The global identity verification market was valued at USD 7.66 billion in 2020. It is expected to reach USD 16.65 billion by 2026, registering a CAGR of 13.29% during the forecast period (2022-2031). Multiple businesses have been ramping up their identity verification processes to protect customers during the COVID-19 pandemic. According to Trulioo, a global identity verification provider, 72% of online marketplaces have increased their adoption of ID verification technology due to COVID-19. Also, more than half of financial services organizations have fueled the said adoption. This sudden speed in identity verification adoption is a clear reflection of the urgency to protect the vast numbers of consumers who have been forced to use digital services for the first time due to lockdown restrictions.
Adoption of solutions through stringent regulations and the need for compliance are influencing market growth. The regulatory authorities have become stricter toward KYC (Know Your Customer) and AML (Anti-money Laundering) compliance among reporting entities.
With increasing online services and smartphone penetration, verifying identities digitally is becoming crucial for both businesses and governments. The regulatory authorities are increasingly becoming stringent toward KYC and AML compliance among businesses to control financial crime. FATF (Financial Action Task Force) increased the scope of reporting entities and recommended the member countries to oblige the legal professionals. Art dealers and virtual asset dealers to perform AML screening on their customers.
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Further, the European Union launched the fifth AML directive (AML5), under which the identity verification threshold for the prepaid card industry was reduced from EUR 250 to EUR 150. All member states implemented the directive in January 2020. The AML5 regulations are focused on transforming KYC processes to comply with the standards and procedures proposed by AML and eIDAS rules and establish guidelines for verifying customers at a high-security standard.
Moreover, government bodies worldwide focus on creating stringent regulations to curb identity theft and make efforts to get the global population under the legal identity umbrella. The United Nations and World Bank ID4D initiatives aim to provide everyone on the planet with a legal identity by 2030.
In September 2020, LoginID Inc. and Ipsidy Inc. formed a partnership that provides new tools to combat fraud in online activities. By integrating Ipsidy’s biometric identity verification platform with the LoginID FIDO as a Service platform, the companies would offer FIDO2 authentication and login services, delivered with enhanced security and a high level of identity trust.
Moreover, enterprises across the globe are increasing spending on digitization, including payment processes. The move toward digitization can be witnessed in all types of organizations. According to a recent TechRepublic Premium survey, 47% of the respondents plan on spending more on digital transformation in 2021 than in 2020. In addition, in 2020, 58% of the respondents reported digitizing paper, and 45% reported adopting online training modules.
Further, budgetary constraints during the adoption of identity verification solutions are the only challenges hampering the market growth for identity verification. According to Jumio Corporation, under some assumptions, the total cost of ownership for online identity verification costs around USD 853,750 per year. For large enterprises, it is easier to purchase such identity verification solutions. However, for SMEs, it becomes an issue due to insufficient resources in terms of budget. The high initial costs and maintenance of identity verification make it difficult for companies bootstrapped with limited capital. Due to budget restraints, SMBs typically have limited access to bank-grade technology and security solutions, making them an easy target for cybercriminals.
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Key Market Trends
Financial Services Accounts for the Largest Market Share
Digital ID verification is increasingly becoming a vital part of banking, and the industry is expected to command a significant share of the global market during the forecast period. It is one of the highly regulated, governed industries, and it is also prone to identity frauds that augment the demand.
Banks and financial service providers, including pension and insurance providers, have a stringent identity and personal data requirements, often known as the ‘Know Your Customer (KYC) requirements. Whether opening a bank account, switching accounts, taking out life insurance, or accessing pension records, a customer’s identity, several such attributes are required to be gathered and verified as part of a firm’s risk-based assessment and legal obligations.
Additionally, Metal Pay, a peer-to-peer payments platform that allows users to buy, sell, trade, and send crypto using cryptocurrency trading pairs or fiat money, wanted to differentiate itself from its competitors by offering a quick and seamless account opening process. The company had requirements to comply with strict AML and KYC requirements, so identity verification during the account opening process became a critical component in minimizing risk and eliminating fraud.
Globally, the financial industry is on the verge of a digital revolution, with an increasing propensity toward fintech to promote digital payments, where fintech operates with customers digitally, similar to banks and financial institutions’ work. The growing fintech investments worldwide are expected to influence the adoption of identity verifications as competition increases and vendors intensely focus on gaining new customers.
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Furthermore, new government regulations, such as the European Union’s Revised Payment Services Directive (PSD2), require banks to provide each other with access to account information and transaction data. This suggests that there is more incentive than ever for a unified digital identity system that seamlessly allows users to verify their identities across a range of FIs.
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