This paper proposes an identity verification system using data hiding and fingerprint recognition. At user's home, the client's account information is encrypted and embedded into the fingerprint image via data hiding method secretly. Then the fingerprint image with embedded data is transferred to the bank over Internet. At bank side, the client's account information is extracted. It is used to retrieve the client's registered fingerprint from central database, which is then matched with extracted fingerprint via fingerprint recognition method to verify user's identity. This system is more reliable and secure than transferring password alone. The data are embedded with quantization watermark in the JPEG 2000 coding pipeline. Compare to our previous proposed system, the interaction time can be reduced because less data will be transmitted. When the fingerprint image is compressed to 1/4∼1/20 of its original size, the embedded watermark can still be recovered. This system has been used in a bank pension distribution system. It can also be used in other E-business applications.