It wasn’t that long ago the idea of high value transactions happening online seemed implausible. Applications for a bank account or a loan required a visit to the bank. Getting health insurance meant a visit to your local broker. Selling a house, applying for a job, getting a cell phone – all of these activities remained mostly or entirely offline, requiring an in-person transaction to prove one’s identity and form the trust necessary to transact.
The speed at which these transactions have moved entirely online in many regions across the globe is, frankly, remarkable. What changed? Startups, governments, and financial institutions developed tools and technology that helped people prove their digital identity and build trust in a new way of doing things.
The solutions weren’t globally uniform. In the US and much of Europe, companies relied on robust ID card forensics and background check API’s from credit bureaus, which were critical enablers to the growth of deca-unicorns like Uber. In India, the government established a national digital ID program, which directly enabled Jio to become the fastest growing telco in the world. A pattern emerged: once digital trust is established, Internet economies thrive.
It is with this thesis that I’m excited to announce Costanoa’s Series A investment in Smile Identity, the leading provider of digital identity verification in Africa.
We have been watching Africa with excitement for over three years at Costanoa. A continent with over 1.3B people and a median age just under 20 years old is coming online as a mobile-first economy. Entrepreneurs are building game-changing companies like Flutterwave, Paystack, and Chipper Cash. Smartphone penetration and mobile data plans are exploding and growing at 25%+ annual growth rates. Critical sectors of the economy – financial services, energy, education and healthcare – are being expanded by new technology-driven firms that extend access to more people. Other VC’s are taking notice too – funding into the continent has more than quadrupled in the last five years.
But despite all of these promising trends, the African digital economy has historically been held back by manual Know Your Customer (KYC) offerings and high fraud rates. Solutions to the problem of digital trust that have been developed in other countries often don’t work well in Africa, where the penetration of government-issued physical identity documents with forensics that can pass a KYC check remains low. Many critical high value transactions like opening a bank account, buying a SIM card, or signing up for social services still remain offline. Africans spend an inordinate amount of time trying to prove their identity just to gain access to these critical services.
Enter Smile Identity: the leading identity verification and KYC platform purpose-built for Africa. With Smile, companies can verify their customer’s identities in seconds by requesting basic info such as an ID number and a selfie. Smile Identity can verify this information against local databases and identity authorities with textual and biometric checks and delete the data once the identity has been verified. The whole process usually takes under 30 seconds.
For Smile Identity’s clients, the ability to scale is profound. Smile has cut fraud rates by 80% while eliminating the need for in-house teams to do manual reviews and shortening the user onboarding experience from days to minutes.
Smile is already enabling the expansion of some of the fastest-growing startups in Africa, including Chipper Cash, Paystack, Fairmoney, Luno, Umba and Kuda Bank. Smile had a remarkable 2020, growing more than 10x while expanding country coverage rapidly to 5 of the largest markets in sub-Saharan Africa. Smile is continuing its growth trajectory in 2021, with a goal of expanding coverage to 10 markets by end of year and enhancing its biometric screening to include checking for known fraudsters and duplicate accounts in real time. They’ve built integrations with some of the most important identity authorities in Africa and are increasingly partnering directly with these authorities to stop identity fraud using technology.
Smile’s diverse team of 40 comes from 12 countries, including 8 African nations. They’ve hired from the best of both African and western tech firms, including alumni of Flutterwave, Facebook and Andela. Smile Identity’s CEO Mark Straub has been working and investing in Africa for over a decade, and his passion to enable other entrepreneurs and the African digital economy shone through in all our discussions.
We believe digital identity will be essential to fully unlocking the promise of Africa’s digital economy. Smile Identity is rapidly establishing itself as the leading pan-African provider of digital identity verification, building the trust that enables the next generation of African startup unicorns to prosper. If this mission excites you, the company is hiring!
We couldn’t be more excited to partner with a great team on a world-changing mission.