Mobile penetration in Africa is growing impressively at around 46% as more people come online for the very first time. This, in turn, has increased the market opportunities for startups, especially fintechs and e-commerce, who are trying to provide different solutions to meet the financial needs of the population.
But in order to do that, these companies must perform certain identity verifications and KYC to combat fraud, among other things. Many platforms drive these KYC processes, and one of them, Identitypass, today announces that it has raised $2.8 million in seed funding months after graduating from Y Combinator. The round also comes a few months after the startup raised $360,000 in pre-seed investment last November, bringing total funding to $3.1 million.
According to reports, African companies lose $4 billion annually to cybercrime. The global figure for this event stands at $1 trillion. So the need for fintechs and digital companies in Africa to implement strict KYC and verification checks on their customers.
However, for the folks at Lagos-based Identitypass, it wasn’t the love of reducing the high fraud rates that led them to start the business. According to co-founder and CEO Lanre Ogungbe, the team was initially building a platform that would require consumers to use biometrics (face, fingerprints or voice) and cards to make payments. But during the development of the platform, they encountered difficulties in performing authentication checks. Hence the decision to run.
“As we build it [the payments solution], there was no one on the market that had the kind of infrastructure we wanted to use. We wanted to build an alternative to authentication. That was it,” the CEO told MovieUpdates in an interview.
The team reached out to fintechs to find out how they are solving fraud and identity issues, given the growing demand from that segment. The overarching feedback, Ogungbe said, was a set-up that involved an internal compliance team and establishing thresholds for transactions. Clients would have to pass further examination checks to transact above the threshold for the latter.
Meanwhile, some of these fintechs didn’t exactly have excellent KYC processes, as customers only had to fill in very few data points during their onboarding stages. “We knew it would never work for us,” says Ogungbe, who co-founded the company last year with Niyi Adegboye and Ebuka Obi. “Today we have basic authentication with OTPs or a four-pin password, but by launching Identitypass, we wanted to bring more authentication options to the market.”
Identitypass then approached several agencies and authorities across the country to obtain licenses and certifications necessary to authorize audits on a full spectrum of verifiers. It was launched with one data point in January 2020. But now 200 active companies in fintech, e-commerce, education and mobility connect to 18 data points to verify the identity of their customers on the platform. These companies are located in Nigeria, UK, Kenya, US and India.
“At the heart of our business is enabling digital businesses in Africa to easily verify and validate that their customers are who they say they are,” said the CEO.
“Before we hit the market, someone could pick someone else’s BVN and use that to rate a loan facility,” explains the founder, why Identitypass monitors many data points. “But with technologies like ours, we can do this kind of verification to see if the person submitting the BVN, phone number, or banking information doesn’t own it.”
Identitypass has processed more than 1 million unique verifications since its launch. These endpoints are government-approved IDs, such as national IDs, driver’s licenses, international passports, bank verification numbers (BVN), phone numbers, vehicle registration plates, debit cards, security checklists, and tax history. Depending on how many endpoints a company connects to, tThe identity and verification platform charges between 10 and 20 cents on each verification it performs.
Recently, the two-year-old company launched a SaaS platform in addition to its APIs. Ogungbe said this new offering — software rather than a plug-and-play solution — gives Identitypass an advantage over identical players in the market, such as fellow YC batchmate Dojah and the older startup Smile Identity.
“That sets us apart from anyone else in the market because today we are the only providers of both an API and a SaaS-based authentication solution. Plus, we have more data points than most providers in the region. And just like we use data and biometrics for verification, no other player in the market uses it that way.”
This confidence to be a “market leader” propels the company into new territory: selling to international customers. During the call, the CEO cited an event that happened last month when US-based Mercury restricted the accounts of a few African startups due to compliance issues. He said Identitypass could prevent such events in the future if it embarks companies of Mercury’s caliber to conduct checks on individuals and companies from Africa.
“We won’t just stop there,” Ogungbe said. “We would also work with many regulatory bodies to develop a world-class framework for data security across Africa. Finally, we will work with multiple alliances and form more formidable and strategic partnerships in different countries in Africa.
Powered by this seed funding led by MaC Venture Capital, Identitypass plans to expand its existing infrastructure, roll out new verticals around compliance, security and data collection, penetrate new African countries and recruit new employees for its 14 – stubborn team. Y Combinator, Soma Capital, True Capital Fund and Sherwani Capital are among the other investors.