What is Digital Signature Verification and How Does It Work?

Whether it’s to save money, be more eco-friendly, or to speed up processes, most companies now offer paperless options for document sharing, like bank statements or utility bills. But relying on digital documents opens you up to new forms of document fraud that have serious financial implications.

Readily available photo editing tools and templates have democratized scamming, making it easier than ever for fraudsters to scam you. A few clicks can alter sensitive information or add a signature to applications and contracts. 

But the risks aren’t limited to just electronic documents. Traditional handwritten signatures are still susceptible to forgery (think old-school check fraud). So, how can you be confident that a document is authentic and its signature is genuine? 

Digital signature verification.

It gives you a way to confirm a document’s authenticity. Using cryptographic techniques, digital signatures can detect tampering and confirm the signer’s identity. 

We’re covering the basics of digital signature verification, including how it works and how to use it to protect your business. 

Quick Insights

• Digital signatures are a secure form of electronic signature that use cryptographic methods to authenticate the validity of a digital document or message.
• Although handwritten signatures are also vulnerable to forgery, electronic signatures have even fewer safety features—a typed name could count as a legitimate signature depending on the document and jurisdiction.
• Digital signature verification is a multi-step process that involves applying a mathematical function to the document’s content so the resulting signature is unique to the document and the signer.
• Digital signature verification has a variety of applications across industries, like finance, healthcare, real estate, and insurance.
• Although many jurisdictions legally recognize digital signatures, some documents, such as wills or deeds, may still require traditional signatures.
• Adopting digital signature verification can help your business detect fraud while processing documents more quickly.
• Successfully implementing this process requires a trusted digital signature platform and appropriate staff training.
• While powerful, digital signature verification has limitations and should be just one part of a broad fraud prevention strategy.

What is a Digital Signature?

A digital signature is encoded data that accompanies an electronic document to confirm its origin and authenticity. Digital signatures use cryptography to encrypt messages, send them securely, and prove the author’s identity. 

If the message, once decoded, doesn’t match the original, then the document’s not trustworthy. Because of their ability to detect alterations and impersonation in electronic communications, digital signatures are a powerful fraud prevention tool. 

Digital signatures rely on cryptography to protect messages from interception and tampering. Cryptography encodes information so that it’s unreadable unless someone has the “key” to decrypt the message. 

A basic cryptographic method is substitution. Here’s a quick rundown of how it works:

1. Take the alphabet and substitute every letter with a number (“A” with 1, “B” with 2, and so on).
2. Replace every letter in the message with the corresponding number. For example, “abracadabra” would become “1 2 18 1 3 1 4 1 2 18 1.”
3. Only the intended recipient would know to replace the numerals with the correct letter and decipher “1 2 18 1 3 1 4 1 2 18 1” back into “abracadabra.”
   
   

A digital signature uses several pieces of data to encode a message and verify its legitimacy:

Encrypted hash. This string of letters and numbers is a shortened, condensed form of the document. An encryption algorithm then scrambles the hash into a ciphertext using a private key.

Private key. The private key is a unique set of numbers and letters. When an encryption algorithm employs the private key, it generates ciphertext that can only be decrypted with the corresponding public key. It’s near-impossible to replicate the ciphertext without the private key.

Signing certificate, including a public key. Think of the signing certificate as the stamp of approval for the entire digital signature process. The signing certificate guarantees that only a trusted technology provider produced the digital signature. It also includes the public key that can decode the encrypted hash.

Electronic signature. An electronic signature is the virtual representation of a person’s handwritten signature. 

Electronic signatures and digital signatures aren’t interchangeable. An electronic signature (or e-signature) is simply a digital depiction of a traditional signature. An e-signature can be as basic as someone’s name typed into a Google document. 

A digital signature is more secure. It relies on rigorous security protocols to prove that a document is authentic, comes from the signer, and hasn’t undergone alterations. 

Because of their inherent security features, many countries legally recognize digital signatures and give them more legal weight than basic electronic signatures. Under the European Union’s (EU) eIDAS, for example, only digital signatures carry the same legal weight as handwritten signatures. 

What is Digital Signature Verification?

Digital signature verification is the process of confirming an electronic message’s integrity and the sender’s identity. This process compares a decrypted version of a document’s information against the original document’s data. Mismatches between a decrypted message and the original raise doubts about the document’s validity. 

Without digital signature verification, anyone can alter a document’s contents or insert an e-signature. Recipients would have no reliable way of confirming that the document is authentic and the signature is genuine. 

How Digital Signature Verification Works (Step-by-Step)

Digital signature verification is a complex process. It starts with document creation and encryption and ends with confirming the document’s legitimacy. 

Humans complete some of these steps, but automated software procedures handle technical aspects, like hashing or encryption. Digital signing platforms, such as DocuSign or HelloSign, specialize in these workflows. 

Here’s a step-by-step breakdown of how it works.

Step 1: Document Creation and Signing

To start, the document needs an electronic signature. The signer either opens a link from an email prompt or downloads a document to add their signature. 

They could sign through the digital signing platform’s website or use their own application with digital signing capabilities, like Adobe Acrobat. 

After signing, the signer clicks a button in the platform to indicate they’re done, or they attach the signed document to an email. 

Step 2: Hash Generation and Private Key Encryption

Next, the document needs to undergo encryption so that bad actors can’t intercept and alter the document. Encryption with a private key also ensures that the resulting ciphertext is totally unique and could only come from the signer. 

The signed document might be a large file with a lot of data, so rather than applying private key encryption to the whole document, a hashing algorithm would first condense the document into a shorter string of numbers and letters (known as a hash). 

The private key then encrypts the hash. Only the corresponding public key can decrypt this scrambled message. 

Step 3: Document and Digital Signature Transmission

The signature tool transmits the bundle of information that the recipient will need to confirm a document’s authenticity or identify signs of fraud: 

• The signed document
• The encrypted hash
• The signing certificate, including the public key

The signing certificate provides proof that an overseeing entity, known as a certificate authority, has approved the encryption process. All trusted digital signature platforms have a signing certificate.  

Step 4: Verification

Next, the bundle of information undergoes verification. This step involves two parts:

1. Decrypting the scrambled hash with the public key
2. Using the original hashing algorithm to generate a second hash of the received document

A mismatch between the decrypted hash and this second hash can mean one of two things. Either the public key doesn’t match the signer’s private key, or the document’s data has undergone alterations. 

Either scenario would invalidate the digital signature and flag the document. But if the hashes match, the signing platform would notify the recipient that the signature is valid. 

If the hashes don’t match, the tool would alert the user that the digital signature verification failed. 

5 Benefits of Digital Signature Verification for Businesses

Digital signature verification comes with plenty of benefits, like reducing fraud and speeding up processing. Take a look at a few other benefits.

1. Prevents Document Tampering

By comparing hashes, the final step of digital signature verification confirms that the received document matches the original. 

Any discrepancies between the decrypted hash and the second hash could indicate that the document may have been changed after the signature. 

Additionally, some signing platforms insert timestamps when someone adds a digital signature to the document. Any versions of the document with timestamps after adding a signature suggest the document was edited after the fact. 

2. Verifies Signer Identity

A private key should be unique and secure. If the decrypted hash doesn’t match the new hash, that means either: 

1. The private key doesn’t belong to the signer.
2. The private key has been compromised or shared and can no longer be trusted.

Digital signature verification provides another avenue for identity proofing, which is critical when an application requires reviewing multiple documents to spot fraud. 

3. Reduces Fraud

An important consequence of a digital signature is non-repudiation. Someone who provides a digital signature can’t later say that the signature isn’t theirs or that they didn’t intend to sign it. The digital signature has full legal force, even if the signer tries to deny (“repudiate”) their ownership. 

And the security features of digital signatures mean that a message remains intact across the entire document lifecycle—from signature to transmission to storage to review.

Common cybersecurity tactics, like man-in-the-middle attacks, rely on the ability to intercept information and manipulate it. If tampering invalidates a digital signature, these types of attacks become much more difficult.  

4. Builds Trust and Compliance

Certificate authorities play a pivotal role in digital signature verification by: 

• Upholding strict security standards
• Overseeing private key generation
• Maintaining public keys
• Verifying the identities of entities with signing certificates

This oversight ensures that digital signatures are secure and legally enforceable. 

5. Speeds Up Processing

Getting signatures for a paper document is time-consuming. You’ll either collect signatures in person—and you may need a notary public and/or a witness. Or you’ll need to use a service like USPS or FedEx to mail hard copies back and forth. 

And once you have the signed document in hand, cross-checking handwritten signatures and performing document fraud detection is both time-consuming and prone to error. 

On the other hand, digital signatures can be sent immediately and verified automatically—no postage magnifying glass required. 

Bonus: Typically Legally Enforceable

Electronic signatures have had legal status in the United States for 25 years, thanks to two laws:

1. The Uniform Electronic Transactions ACT (UETA), passed in 1999, gives electronic signatures the same legal weight as handwritten signatures.
2. The Electronic Signatures in Global and National Commerce Act (E-Sign Act), passed in 2000, created a regulatory framework for electronic signatures and companies that use them.

Many states have passed their own laws regarding e-signatures. In some states, certain documents such as wills or mortgage papers still require a wet signature.

Internationally, the eIDAS regulation framework in the EU oversees the use of e-signatures. Unlike US laws, which define “e-signature” broadly, eIDAS outlines three levels of security for e-signatures:

Electronic signature. They’re the least secure and apply to most electronic representations of someone’s intent to sign a document.

Advanced electronic signature. They’re more secure, with a few additional requirements, resulting in higher levels of trust.

Qualified electronic signature or digital signature. The most secure. It relies on trusted service providers who are certified in an EU member state. This is the only electronic signature that has the same legal equivalent to a handwritten signature. 

Canada also has an e-signature law, PIPEDA, that differentiates between regular electronic signatures and “secure” electronic signatures, equivalent to digital signatures. These signatures are subject to specific regulations. Some documents, like witnessed signatures or statements under oath, must use a digital signature.

Common Use Cases for Digital Signature Verification

Because of their security, enforceability, and trustworthiness, digital signature verification is useful across industries. 

Financial Applications

The finance sector is heavily regulated, and for good reason. Financial institutions often collect sensitive information and transmit large sums of money. They have to rely on digital signatures for:

• Opening new checking or investment accounts
• Loan, mortgage, or credit card applications
• Approving securities trades
• Online transactions, like fund transfers or bill payments
• Interbank communications, including international payments
• Filing electronic reports with regulatory bodies, like the SEC

Rental or Lease Agreements

A lease agreement requires both landlord and tenant signatures. Collecting these signatures manually through an appointment or by mail can be labor-intensive and costly, especially if tenants don’t live near the property. 

But digital signatures allow both property managers and residents to sign the lease agreement asynchronously and maintain digital copies. 

Legal Contracts and Consent Forms

Many agreements between multiple parties require signatures, such as:

• Employment contracts
• Procurement or vendor contracts
• Software licensing or subscriptions

These agreements benefit from the digital signature verification’s security and enforceability. 

Any time a business needs to obtain consent, they also need consumer signatures for: 

• Data privacy policies
• Terms of service
• Consent for email or text communications

Digital signatures allow companies to gather consent for these forms without having to mail a paper copy when a consumer signs up for their service. 

Insurance Onboarding and Claims Documentation

Digital signature verification helps insurance companies avoid fraud on new policies and claims. Here’s how.

Signing up for insurance involves filling out a lot of forms and attesting to information’s veracity. For life insurance, you may also have to consent to the underwriter contacting your doctor or reviewing your medical records. These documents all need signatures. 

Submitting claims electronically is considerably easier both for subscribers and insurers. To submit an insurance claim, you may need to sign a document with information about an accident or medical procedure. 

Healthcare Records and Consent

If you’ve ever checked in for a doctor’s appointment online, you probably had to digitally sign papers for documents like: 

• Notice of billing practices
• Consent to treat
• HIPAA notices
• Permission to share your information with another doctor

Digital signatures help hospitals and doctors’ offices collect and maintain these signatures without mountains of paperwork. 

But not all healthcare documents can use a digital signature. Depending on the jurisdiction and circumstance, some documents, like “do not resuscitate” orders or healthcare proxies, may still require a traditional signature.

How to Implement Digital Signature Verification in Your Business

Introducing digital signature verification in your workflows can save time, increase trust, and reduce fraud. Get started with these steps:  

Use a trusted digital signature service. Platforms like DocuSign, AdobeSign, and HelloSign all maintain valid signing certificates while maintaining strict cybersecurity standards to protect private keys and other sensitive data.

Ensure documents include verification data. Digital signatures often have additional document tracking features, like timestamps and version histories. Review this verification data for all digitally signed documents.

Train your staff. Offer training and support on how to use your chosen digital signature service. Provide guidance on how to interpret verification results and how to respond if digital signature verification fails.

Combine digital signature verification with document fraud detection tools. Digital signatures also often involve reviewing other documents prone to fraud, like driver’s licenses or bank statements. Have a fraud detection strategy for all document types.

Keep logs and audit trails. Track all communications between parties, whether for a rental application, insurance claim, or healthcare consent form. Include the dates and times of any signature request, receipt, and verification. Store all data securely (according to data privacy regulations).

Digital Signature Verification Limitations and Considerations

Digital signature verification is a powerful tool for catching fraudulent documents, but it’s not a cure-all for preventing forgeries. A few limitations can create challenges: 

Electronic signatures aren’t always digital signatures. While a digital signature is always electronic, an electronic signature is only considered a digital signature if it uses a cryptographic mechanism with encryption.

Incompatible technology. If someone uses a digital signing tool that another party’s technology doesn’t recognize, digital signature verification may accidentally fail.

Private key vulnerabilities. Private keys are only valuable if they remain secret. A compromised private key means that anyone can use it to encode data, and the final step of digital signature verification is no longer reliable.

Sophisticated, multi-layered scams. Digital signature verification is only one part of a broad fraud prevention strategy that can keep up with an evolving, AI-enabled threat landscape. You need to deploy a multi-layer fraud detection strategy through identity verification, document review, and fraud forensics.  

Use Digital Signature Verification to Detect Document Fraud

Your business may be going paperless and processing more digital documents than ever. But you might also accidentally open the fraud floodgates. How can you have confidence in any digitally signed document? 

Digital signature verification.

Its innate security features can prove without a doubt that a signed document is valid and from the signer. While digital signatures have some limitations, they can deter scammers and detect fraud to help protect your business while speeding up authentication and decreasing processing times.

Learn how Snappt can work alongside your signature verification process to flag fraudulent documents and protect your business. Get started with our Essential Buyer’s Guide for Fraud Detection.