Digital identity verification: What it is and how it works

The ID verification process is a crucial step in activating new accounts and customer onboarding. With most services now online, digital identity verification is key to preventing fraud and staying compliant with regulations.

Many companies now use digital verification to simplify identity verification. This approach analyzes and compares dozens of data points to confirm a person's identity. This approach helps reduce fraud and identity theft while supporting compliance with KYC (Know Your Customer) regulations. That's great news for fintech companies looking to prevent fraud, but it has a host of other uses as well. 

Let's examine how the digital identity process works, how it differs from other identity verification methods, and its impact on conversions. 

What is digital identity verification?

Digital identity verification is an online process that uses digital data points to verify someone's identity when they sign up for online services or log into a digital platform. For example, Plaid Identity Verification uses information such as IP address, location, browser, cookies, and accounts associated with the user's email address to verify and confirm identity and help companies understand a user's risk level. 

Manual identity verification is done via scanned paperwork and is complicated and time-consuming. It's also impractical for fintechs and financial institutions that need to quickly onboard new users. 

Digital identity verification uses hundreds of data points to analyze risk quickly, making it faster and more secure. This faster ID verification process helps provide friction-free access to a range of products, such as bank accounts, mortgage applications, investment accounts, or budgeting apps.  

Why does online identity verification matter?

Online identity verification matters because fraud is on the rise. According to the FTC, US consumers lost $12.5 billion to fraud in 2024—a 25% increase over the prior year. Using online identity verification, platforms can quickly analyze data to determine how likely it is that someone is committing fraud—or trying to. 

Companies can easily see, for example, that the same email address was used in previous fraud attempts or that the person opening a bank account is in a country the provider doesn't serve. 

Online ID verification can improve compliance with KYC (know your customer) standards, such as Customer Identification Programs for finance and finance-adjacent companies, by working to combat synthetic identities through additional data points. It's particularly important for fintechs and other start-ups that focus on providing a smoother onboarding process because, in most cases, it uses readily available information such as the user's browser or IP address. 

Digital document verification is also faster. Unlike manual identity verification, which takes time and requires in-person meetings, digital identity verification can happen in seconds, allowing consumers to access the tools and platforms they need faster.

How to verify identity online

Verifying a user's identity is a crucial step in reducing the risk of fraud. There are multiple ways to verify someone's identity, each with its pros and cons. Below, we'll explore how to verify someone's identity. 

• Digital identity verification: Online identity verification uses identity verification platforms to verify digital identities provided by users and compare the information provided with databases. Checks may also include device and IP checks, email account checks, and behavioral analytics. 

• Knowledge-based identification: Knowledge-based ID verification uses security questions that the user selected in the past to verify their identity. For example, questions may ask for their first pet's name or where they met their spouse. These questions are selected during onboarding to ensure the user is the original account holder. Because this type of online identity check is used for re-verification, it is often paired with other ID methods.  

• Credit score identification: Credit bureaus store large amounts of data about consumers, including their name, social security number, address, and date of birth. Comparing data provided by consumers with credit score data can help verify identity. However, it's not as useful for users with no or thin credit files. 

• Two-factor authentication: Two-factor authentication uses something consumers know (such as their login information) with something they have (such as a cell phone or access to an email address.) Requiring two verification features improves fraud prevention measures, but cannot be used to meet KYC regulations.  

• Biometric-based identification: Biometric identification uses physical characteristics to verify identity, including fingerprints, retina scans, and facial recognition. Anyone who uses Face ID on their Apple device has used biometric-based identification. To be successful, however, biometric data must be provided to the platform before it can be used. 

While there are many different ways to verify a person's identity, most cannot be used alone to confirm identity during the signup process. Two-factor authentication, for example, is often used to verify re-logins after initial setup. Online identity verification, however, can be used as a stand-alone process when setting up a new account.

Benefits of identity verification online

With digital verification, users can quickly and easily prove they are a real person using information from their device, email address, or biometrics, often right in the same app. Making the process user-friendly is good for people who don't want to waste time and great for companies looking to increase conversions and provide a better customer experience.

In addition to making ID verification easier, other benefits include: 

• Improved access: Digital verification doesn't require sending in physical documentation or in-person meetings. This expands financial service access for customers who are unable to send in documents.

• Better security: Real-time identity verification uses more data points than conventional verification, helping improve security. Multifactor authentication can provide an additional layer of security. 

• Scalability: Manual identity verification processes may work fine when onboarding a handful of users a week. However, as a business grows, the time and resources required to use manual ID verification become burdensome. Online ID verification can be automated, reducing overhead costs. 

• Seamless digital experiences: Customer experience is everything, especially for companies in competitive markets. When customers can quickly complete identity verification for digital onboarding, they are more likely to convert. 

→ Want to reduce fraud during new customer onboarding without sacrificing conversion? Plaid Identity Verification consistently achieves pass rates of 90% or greater.

How does digital identity verification work? 8 vital data checks

Digital identity verification examines multiple data sources, such as ID documents and selfie videos, to ensure a person is who they say they are. These data sources are difficult to fake, making them the most secure and reliable way to perform an identity check online.

Plaid's identity verification solution also looks at digital attributes like the customer's browser, location, and whether their email was involved in a data breach. No one data point is considered on its own; rather, each point is part of a holistic check across multiple platforms. In many cases, customers don't even know this data is there, making it more secure and more difficult to fake. 

Then, companies are provided with an assessment of the risk a user presents. Based on a customizable risk level and other verification checks, the user may be able to complete verification, or a company may require the user to undergo additional review to complete the process. 

Digital identity verification platforms verify a range of data points, including: 

1. Digital fingerprinting 

When a customer wants to use a new financial app or service, a company may require that customer to verify their identity as part of the onboarding process. With the customer's permission, Plaid IDV looks at dozens of "fingerprints" related to their online activity, including: 

• Location 

• Browser settings 

• Cookies 

• Battery usage 

• Screen resolution 

• WebGL parameters 

Each of these data points is compared to other data about the customer for digital identity proofing. The data points are viewable in an easy-to-navigate dashboard, allowing companies to make more informed decisions about risk and fraud protection. 

2. Device and IP checks

Plaid also checks the user's device and IP address. For example, it looks to see if the IP address is associated with a data center, which could signify fraudulent activity. It also looks to see if there is a time zone mismatch—meaning the device says it's in the Pacific time zone while the IP address is located in the Eastern time zone. 

Other IP address checks include: 

• IP geolocation mismatch 

• Incognito session 

• Blocked cookies 

• Proxy or VPN usage 

Using multiple data points is crucial to ensuring the accuracy of online identity verification, which is why Plaid looks at many different data points to determine fraud risk. 

3. Email checks

When a user provides their email address, Plaid IDV can associate their behavior with that address. The address can then be checked for indications of fraud. 

Email checks include:  

• Email deliverability: If the email is on a domain that isn't configured to receive email, that's a strong indication of fraud. 

• Disposable email: Plaid verifies whether the email is disposable, another high-risk indicator. 

• External account registration: If the email address is associated with accounts on popular social media, that's a strong indicator they are who they claim to be. For example, emails that have never been used to create a LinkedIn, Facebook, or Twitter account are more likely to be associated with fraud. 

• Recent domain registration checks: If the email address is associated with a domain that doesn't have a website or was purchased in recent weeks, it increases their chances of being associated with fraud. 

• Email data breaches: Finally, Plaid checks to see if the email address has been associated with a data breach. It analyzes how recent the breach was and how many times the email was uncovered. Surprisingly, the more data breaches an email has been exposed to, the better—because that means the address is likely to belong to a real person. 

4. Phone checks

Phone number checks work similarly to email account checks. If the phone number is associated with several external accounts, such as Google or Facebook, that indicates the user is likely a real person. Phone numbers not associated with other accounts could be fraudulent or temporary numbers. 

While you won't see the exact account, you will see where the user has accounts using that same phone and email, making it easier to spot risky users. 

5. Network risk

Network risk checks detect if a current user has attempted to verify their identity from the same device before, making it easier to detect fraud.  

For example, if a user creates two separate online identity verification sessions from one device in the same day, they are likely at a higher risk than someone who creates two sessions from the same device 10 months apart. Granular details like these help organizations make smarter risk decisions based on verifiable data. 

6. Behavioral analytics 

As users navigate the online Identity Verification process, Plaid tracks how they interact with the app or site, including how fast they type, whether data is copied and pasted or typed, and the order of input. People, for example, are likely to answer questions in order, while bots and bad actors may fill out information in less predictable patterns. 

7. Digital ID verification and liveness/selfie verification 

Many companies, especially in fintech, still need to collect government-issued IDs. Digital selfie verification makes this process easier. With Plaid Identity Verification, for example, users simply snap a photo of their ID with their phone and upload it. Then, they submit a selfie verification to show they are a real person and look like the person in the documents they provide. Rather than replacing government IDs (which are required for many financial accounts), selfie verification services make it easier to verify that the person is real and looks like the person on the ID. 

Read our article on how selfie verification works to learn more.

8. Database verification  

Database ID verification compares information provided by the user with information stored in issuing databases. These databases store personal details about consumers, such as their social security number, date of birth, location, and email address. Comparing this information with information shared by the consumer can help verify identification.  

Plaid's Identity Verification is a customizable online ID verification platform that helps companies reduce fraud risk and meet KYC and AML regulatory requirements in one easy-to-use solution. It verifies identity data by comparing it against regulated data sources, authenticates hundreds of different ID documents, and confirms liveliness through selfie verification. By analyzing hundreds of risk signals, Plaid helps reduce fraud losses while protecting the customer experience and increasing conversions.

FAQ: Frequently asked questions about online identity verification 

What is the difference between digital and manual identity verification?

Manual verification typically involves reviewing physical documents and may require in-person meetings. Digital identity verification uses online data points and automated processes to confirm identity in seconds, making it faster, more scalable, and easier to integrate into digital onboarding flows.

Is digital identity verification secure?

Yes. Digital identity verification uses encrypted connections, secure data storage, and multiple data points (like device checks, behavioral analytics, and biometric data) to create a layered approach that’s harder for fraudsters to manipulate than traditional methods.

What is liveness detection, and why is it important?

Liveness detection ensures the person submitting a selfie or facial scan is physically present at the time of verification—not using a photo or video. It helps prevent spoofing and deepfake attempts during the identity verification process.

How fast is digital identity verification?

Most verifications can be completed in under 10 seconds. For cases requiring additional documentation, the process may take slightly longer but is still significantly faster than manual verification.

What happens if someone fails identity verification?

If a user fails the initial identity check, businesses can route them to a secondary review process, such as uploading additional documents or verifying identity through a manual process. This flexible approach helps balance security and customer experience.

Real-time digital identity verification reduces fraud risk 

Every day, thousands of bad actors try to steal identities, take out fraudulent loans, and make unauthorized purchases. Digital identity verification is making it harder for bots and scammers to hit pay dirt. By analyzing thousands of data points across multiple platforms, Plaid Identity Verification helps protect consumers and the companies they do business with. 

The benefits go beyond financial, however. Online verification is also easier for consumers—at least those who are who they say they are. By providing just a few pieces of information, such as their email address and phone number, they can quickly verify their identity and continue to navigate your site. 

→ Learn more about Plaid’s fraud and compliance solutions.