Redefining Account Verification for Secure Digital Transactions

Vatsal Jhawar
Vatsal Jhawar
Senior Associate
Marc Chongkavinit
Cameron D'Ambrosi
Cameron D'Ambrosi
Senior Principal
Stacy Schulman
Stacy Schulman
Chief Marketing Officer
Jennie Berry
Jennie Berry
Account Verification KYC KYB Opening Banking

There’s an industry-wide understanding of the need to adapt, innovate, and capitalize on evolving trends; account verification is no exception. The critical account verification process is the digital identity guardian of integrity and security in financial transactions. The orchestration of various identity checks, such as KYC or KYB, powered by cutting-edge APIs, validates user bank account details and ownership – a fundamental pillar that spans multiple solution segments in the digital identity landscape

The account verification process is transforming, propelled by the emergence of novel applications and the momentum behind open banking initiatives. This compels solution providers to recalibrate their approaches strategically. With an anticipated Total Addressable Market (TAM) of $6.0 billion in 2023, projected to surge at a Compound Annual Growth Rate (CAGR) of 16.7% through 2027, the identity verification solution segment presents impressive growth opportunities. Here, we offer insights from our recent Outside-In Report, delving into the dynamics of account verification and the promising growth opportunities.

Key Insights include: 

  • Account verification is a fundamental pillar bringing together various identity checks, such as KYB and KYC, plus other data sources and signals, for an accurate decision.
  • Rising demand for digital payments and escalating fraud costs drive solution providers to enhance their offerings to include diverse data and signals strategically.
  • The market for account verification solutions is projected to reach a TAM of $6.0 billion by 2023, with a CAGR of 16.7% through 2027, signifying impressive growth opportunities.
  • As the account verification scope expands, challenges include safeguarding data privacy, preventing data commoditization, and navigating cross-border verification complexities. 

The Driving Forces and Strategic Ingenuity

Amidst the escalating demand for digital payments and the growing costs associated with fraud, banking APIs have been thrust into a pivotal role. Driven by the need for more efficient financial transactions, open banking initiatives have catalyzed demand for banking APIs to facilitate seamless financial data sharing. Account verification solution providers find themselves at the forefront of this transformation. In response, account verification solution providers are strategically enhancing their offerings. They are pioneering a new era defined by comprehensive user profiles meticulously built from a mosaic of diverse data sources and inferential fraud signals. This strategic pivot extends to reinforcing critical aspects of fraud detection, identity verification, and credit decisioning data, underlining their commitment to delivering exceptional value within the financial services sector. 

At the core of account verification lies seamless API interconnectivity, empowering institutions to validate essential account details like balances and ownership. This role, once held by data aggregators, has transformed due to emerging technologies and open banking frameworks, revolutionizing operational dynamics. APIs enhance operational efficiency by streamlining verification, yielding faster, accurate, and error-reduced results. This boosts customer experience, lowers costs, and improves risk management. APIs facilitate smoother information flow, enabling confident, swift financial decisions and transactions.

Navigating the expanding account verification scope brings forth challenges. A spectrum of stakeholders – emerging solution providers, established credit bureaus, and financial institution consortia – shapes the competitive landscape. Amidst this diversity, a few critical considerations remain in common: safeguarding data privacy, averting potential data commoditization, and tackling the intricacies of cross-border verification. These challenges require meticulous strategic navigation for sustained success.

3 Critical Considerations:

  1. Data privacy – Balancing the need for robust verification while safeguarding user privacy demands a meticulous approach.
  2. Data commoditization – Preserving the value of data is essential to differentiating one’s services in an environment where the sheer volume of data can lead to it’s devaluation.
  3. Cross-border verification – Adapting verification processes to diverse legal and cultural contexts requires a deep understanding of varying regulations, data localization requirements, and cultural nuances.

Account verification solution providers are actively establishing their presence in multiple areas across the consumer lifecycle at each digital interaction, each with its unique focus, such as credit decisioning, direct deposits, funds transfer, insurance payout fraud prevention, and peer-to-peer payments. To distinguish themselves in this competitive environment, these vendors enhance their offerings by adding layers of advanced analytics and deep contextual understanding. The result is a range of improved capabilities, including fraud detection, identity verification, and credit decisioning data, which collectively create a unique advantage within a market characterized by innovation.

Anticipating Dynamics and Forging New Growth Avenues

In a digital ecosystem defined by constant evolution, the possibility of market consolidation is on the horizon. Some industry players gravitate towards mergers, pooling strengths to create comprehensive solutions, like what we saw with Plaid acquiring Cognito in January 2022 and more recently, announcing its plans to expand into Europe to access open banking payments. At the same time, a diversification strategy into unexplored segments gains prominence to cater to a broader spectrum of use cases. 

In our digitized world, account verification is the cornerstone of secure, frictionless financial transactions. Evolving technology and regulations position this sector as a fertile ground for ongoing growth and innovation. In this dynamic landscape, account verification continually evolves, embodying security and trust in the digital era. The heightened demand for account data and robust identity verification drives the imperative for advanced platform capabilities. Data aggregators respond by enhancing their tools to remain competitive in this evolving landscape. Looking ahead, the trajectory of account verification indicates an era of market consolidation and expansion, showcasing the industry’s agility in navigating tech-driven shifts and evolving consumer demands.

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