is the alternative to any manual KYC process such as scanning and uploading documents. It ensures a safe log into a new system, preventing attempted fraud.

Additionally, payments are faster and more secure with this technology.

Digital verification picks up data intelligence to verify or identify fraudulent identities before providing access. This data intelligence may comprise all or some data points from sources such as IP addresses, email addresses, biometric authentication, and more. All data points are compiled to verify a user and the risk level of a signup or online payment. 

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Role of digital identity verification in preventing payment frauds

Digital identity has a big role to play in fraud prevention while ensuring compliance with regulations that come attached to certain processes, such as KYC (know your customer). This includes: 

Fraud prevention

Digital identity verification is not just limited to verifying access. It takes a step ahead to block fraudulent transactions in real-time. 

Be it fraudsters trying to impersonate someone by committing identity theft or trying to make fraudulent transactions, digital identity technologies such as facial recognition, fingerprint scanning), two-factor authentication (2FA), and more can detect fraud and act immediately to bar any and every fraudulent activity. AI and ML, on the other hand, detect and report suspicious purchase and login behaviors. 

Compliance benefits

KYC in payments and AML (Anti-Money Laundering) are some of the regulations that businesses must follow. Compliance is needed to ensure no harboring of illegal activity such as terrorist financing, and failure to comply comes with severe penalties, fines, and reputational damage.

Digital identity verification helps avoid such compliance risks and ensures businesses are compliant with all the regulations. They do so via identity checks, customer data verification, and audits.

Customer experience

The right technology can help you offer a seamless customer experience that builds trust among your customers. Most of the verification methods, like biometrics, 2FA, MFA, and so on, are pretty easy and quick. 

All the layers of security (hassle-free steps) build up a sense of trust among your customers, prompting them to trust your business with their sensitive personal and financial data. 

Financial security

The lack of identity checks on digital platforms gives way to fraudulent transactions. They are followed by chargebacks that translate to financial loss to your organization. Chargebacks are a major blow to businesses because resolving them is a lengthy process, and they lead to loss of business and hefty fees. 

Having a digital identity verification system can shield you from the negative impact of chargebacks. 

Technologies used in digital identity verification for online payments

Several technologies enable the process of digital or online identity verification, and here are the ones currently in use across industries:

Biometrics

Human characteristics such as facial, voice, fingerprint, and iris are unique to every individual. This technology uses such biometric standards to verify a customer’s identity while making an online purchase. Biometrics is the most popular choice because of its ease of use and high accuracy, which puts fraudsters at bay. 

Two-factor authentication and multi-factor authentication

Also known as 2FA and MFA, this technology uses 2 or more layers of security to process a transaction, sign up, and log in. Some examples of these security layers are SMS-based OTP, app-based approvals, hardware tokens, and more.

Blockchain technology

Blockchain technology, aka decentralized public ledger, with its encrypted properties, is a great option for digital identity verification. Blockchain for identity verification uses techniques such as self-sovereign identity and distributed digital identity management to make verification faster and safer. It is very difficult to tamper with an individual’s identity data stored as a unique record on the network.

AI and ML

Artificial intelligence and machine learning technologies have the unique ability to read between the lines of user behavior. Their pattern recognition ability helps find any abnormalities in user behavior and flags potential risks.

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Challenges in setting up digital identity verification for online payments

Businesses getting started with digital verification in payments may encounter some of the following challenges:

Privacy

Digital verification technologies store and use customer data to verify identity, which is a concern for customers. Customers are worried about their data, as breaches and misuse are possibilities.

Businesses must find and adopt technologies that sit at the intersection of data security and privacy. 

Customer experience

An extra layer of security is an additional step of hassle for customers, which can be a point of friction for businesses looking to acquire new customers. Rigorous verification measures can lead to a tampered customer experience and a high abandonment rate.

The catch is to find and choose technologies that offer seamless sign-up, log-in, and transaction processes with top-notch security.

Integration 

Existing businesses with an established payment system may face technical integration difficulties with new technology. Most identity verification technologies come with a wide array of integrations, but there sure are certain limitations you may encounter.

Find your business a digital verification technology that seamlessly blends into your existing system and tech stack.

Price

Price is one of the major blockers to successfully implementing a digital identity verification system. There are certain financial and operational costs attached to the implementation of advanced digital identity verification technologies that you should be wary of. 

Scale-up

You want a system that works now and when you scale up your business. So, keep track of all the technical limitations of adopting digital identity verification.

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What are some examples of industries using digital identity verification for payments?

Here are some of the practical implementations of digital identity verification we have witnessed across major sectors:

BFSI

The banking and financial services industry has witnessed widespread adoption of digital verification technologies. Multi-factor authentication and biometric verification are used to verify and process online payments and financial transactions. AI-driven fraud detection is deployed to reduce the risk of fraud and unauthorized transactions.

E-commerce

The retail industry uses this technology to facilitate easy and seamless online purchases that are secure. With security at its core, the industry is one of the early adopters of digital identity verification, where each purchase is subject to an identity check.

Healthcare

The healthcare industry handles personal customer data that’s sensitive and critical. This technology contributes to the healthcare industry by protecting sensitive patient data and ensuring secure payments for telemedicine services.

Travel and Hospitality

Digital identity verification has shaped the current online booking, payments, and loyalty programs for travel and hospitality brands. They have leveraged the technology to make the entire booking process easy, seamless, and safe.

Cryptocurrency

This hot and happening industry has massively adopted blockchain technology to benefit from the use of decentralized digital identity systems that provide secure transactions and facilitate appropriate access.

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Conclusion

Digital identity verification is a major shift from all the workload that came with manual identity verification, providing major security and ease of use. Along with easy access control, this technology also provides fraud control, prevention, and regulatory compliance. PayBy provides all of this and more.

Our innovative payment solution offers robust fraud detection and prevention. It does so by leveraging AI-based fraud monitoring, 3D secure authentication, and transaction risk analysis, offering enhanced verification. There’s more - seamless integration with leading CMS, smart POS, easy scalability, customization, and so on.

Get started with PayBy today and try it yourself.