The next $20 billion digital market - ID verification as a service

The steady shift toward online transactions, and the rise of crypto currencies, are
helping create the next $20 billion market.

Authors: Vikram Ayer, Robert Schiff, Jon Steitz, Arnav Garg, Kitty Kwan

If you’ve ever applied for a credit card or opened a bank account online, chances are
you’ve had to verify your identity—by inputting identifying information, answering
questions about yourself, or uploading documentation. As more and more sensitive
commerce moves online, the market for service providers who specialize in managing
this process is set to boom.

Fuel recently took a deep look at the emerging identity-verification-as-a-service market.

We examined three key use cases across four geographies and a range of industries. We
estimate that the current market for identity-verification-as-a-service is close to $10
billion and predict that it will grow to a $16-20 billion market by 2022.

What is identification-verification-as-a-service?

Consumers are moving more and more of their transactions online, including sensitive
transactions like opening new accounts and purchasing big-ticket items. They
increasingly expect a seamless purchase experience, and one of the last points of friction
is the identity check. Validating one’s identity, while easy to do in person, can be
cumbersome online.

B2C companies face the challenge of building and maintaining a seamless identity
verification experience for those transactions, a task that requires significant investment
in infrastructure and expertise. Of course data security is critical to transactions that
require the exchange of sensitive personal information. The recent string of high-profile
breaches has companies seeking more secure verification solutions.

These conditions have led incumbents and startups alike to invest in developing new
solutions. Identity verification-as-a-service offers a way for ecommerce providers to
outsource the verification function to providers with the necessary scale and security to
accomplish sensitive transactions quickly, safely, and efficiently.

Most providers of this service verify identity using one of three methods:
 Figure 1: Verification methods

Sizing the identity-verification-as-a-service market

To estimate the size of the market for identity-verification-as-a-service, we focused on
three core use cases:

• Account opening, e.g. bank accounts, credit cards, SIM cards

• Account management, e.g., password resets, change of address
• Transactions and payments, e.g., high value or high risk online purchases, age
verification for age-restricted online purchases

Using commercial and public databases along with original market research that we
engaged in with key market participants, we examined the value of these use cases
across a number of verticals and geographies.

In 2017, we estimate the market to be ~$10B globally.

Figure 2: 2017 Total Addressable Market

1 Breakdown only based on Account Opening and Account Management use cases
(excl. transaction verification) 2 Includes Health and Education
The biggest contributor to global TAM is digital transaction verification, in which
identity is verified for certain big ticket or high-risk items.

The future of identification-verification-as-a-service

Looking to 2022, we anticipate the market to be between $16B -$20B.

Figure 3: Estimated 2022 Total Addressable Market

We expect this change in the market to be driven by several factors:

• Volume of existing use cases. As more commerce for which identity verification is
required moves online, we expect demand for the service to increase.
• New use cases. As identity-verification-as-a-service becomes more widespread,
secure, and reliable, we expect new use cases to emerge, particularly in the travel
and logistics spaces.
• Pricing: As the market matures and new entrants introduce more competition,
we might expect to see some price compression.

Implications for current/potential identity verification-as-a-service

providers

As is the case in SaaS, we believe specialists will thrive in specific/focused pockets of

value. In order to identify and capture such pockets, providers can consider approaching
this market in a couple of different ways:
 • Horizontal play (Use Case): Players can enter the market by focusing on one
particular use case within the market. Depending on the use case selected, the
technology and product required to succeed will vary. For example, for account
openings, the technology needs to be efficient and accurate while speed is less
critical. For the transaction verification use case, by contrast, the technology
needs to be as fast and seamless as possible.

• Vertical play (Industry): Players can consider entering the market by focusing on
a particular vertical. For example, by focusing on financial services (largest
industry within the TAM), an identity verification vendor can assist banks with
regulatory driven KYC requirements when opening new accounts as well as
simpler verifications when customers are making material changes to their
accounts online.

We expect the market for identity-verification-as-a-service to remain robust into the

foreseeable future, particularly as more and more companies complete their digital
transformation and new forms of online commerce, perhaps facilitated by the rise and
normalization of cryptocurrencies, gain traction.

ãCopyright Fuel x McKinsey, 2018

Email: Fuel@McKinsey.com for more information