Digital Identity Verification Methods in Financial Services: Enhancing Security and Compliance

Abstract

Abstract: The objective of this article is to review the current digital identity verification methods used in financial services, focusing on how they enhance security and compliance. The study employs a narrative review approach, analyzing various digital verification technologies such as biometric authentication, blockchain-based systems, artificial intelligence (AI), and machine learning (ML). The article also examines regulatory frameworks, including Anti-Money Laundering (AML), Know Your Customer (KYC), and General Data Protection Regulation (GDPR), to evaluate how these technologies support compliance. Data was collected from a wide range of peer-reviewed journals, industry reports, and regulatory documents, offering insights into the evolution, implementation, and effectiveness of these digital identity verification methods. The findings reveal that biometric systems such as fingerprint and facial recognition provide high security but raise concerns around data privacy. AI and ML have proven effective in fraud detection and risk-based verification, while blockchain technology introduces decentralized identity solutions that reduce the reliance on central authorities and enhance data security. However, challenges remain, particularly regarding interoperability across different jurisdictions and compliance with global data protection regulations. The study concludes that while digital identity verification significantly improves security and regulatory compliance in financial services, ongoing developments in AI, quantum computing, and decentralized identity frameworks will further shape the landscape. Future research should focus on addressing privacy concerns, improving interoperability, and ensuring ethical application of AI-driven systems. Practical implementation should prioritize a multi-layered approach, integrating various technologies to maximize both security and compliance. Overall, digital identity verification will continue to play a critical role in the evolution of financial services, requiring continuous innovation and adaptation to meet regulatory and technological challenges.