The next $20 billion digital market –
ID verification as a service
Fuel by McKinsey 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.
“Identity verification-as-a-service offers a way for e-commerce providers to outsource the verification function to providers with the necessary scale and security to accomplish sensitive transactions quickly, safely, and efficiently.”
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:
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.
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:
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:
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.
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