Five Potential Business Models of Reusable Identity
While many top identity companies are pursuing reusable ID, no one is sure how it will play out from a business model perspective. In fact, uncertainty around business models is one of the top concerns we’ve heard in over 100+ conversations with identity verification companies, relying parties and investors in the past year. We see five ways to monetize reusable ID currently live in the market. This post will address each of them, including some discussion of the benefits and drawbacks of each.
The current identity verification business model
Generally, identity verification companies charge on a per-transaction basis. Businesses who need to verify users (which are sometimes called “relying parties”) will buy a block of credits based on their projected volume for a given period of time. For example, if you were launching a new fintech application, you might anticipate onboarding 1,000 new users per month for the first year. For the sake of simple math, let’s say that your fintech application has found an identity verification provider who is willing to do 12,000 verifications for $1 each. You might pre-commit to those numbers, and get a monthly invoice for $1,000 and in return get credits to complete the verifications.
Pricing nuance and levers
While simple in theory, there are many ways you could adjust the transaction-based pricing. For example, the unit price of each check will decrease as the volume of checks increase. So if you commit to verifying 24,000 users per year, the cost of each verification might go down to $0.90. There may be additional list checks that are an upsell, or if you lock into a longer term contract, you may get more advantageous pricing. Some companies will also charge a set up fee to start verifying users.
Overall, the pricing, and product offerings in this space are quite complex, and tailored to specific use cases. From an outside perspective, something like a “know your customer (KYC) check” looks like a binary—either a user passes or not. But for companies that specialize in identity verification, there are countless different dimensions on which users are evaluated.
What do we mean by reusable identity?
As mentioned in our recap post from Money 20/20 USA where reusable identity was a hot topic, “when we talk about reusable identity, it really means packaging up an identity verification that can be used again without having to reverify someone using a new government ID scan.” Other companies may call this a “one-click verification, one-click KYC, reusable KYC” which are all approximations of this same concept. For a deeper dive into reusable identity, you can download our ebook for free.
The potential for business model disruption
Reusable identity is potentially disruptive to a transaction-based business model. After all, if a user could get verified once (where an identity company is paid) and subsequently share their verified ID ten times (where the company doesn’t see revenue) then it’s easy to see how cannibalization can occur. While this risk exists, we’ve seen new business models enabled by reusable ID that are not only better for the relying parties who are their customers (due to lower friction, better conversion, etc.) but that result in more revenue for the identity verification companies as well.
Leading industry analysts at Liminal estimate the market for reusable identity to be $267B by 2027 and below we’ll examine five potential business models that allow identity verification companies to thrive in the future.
Five potential business models for reusable ID
1. Pay the same up front, less for re-use to increase volume
It makes intuitive sense that when a user is verified for the first time it would cost more than to re-verify them in the future. For most companies, the initial verification has a cost basis whereas the re-verification is just fetching the pre-verified data and has no cost-basis. This means that in a reusable ID flow, the initial verifications have the same margin as their typical business, but the re-verification has a higher margin. Given the lower friction to perform a verification in a reusable manner, the volume of verifications should also increase, leading to a higher margin and higher volume product.
2. Reusability as a premium product
There’s another school of thought that one-click identity verification should cost more because it’s such a seamless onboarding experience. Your fintech application may be spending $40 to acquire new customers, but you find that 25% of them abandon the onboarding flow during the identity verification step. A one-click verification could reduce your customer acquisition cost to $30, thus you’re willing to pay $2 for the one-click verification experience.
Additionally, some companies are offering reusable identity as an upsell at the platform-fee level for their product. Bundling reusable identity with slick features like passkeys, a digital wallet and a network of other verifiers could be a compelling value proposition for a relying party, allowing IDV companies to differentiate in a crowded market.
3. Pay per user subscription model
Moving away from a transaction-based business model, some companies are exploring how you could charge a recurring fee for a trusted, persistent identity that can be reused within an ecosystem. Perhaps, your fintech application pays $0.50 per user per year to ensure you have up-to-date information at all times. There’s a growing need for continuous fraud monitoring, and some IDV companies are implementing a yearly subscription cost to keep users information updated, and allow it to be reused across other providers.
4. Participate in an open network
There are many attempts to make a fully open ecosystem of verified identities. You can imagine completing an identity verification, storing the results in a user controlled wallet, and that identity being accepted anywhere as long as the relying party pays the required fee. This model could look similar to how credit cards work. Cards can be issued by thousands of different banks, and accepted by millions of potential merchants.
One of the biggest challenges with creating an open network is knowing what information should be trusted. Someone has to determine who are trustworthy issuers, and build incentives for the issuers to join the network. Similarly, you need to onboard relying parties who will trust the data and allow users to onboard. We’re back to the chicken and egg problem that has challenged so many digital ID implementations to date.
5. Direct to consumer freemium
In this model, companies perform the initial identity verification for an end-user for free, then sell additional services or benefits using their network of verified users. CLEAR, for example, sells a premium offering where users can get through airport security faster, and users pay CLEAR a subscription price for their service. This has the additional benefit of creating a trust-worthy consumer brand, and building up a network of users that make the service more desirable for future relying parties since the networks value is a function of its size.
What’s coming next in reusable identity
Market leaders have already made big strategic decisions to invest heavily in reusable identity. While it looks like a potentially disruptive innovation, participating in the development allows companies to stay on the cutting edge and take advantage of the next wave. Several identity verification companies have chosen Trinsic as their partner to help shape their reusable identity products. If you’re interested in seeing how we can work together, contact us below and we’ll be in touch soon.
