The primacy of identity verification in the age of fintech and crypto

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Identity verification has come a long way since the early days of fintech. Fraud too. Alain Meier, Head of Identity at Plaid, recently sat down with Lex Sokolin, host of the Fintech Blueprint, to discuss the current state of identity verification technology and how the identity verification platform Plaids identity has quickly become one of the most trusted solutions in the industry.

Conduct the conversation:

The Evolution of Identity Verification Technology and What’s Behind It

What fraud looks like for most fintechs and businesses today

How businesses can use the latest technology to stay ahead

Listen now!

Key points to remember:

Identity generally refers to authentication or identity verification. [1:50] Authentication ensures that the person connecting their accounts is using personal information and credentials that belong to them. Identity verification is the process of validating that you are who you say you are.

Identity verification has become more sophisticated out of necessity. [14:10] Cognito’s first identity verification solution required only one authenticatable data point, the user’s phone number. This was especially popular in the crypto space.

Today, fraud is exponentially more sophisticated and aggressive. The prevalence of personal information on social networks makes it easier for fraudsters. For companies to resist while maintaining a quality user experience, complex anti-fraud measures are necessary.

Over time, fraud has become more aggressive, and companies have had to implement more and more anti-fraud solutions to sufficiently combat this fraud and also meet the user experience requirements that people have, said meer.

Fraud in fintech takes many forms. [18:00] Fraudsters are usually motivated by the need to make money or launder money. The most common fraud methods include:

Fake IDs

Identity theft using black market identities

Identity theft liveness detection (faking) in order to access accounts

Synthetic identity verification, which involves injecting fake or altered identities into the credit reporting system and then maintaining them over time

First-party fraud, which occurs when a consumer somehow completes a transaction and then claims the transaction was fraudulent

Plaid offers a complete integration solution that includes all identity verification components. [23:40] Plaid Identity Verification (IDV) fights fraud by leveraging a range of data points that other vendors cannot access. Plaid offers a complete integration solution when IDV is combined with Plaid’s downstream capabilities for account linking, funding and payments.

There is only a limited amount of information and data you can get from someone during onboarding. You have to look beyond that, Meier explained. By leveraging the data that was seen throughout this user onboarding journey, we can improve the identity verification stage.

Expect a wave of new verification technologies to combat fraud. [27:45] These include:

Verifiable Credentials – A consumer uses a third party to create cryptographic proof of certain aspects of their identity, such as their age. The consumer can present this proof without communicating other personal data. Verifiable credentials can be used for trust and security, but they cannot be used for identity verification in most industries due to regulations.

Worldcoin – A Biometrically Unique Proof of Personality” using a hash of a person’s irises. It then creates a crypto wallet containing that iris scan.

AI creates new opportunities for fraud. [32:00] For example, a consumer can now authorize a Large Language Model (LLM) to use their biometric data to authenticate on their behalf. This could be used, for example, to hold several full-time jobs at the same time.

You are able to theoretically authenticate yourself as an LLM on several different platforms. But they think it’s you, Meier pointed out.

Plaids expertise creates a network effect. [35:00] One of Plaids’ core competencies is its vast network of fintechs, banks, credit unions and consumers. Plaid continues to develop innovative verification solutions but, to date, has only scratched the surface of the full potential of its networks.

To date, we haven’t really exploited network effects that much. There’s some interesting work we can do with fraud, onboarding and identity, Meier said.

Go Deeper: Learn More About Plaid Identity Verification

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