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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:

  • 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.

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.

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