Digital banking and online payments have made dealing with finances easier than ever across the globe. In order to make financial transactions smoother, effective customer onboarding and digital ID verification is critical. In fact, the ID verification market is expected to double from $6 billion in 2019 to $12.8 billion in 2024 at a CAGR of 16%. This is likely why the number of companies offering real-time ID verification services has risen in recent years.
What is Digital ID Verification?
Real-time digital ID verification includes verifying a customer’s ID using biometrics (fingerprints, iris scans, etc.), live videos, and photographs of physical IDs, such as national IDs (where applicable). Since 58% of the world’s population (almost 4.5 billion people) now has access to the internet, it has now become easier than ever to digitally verify people’s identities. This increase in internet access around the globe has also resulted in a spike in digital payments, giving rise to ample opportunities for digital ID verification companies to track online credit history, financials, etc.
Increased internet access has also led to the increase of internet fraud, money laundering, data breaches, cybercrime, etc. This makes it imperative that financial institutions correctly adhere to KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations in order to protect sensitive customer financial data. Digital ID verification is utilized to initiate, capture, verify, and record user identities as well as provide employees with permissible accesses to various enterprise resources. The integration of AI and machine learning coupled with ID verification solutions can help detect unusual behaviour as well as prevent unauthorized access and help prevent cybercrime. When partnering with a fintech that provides digital ID verification services, it is important to conduct thorough technical due diligence to make sure that their security & systems are up-to-date and can handle any vulnerable attacks by malware and hackers.
Digital ID Verification in Emerging Fintech Markets
Digital ID verification has been particularly successful in developing markets that have implemented a national ID and/or have made efforts to move to a cashless ecosystem in the last few years. We take a look at some of them below:
India’s national ID, Aadhaar, boasts of 1.2 billion holders out of the country’s population of 1.3 billion. As India launches several ‘Digital India’ initiatives encouraging digital financial and retail practices, companies have taken to verifying identities using the Aadhar database coupled with biometric verification. Financial institutions across the country also offer e-KYC options to users, partnering with fintechs such as IDfy, Signzy, Veri5Digital, and FaceX to verify digital identities and check credit history, criminal records, etc. The advent of digital ID verification has presented several opportunities to new businesses and startups as they can now reach a larger number of people remotely while incorporating fraud prevention and compliance management solutions as part of their digital ID verification and customer onboarding services.
India has seen unprecedented growth in the adoption of digital payments as mobile wallets such as Paytm, PhonePe, Google Pay, etc. have entered the market in the last few years. UPI payments grew 885% in 2019 while overall digital transactions grew by 338%, fuelled by rising mobile usage and internet penetration across the country. Recently, India’s central bank, the Reserve Bank of India, mandated that all mobile wallets will need to complete full KYC for both existing and new customers— this can be done by physical verification or using biometrics. ID verification includes physical verification or biometric verification. As these payment platforms race to fulfil these requirements by the February 2020 deadline, they are currently operating on partial KYC, which includes phone number verification using OTPs (one-time passwords) and only one form of government ID (such as Aadhaar, PAN card, passport, etc.). In January 2020, US-headquartered digital ID verification company Socure announced that it was expanding into India. Socure’s current clients include three out of the top five US banks, two of the top global remittance providers and five of the top 10 card issuers. This expansion comes on the heels of industry reports that India’s fintech market will reach $31 billion in 2020.
Another developing market which has seen immense growth in peer-to-peer (P2P) digital payments in the last few years is China. China’s Alipay and WeChatPay both have over a billion users. Chinese residents are assigned a Resident Identity Card which functions as their national ID, allowing digital ID verification companies to accurately verify their identity while onboarding them. These ID cards are digitized, and recently-issued ones feature encryption and chips containing personal information spanning gender, address and ethnicity. Resident Identity Cards are used by every resident over the age of 16 and are used for everything from financial transactions to getting tickets on mass transit. In December 2019, the Chinese government announced that country’s 854 million internet users will now need to submit to facial recognition by telecom carriers while applying for a new mobile or internet service.
Often called the most advanced digital society in the world, Estonia’s digital ID card functions as more than mere proof of identity. It can be used to access e-services across the country as it offers a digital-ID, smart-ID, and a physical-ID version. The physical card is encrypted with a microchip that contains information about citizenship, the national insurance number, i-Voting, submitting tax claims and checking medical records, e-prescriptions, and also functions as a digital signature for the individual. This national ID is issued to every Estonian in the world — over 98% of Estonian citizens possess their national IDs and over 67% of them use them regularly. 91.6% of Estonian national ID holders use it to access internet services and the programme boasts of over 700 million digital signatures. This national ID card programme makes it extremely easy for citizens to securely claim their identity and offers quick customer onboarding & KYC compliance for financial institutions.
There are over a thousand fintechs and over 210 million unbanked individuals in Latin America, displaying an opportunity for digital ID verification solutions to enter the market. Customer onboarding and digital ID verification leader Jumio expanded into Brazil in March 2019 in a bid to capitalize on this large market.
Without the presence of a national ID in LatAm countries, the emphasis is on physical verification, biometrics, and other government IDs such as passports, when it comes to completing KYC mandates.
Latin America has seen consistent and high growth in the ecommerce sector with a 21.3% boost predicted for 2019 at $71.3 billion, across Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Mexico, Peru and Puerto Rico. According to experts, the integration of AI and biometrics could boost the performance of ecommerce in the region. Across the globe, digital ID verification is expected to see the highest growth between 2019 and 2025 in the retail and ecommerce industry. It is likely that Latin America’s growth in ecommerce & the rise in digital payments in the region will boost the need for digital ID verification.
The Penser Perspective: The Future of Digital ID Verification
When it comes to digital ID verification, the market is still new and developing in most countries. In developed markets, the question of data privacy & securing sensitive customer data has been raised, leading to the implementation of laws such as the GDPR in Europe. Across the EEA (European Economic Area), citizens receive a National Identity Card which facilitates quicker digital ID verification via photographs, scans, etc. Five countries, including the UK, Denmark, Norway, Iceland, and Ireland, do not provide their citizens and residents with these national IDs but have their own internal identification methods. For instance, Norwegians are assigned a unique National Identity Number, while Danish citizens are assigned a similar Personal Identity Number that can help verify their identities. Other than the common EEA Identity Card, several European nations have begun their own national digital ID programmes: GOV.UK’s Verify in the UK, Alicem in France, Itsme in Belgium, SPID in Italy, NemID in Denmark, DigiD in the Netherlands, BankID in Sweden, TUPAS in Finalnd, and SwissID in Switzerland.
It is imperative to accurately and securely verify identities as the world moves into a digital money economy. Digital banks such as N26 and Monzo digitally verify and onboard customers within minutes, saving the time, effort, and energy required to submit physical documents. Partnerships with major firms, such as Experian, as well as government databases can speed up these processes and help verify identities faster. It is the need of the hour for countries to embrace digitisation across services, and following the examples of Estonia, India, and others can only boost revenue as more customers are securely onboarded in a shorter period.
At Penser, we have worked with many digital ID verification companies as well as fintechs looking to enter the market with similar solutions. We offer IT due diligence, commercial due diligence, strategic planning, and digital transformation services. Contact us today to find out how we can boost your company’s growth & market share.