Why is Identification Important in the Digital Age?

Online transactions have changed how we search for services and move money around. It provides consumers with greater freedom and access to global markets. Naturally, a criminal enterprise has evolved in response, and so-called cybercrime is expected to be worth $10.5 trillion by 2025. Identity verification is a vital tool in meeting the challenges set by online fraudsters.

It won’t just protect your customers – it could mean the difference between business success and failure.

Contents

• Why is ID Verification Important in the Digital Age?
• High-Profile Data Breaches
• Can Companies be Sued for Data Breaches?
• International Identity Verification
• Combatting ID Verification Fraud
• Conclusion

Why is Identification Important in the Digital Age?

Digital identity verification plays an important role in the digital age. It is not only a must when it comes to protecting customers and business reputation but also a legal requirement. Compliance regulations such as Know Your Customer (KYC) and General Data Protection Regulations (GDPR) protect how an individual’s data is stored and used. A failure to meet such legislation can result in huge financial losses for a business, alongside negative exposure in the press.

Read what is an indemnity claim and how to decrease them in our article.

High-Profile Data Breaches

Several major enterprises have been found to breach compliance legislation in recent years, with major consequences. An infringement of GDPR saw Amazon fined €746 million in 2021. Although the case appears to have been related to cookie consent, rather than a major customer data violation, the size of the fine demonstrates how vital it is for businesses to comply with rules and regulations.

British Airways were found to have broken GDPR laws in 2018, and fined £20m following an investigation. And in 2021, leading investment bankers Morgan Stanley received an approximate £27.7 million fine for failing to protect information from 15 million customers. Such instances demonstrate the stakes at play, and fines such as these would be enough to prevent many companies from trading.

A 2023 report placed the average cost of a data breach at $4.45 million. The likes of firewalls, encryption, and accurate identification practices help businesses avoid such fines by ensuring compliance regulations are adhered to.

Can Companies be Sued for Data Breaches?

Individuals who have suffered emotional distress or a direct financial loss due to a company compromising their personal data can claim compensation. However, such a claim would have to be dealt with by a legal representative. Compensation in this scenario may be as much as £150,000. This is in addition to a business being subject to the likes of claims of indemnity.

International Identity Verification

Complying with data protection laws can be a complex matter for global companies. The Data Protection Act in the UK outlines how customer information should be handled, with the GDPR regulations covering Europe. Every European country will have their own means of interpreting these regulations, but an excerpt is as follows:

“The controller should use all reasonable measures to verify the identity of a data subject who requests access, in particular in the context of online services and online identifiers.”

Beyond Europe, most countries have their own legislation that trading businesses must abide by, and in the United States, regulations can differ from one state to the next. Some industries also come with specific legislation of their own. All businesses need to adopt a robust verification method, capable of complying with any regulations they’re subject to.

Combatting ID Verification Fraud

The safest approach for businesses in 2024 is to adopt the latest technology. Digital fraudsters are specialists at creating new methods of beating systems, and accurate identification tools allow firms to combat threats ‘at the gate’.

Our own Interpass software utilises a rigorous identification check, looking into additional identification factors like name and address through accessing a vast number of databases, including election details, telephone numbers, and credit history.

An account verifier protects against financial fraud by proving links between a person, their address history, and their account. For firms involved in monetary lending, Interpass can run credit checks to confirm a client's financial status. Any suspicious activity is automatically flagged, ensuring the highest levels of ID verification and continual compliance with legal regulations.

Ensuring Regulatory Compliance

The importance of Identity verification is ensuring that businesses adhere to regulatory legislations, particularly regarding KYC (Know Your Customer) and AML (Anti-Money Laundering) obligations.

These steps prevent fraud, false identity claims and chargebacks. They also help ensure that only legitimate customers are using financial services.

Meeting KYC and AML Requirements

Adhering to KYC and AML requirements is not simply a matter of corporate responsibility but a legal necessity for financial institutions and other regulated entities. Companies need to identify who they are dealing with accurately.

This helps prevent illegal activities such as money laundering and terrorist financing. Accurate identification is crucial in ensuring the safety and security of the company. By knowing the identity of their clients, companies can avoid potential risks and legal issues.

Global Data Protection Laws Compliance

Compliance with global data protection laws, such as the General Data Protection Regulation (GDPR), is also contingent upon implementing robust verification protocols. GDPR and similar regulations mandate personal data protection; to achieve this, organisations must ensure that they are collecting, processing, and managing data securely. This begins with verifying identity to ensure that the data corresponds to the correct individual and that their privacy is safeguarded.

The Interplay Between ID Validation and Legal Compliance

The interplay between customer identity validation and legal compliance cannot be overstated. By confirming the personal identity of their customers, companies not only mitigate the risk of fraud but also fulfil their legal obligations. 

This ensures they are free from legal sanctions, fines, or reputational damage that may arise from non-compliance. Therefore, identity verification should be viewed not only as a tool for enhancing security but also as a fundamental component for legal and regulatory adherence within the operational framework of a business.

• Regulatory Adherence: Thorough personal identity checks are integral to complying with various laws and regulations at the international and local levels.
• Financial Transparency: Accurate customer information promotes transparency, aiding regulators in monitoring financial transactions effectively.
• Legal Protection: Businesses protect themselves legally by demonstrating diligence in knowing who their customers are and preventing unlawful activities.

Conclusion

In conclusion, identity verification stands as a cornerstone in the digital age, protecting customers, upholding business reputations and ensuring compliance with many legal regulations. As online transactions continue to proliferate, so too do the threats posed by cybercriminals, with potential losses projected to reach staggering figures.

Why is identification important? Beyond financial implications, companies failing to meet regulatory standards face legal repercussions, including hefty fines and reputational damage. Compliance with laws such as KYC, AML, and GDPR necessitates meticulous identity verification processes to combat illicit activities and safeguard individuals' privacy rights.

In navigating the complex landscape of international regulations, businesses must adopt sophisticated verification methods to meet diverse legal requirements.

Interpass software exemplifies this approach, offering comprehensive identification checks that protect against false claims of identity theft and chargebacks whilst ensuring compliance with evolving legal frameworks.

Discover the difference Interpass can make to your own organisation through our insights, or book a free demo with our friendly team of experts today.