The importance of KYC and identity verification in an increasing fintech landscape like Africa’s cannot be overemphasized. As thousands of financial institutions serve millions of Africans, stringent regulatory requirements are needed to keep hackers and fraudsters at bay, which is why investor interest in startups offering KYC and identity verification services is intensifying.
Smile Identity, a significant player providing ID verification and KYC compliance for African faces and identities, highlights this trend. It just received $20 million in Series B funding to further its expansion plans, among other roadmap activities.
The startup announced a $7 million Series A investment in July 2021. Silicon Valley investor Costanoa Ventures, one of the co-leads in that round, also co-led this recent Series B round with Africa-focused venture capital firm Norrsken22.
Participating investors include existing ones such as ValueStream Ventures, Intercept Ventures, Latitude, Future Africa and 500 Fintech — and new backers like Commerce Ventures, Courtside Ventures and Two Culture Capital. The African KYC onboarding and identity verification platform has received more than $30 million from investors since Mark Straub and William Bares launched it in 2018.
In a statement, Smile Identity said the funding round will accelerate the development and adoption of its AI-powered identity verification tech, ramp up hiring efforts in East, Southern and West Africa with a focus on product and engineering, and expand into new markets, particularly Francophone and Arab-speaking countries. The company hopes that its war chest allows it to partner closely with ID authorities and governments to create consumer consent standards and enforce local African data protection laws across the continent.
Smile Identity helps clients mitigate fraud and onboard new customers more efficiently. A report by the company, “State of KYC in Africa,” noted that fraud rates on the continent reached an all-time high of 28% last year. The most common attacks, the report says, involve fraudsters providing fake or stolen ID numbers or altered documents such as driver’s licenses, passports and national IDs. Or face mismatches, where facial biometrics do not match the valid IDs. So how is Smile Identity enabling its clients to catch this fraud? It’s a combination of different products: identity verification, digital KYC, user onboarding, liveness checks, face verification, document verification and anti-fraud checks, but most importantly, identity data deduplication.
Most of the fraud that Smile Identity notices — on behalf of its numerous clients in the payments and money transfer space — ensues at the account opening or onboarding stage, where clients have reported numerous situations like the one mentioned earlier. The deduplication product guarantees that when the end customers sign to a client’s platform, they are mandated to take a selfie at onboarding against their IDs, making it easier to identify the customer better using their faces and reject subsequent new sign-ups in the case of fraud.
“If you onboard a customer and don’t check biometrics, you may be missing 50% of the fraud. The biometric deduplication engine [our smart selfie], which is trademarked as our face recognition technology, can be used both at onboarding and at the stage of deduplication and authentication,” Straub said on the call.
When we covered the six-year-old company 18 months ago, it had access to more than 250 million identities and verification for 15 different ID types across six African markets while performing over 1 million identity checks monthly. However, the recent launch of its Document Verification product has allowed Smile Identity to expand its capabilities; now, it can cover a billion identities and verification processes globally, the chief executive said during the interview.
“The interesting update we have is the Document verification, which analyzes a document’s photo and compares that to users’ provided selfie. And with that product, we can cover all of Africa. So you know, instead of covering 250 million people, we can cover over a billion people. We’re talking about over 230 ID types from more than 100 countries, including all of Africa, the diaspora, much of Europe and North America,” noted the chief executive.
Another area of growth, Straub noted, was that Smile Identity processed over 30 million identity verifications in 2021; that’s over half the KYC checks the startup has recorded since inception: about 50 million. The KYC verification upstart, which has since doubled its client base since 2021 and now serves over 100 businesses in banking, fintech, education, agriculture and e-commerce, also claims to perform between 2 to 2.5 million monthly identity checks.
Smile Identity has also expanded on its Business Verification (KYB) solution, which entails 30 detailed business lookups such as registration number, incorporation, directors, beneficiaries and proprietor status. The product is currently available in Nigeria, Kenya and South Africa. Straub claims that Smile Identity grew its clientele across all these products by more than 100% over the last year and tripled its revenues within the same time frame.
The Series B cash infusion means there’s more work to be done by Smile Identity — but for its smaller competitors (Youverify and YC-backed Identitypass and Dojah), they have their work cut out to challenge the Costanoa-backed upstart as a market leader. While Smile Identity has an advantage as a sort of first-mover with deep relationships and expertise on the ground, having launched years before other startups, Straub says the firm — now present in over 10 countries after recently opening offices in London and Cape Town — is a market leader because of “an incredibly diverse team and best-in-class technology.”
“We bring those two things together and focus on delivering the best outcomes for our clients,” he added. “The outcomes are measured by coverage of all the different types of identities and countries, pass rates, user journey optimization, appropriate compliance,” he added. “Many African countries are now passing their data protection regulations. It’s challenging to keep up with all that if you’re operating in five or six markets, especially if you’re running digital financial products. We try to simplify all that, put it into software, and make it available for your developers so that you can integrate our software and start onboarding customers while protecting yourself against fraud and staying compliant from day one.”
Costanoa Ventures and Norrsken22 back Smile Identity in $20M Series B round by Tage Kene-Okafor originally published on TechCrunch
