Customer Verification: Seven Ways to Confirm Customers’ Identities
Customer verification provides essential protection for any business which conducts transactions online. Customer identity verification protects both your customers and your business from threats such as identity theft, fraud, and risks to minors while ensuring that you remain in compliance with government regulations.
Here we’ll walk you through an overview of the essentials of customer verification. First, we’ll define customer verification, including how passive and active verification differ. Then we’ll provide a general explanation of how the customer verification process works. Finally, we’ll review seven specific methods you can use to verify customer identity.
What is Customer Verification?
Customer verification is the process of confirming that clients are who they claim to be and not impersonating someone else or using fake or stolen identities. It protects businesses and customers from identity theft, fraud, and related risks. Businesses in the financial services industry must follow customer verification procedures to comply with federal Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. Some businesses, such as casinos or cannabis dispensaries, may have age verification requirements. Other industries, such as retail, may not be required legally to do customer verification but may still use verification procedures as a best practice for security.
In some contexts, a distinction may be drawn between customer verification and authentication. When this distinction is emphasized, verification refers to the customer onboarding process used to confirm the user’s identity and the authenticity of identity documents. In contrast, authentication is an ongoing process that ensures the individual attempting to use customer credentials is the legitimate account holder. This post will discuss both types of procedures under the same general heading without sharply distinguishing verification from authentication. Still, you should be aware of this distinction if you come across it.
Passive Verification vs. Active Verification
Customer verification can be divided into passive and active methods:
Passive verification methods use automation to screen a customer’s digital identity without requiring any special action on the part of the customer. For example, when a customer calls an eCommerce provider to inquire about their account, the provider’s Interactive Voice Response (IVR) system may run an automated check to verify that the caller is calling from the customer’s actual phone number.
Active verification methods require the customer to perform some action to provide proof of identity. For example, the customer may be required to answer some questions, such as providing their date of birth or supply some form of biometric authentication, such as a selfie photo.
Both passive and active methods serve a purpose. Passive methods save time on routine identity verification procedures, and active methods provide more robust identity verification when the situation warrants it.
How Do You Verify Customer Identity?
Customer verification procedures typically involve steps such as:
- Checking whether identifying information and documents provided by a new customer are authentic. For example, are they using a real address or presenting a genuine driver’s license?
- Confirming that the identity being claimed belongs to the applicant. For example, does the person’s face match the picture on their driver’s license?
- Verifying that an individual attempting to use a customer’s account is indeed that customer. For instance, is a selfie presented as a photo ID a picture of a real three-dimensional person rather than a flat photo held up to the camera?
Most customer verification procedures involve one or more of these steps.
Types of Customer Verification
There are many methods of customer verification in use. Here are seven of the most important:
1. Two-Factor Authentication (Multi-Factor or 2FA Authentication)
This method requires customers to present one form of identification credential to provide one or more additional supporting credentials. For example, a customer attempting to make a credit card purchase online may be required to enter a PIN found on the back of the card, preventing someone who does not possess the physical card from using the card number. Other multi-factor authentication methods use biometric identifiers such as facial recognition or require physical possession of objects like smartphones.
2. One-Time Password (OTP) Authentication
This is a type of two-factor authentication where the second method consists of a randomly generated password or PIN, which is only good for a limited time. For example, a credit card customer logging into their provider’s portal with a password may be texted or emailed a one-time password which must be entered to complete the log-in process.
3. Knowledge-Based Authentication (KBA)
Knowledge-based authentication is a type of multi-factor authentication that requires customers to supply some piece of information to confirm their identity. An example would be asking a caller to enter the last four digits of their Social Security Number.
4. Online Document Verification
Online document verification checks to confirm the genuineness of ID documents presented digitally. For example, if a customer takes a picture of their driver’s license, an Optical Character Recognition (OCR) scanner may be used to extract textual information and confirm it with government databases. At the same time, additional checks may be run to verify that the licensed image is consistent with the format used for official licenses from the issuing state.
5. Credit Bureau-based Authentication
This method cross-references customer credentials with data available from credit bureaus. For example, a customer’s name and address may be checked against credit bureau data.
6. Age Verification
Age verification confirms a customer’s age when age restrictions apply. For example, facial recognition software may use biometric analysis of a selfie to check whether an individual’s facial features are consistent with their stated age.
7. Photo Verification
Photo verification methods use facial recognition to confirm that a live customer’s selfie corresponds to a photo ID. Selfie authentication, which employs smart 3D detection, can help prevent impersonators from holding stolen 2D photos up to cameras to bypass photo ID checks.
Automate Your Customer Verification Process with Incode
The customer verification methods covered above protect your business and customers from fraud and help ensure that you remain in compliance with federal AML and KYC regulations. Performed manually, some of these verification methods may be prohibitively time-consuming, and the most efficient method is to leverage technology to automate your customer verification process.
Incode’s Omni platform provides your customers with a frictionless verification experience that confirms identities quickly without sacrificing security. Artificial intelligence combined with cutting-edge tools for ID verification empowers you to perform all the verification methods discussed above more smoothly and swiftly in real-time. Contact our team today to request a demo and see how simple customer verification can be with the right technology.