Identity Proofing: What It Is and How Does It Work?

One in 3 Americans have been the victim of identity theft, and often, stolen identity data is used to commit identity fraud.

Businesses can protect themselves by using advanced verification solutions that prove an individual’s identity – so-called identity proofing platforms. Identity proofing is one of the most comprehensive forms of customer verification, and it goes beyond simple ID checking.

With identity proofing, an individual must:

1. Establish that the identity belongs to a real-life person,

2. Prove that they are, in fact, the same person as the validated identity,

3. And that you are physically present during the process.

In the past, identity proofing was simple. For example, if you ever opened a bank account, you likely went through an identity proofing process. You provided multiple forms of ID (e.g., a driver’s license, social security card, and proof of address). And the bank teller would verify your credentials and cross-check your ID.

However, with many transactions moving online, identity proofing methods have had to evolve.

Remote identity proofing occurs online, and it requires advanced technology to determine if an individual is present and if they do exist in real-life. Ultimately, whether done face-to-face or online, identity proofing is an important tool for combatting identity fraud.

This guide covers the basics, including what identity proofing is, how it works, and why businesses need it to address modern threats.

What Is Identity Proofing?

The Computer Security Resource Center from NIST defines identity proofing as: The process of providing sufficient information (e.g., identity history, credentials, documents) to establish an identity.

However, typically identity proofing goes much deeper. In fact, according to Gartner’s Market Report for Identity Proofing and Corroboration document-centric identity proofing is now recommended. In document-centric identity proofing, a customer:

  • Provides a government-issued ID or multiple forms of ID by taking and uploading a photo.
  • The validity of the identity document is determined, typically by cross-referencing with public data (like DMV records or credit bureau data).
  • And finally, the user must take a selfie with liveness detection. This determines if the user is present and prevents spoofing attempts or deepfake fraud.

Therefore, in essence, identity proofing aims to prove the identity of an individual with a higher degree of certainty. Simple age verification or ID verification processes likely don’t include liveness detection or require multiple forms of ID.

Identity Proofing vs. Identity Verifications

Identity proofing and identity verification often get used interchangeably. But they represent distinct phases of the ID confirmation process.

Identity proofing, for example, refers to the entire process of establishing and proving a customer’s identity. Identity verification, however, refers to only the cross-referencing of customer-provided data against authoritative sources like a governmental database.

In short, you can’t perform identity proofing without identity verification.

A Real-Life Example

Suppose you were checking into a hotel. You’re required to provide an ID document. The hotel clerk will perform identity verification to ensure your ID document is valid and will ask for you to supply the card on file. After reviewing your ID and payment details, the clerk will have successfully proven your identity.

Why Is Identity Proofing Important?

Identity proofing plays a pivotal role in modern verification. Here are some of the key benefits:

1. Secure Customer Onboarding

From ecommerce platforms to financial institutions, businesses often require customers to provide personal information during the onboarding process.

Identity proofing serves as the first line of defense, ensuring that these customers are legitimate and are not engaging in identity fraud or theft. By meticulously verifying customer identities, businesses can establish a foundation of trust and preemptively thwart potential fraudulent endeavors.

2. Fraud Prevention

Identity fraud poses a significant threat to businesses, and it can result in substantial financial losses. Document-centric identity proofing acts as a potent deterrent that can help:

  • Stop fake and fabricated identities from being used for synthetic identity fraud.
  • Prevent stolen identity data from being used through liveness selfie verification.
  • Using robust verification to establish that the identity is, in fact, real.

3. Ensuring Regulatory Compliance

Many industries have stringent KYC protocols. Therefore, identity proofing can help companies perform enhanced due diligence and meet strict regulations.

4. Faster Onboarding

Identity proofing isn’t solely focused on security; it also contributes to a streamlined user experience.

By optimizing the verification process, businesses can reduce friction for genuine users while maintaining robust security measures. Striking this balance is particularly crucial in the fast-paced digital landscape of today.

How Does Identity Proofing Work?

How Does Identity Proofing Work?

The identity proofing process is straightforward. However, it relies on advanced technology to verify authenticity. Here’s how the process works:

1. Data Collection – A customer provides identifying documents like a driver’s license or passport. They may also be required to submit other identifying documents like a social security card, proof of address, or a credit card.

2. Data Extraction – A tool like ICR (intelligent character recognition) extracts the data from the document and puts it into a readable format.

3. Data Verification – Advanced systems cross-reference the data with established databases. This ensures the identity is that of a real person.

4. Customer Presence: A live selfie is used to cross-reference the ID photo and ensure liveness detection. This establishes that the individual is present and matches the identity on the ID document.

5. Risk Assessment and Decision Making – ID proofing systems assess the authenticity. A high-risk transaction, for example, may require higher levels of matching, compared to a lower-risk transaction. Ultimately, a decision is made and the identity is proofed.

Challenges and Considerations in Identity Proofing

While identity proofing offers an array of benefits, these systems do have shortcomings. For example, identity proofing requires a variety of Personal Identifying Information to be shared. Without robust security and strict data storage protocols, this data increases the risk for identity theft.

Here are some of the potential risks of identity proofing:

1. Privacy Concerns

The collection and storage of personal information inevitably raises privacy concerns. Businesses must meticulously navigate the fine line between obtaining the necessary data for identity proofing and respecting users’ privacy rights.

Businesses also need to establish clear data storage protocols, including which PII is stored and how long it is.

2. False Positives and Negatives

No system is entirely immune to errors, and identity proofing may occasionally result in false positives (incorrectly identifying a legitimate user as fraudulent) or false negatives (failing to identify fraudulent activity).

Fortunately, many of these systems get stronger and more reliable, as you add data to the model. Therefore, when initially launching a program, you should incorporate spot checks and tune risk scoring to counterbalance this potential.

3. Evolving Threat Landscape

As technology advances, so do the tactics employed by cybercriminals. Identity proofing processes must remain agile to keep pace with emerging threats and vulnerabilities.

Some of the most common include:

  • Deepfake fraud
  • Synthetic identity fraud
  • AI-based security fraud

Choose a platform that incorporates constantly updated technology to address the latest threats.

Emerging Trends in Identity Proofing

Verifying your identity online used to be a one-time thing, like showing your ID to open a bank account. But the fight against fraudsters is getting more sophisticated, and so is identity proofing.

Gone are the days of a single verification. Generally, identity proofing systems require multiple verifications (at set intervals) and incorporate behavioral biometrics to monitor for fraud in real-time.

Here are some of the key trends in the industry:

  • Continuous Identity Proofing: Forget a single snapshot. This approach constantly monitors your activity, like login attempts and spending habits. If something suspicious pops up, like a login from a new country, the system can spring into action and potentially block fraud in real-time by asking the user to reverify.
  • Your Identity, Your Way with Blockchain: Blockchain technology, known for its tamper-proof nature, could make user-controlled verification possible in the future. With blockchain, you could choose what data to share with different entities, keeping your personal information under your own lock and key.
  • AI and Machine Learning: Artificial intelligence and machine learning continually evolve and get stronger. Many systems incorporate these tools throughout the process. For example, OCR and ICR extract data from an ID document, while facial recognition is used in selfie verifications. Additionally behavioral biometric and fraud detection systems leverage the power of AI to prevent fraud in real-time.

These trends are paving the way for a future where security and convenience go hand-in-hand. With continuous monitoring, secure data storage, and AI-powered tools, verifying your identity online will be safer and smoother than ever before.

Recap: Identity Proofing Is a Best Practice

There are a variety of verification solutions on the market, and each offering a different level of verification. Identity proofing, however, stands out at the top of the market. Its advanced verification techniques make this the gold standard for high-risk transactions, in KYC processes, and for performing enhanced due diligence.

Although it may be too robust for some situations, even a pared down version that includes selfie verification will help you build trust with customers, while preventing malicious actors from committing fraud. Does your business need an identity verification solution?

FTx Identity offers a variety of implementations to help you build better customer onboarding and verification processes. From simple age verification to advanced identity proofing, we have you covered!

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Yes, identity proofing can be done remotely through document scans, facial recognition, and knowledge-based authentication. Online identity proofing or remote identity proofing, for example, requires you to upload a document, provide a selfie with liveness detection, and then this data is cross-referenced with governmental databases.

There are two main types of identity proofing methods: knowledge-based (verifying personal details) and document-based (checking government issued IDs). Generally, document-based or document-centric identity proofing is used at the start of a transaction, e.g., opening a bank account. Then, knowledge-based proofing through biometrics, behavioral biometrics, etc., is used to continually prove an identity.

Identity proofing confirms someone is who they say they are, while authentication verifies their access credentials (like username and password). Generally, proofing is used to establish an account, while authentication is used to prove who the individual is every time they login.

The frequency of identity proofing depends on the risk level. High-risk activities might require it each time, while lower-risk scenarios may only need it periodically. For example, a high-risk transaction (over $1,000-$5,000) might require identity proofing to be performed.

AI can analyze data to identify fraud patterns and suspicious activity, improving the accuracy and efficiency of identity proofing. Additionally, AI is a powerful tool in liveness detection and selfie facial recognition, which are important for corroborating ID documents.