Identity Verification Market Trends

Growth Drivers

• Government digitalization and secure public service delivery:  Governments worldwide are driving the demand by digitizing citizen services requiring robust remote identity proofing. The report from the GSA August 2023 indicates that the Login.gov platform has over 70 million users and is accessing federal services, mandating secure identity verification. The technology modernization fund, which funds federal IT upgrades, has allocated hundreds of millions to project modernization, citizen-facing digital services, and cybersecurity, where identity assurance is foundational. This public sector investment creates a blueprint and demand for similar B2B solutions in adjacent sectors like finance and healthcare, which must interact with government-verified identities. The shift establishes a digital identity not as a feature but as the vital public infrastructure.
• Modernization of government IT and legacy system upgrades: Direct government spending on the IT modernization is a tangible, high-value demand driver in the identity verification market. The federal initiatives, such as the Cybersecurity and Infrastructure Security Agency’s Secure Cloud Business Applications project, provide funding and frameworks for agencies to migrate to a secure cloud environment with identity and access management as a core component. The spending data reflects this. An analysis of USA Spending shows a obligations for IT software and professional IT services related to identity management saw consistent YoY growth as agencies executed the modernization plans. This public investment reduces risks and validates the technologies for private sector adoption.
• Rising government spending on fraud prevention and digital trust: Public sector budgets are directly expanding the demand for identity verification via fraud prevention programs. The data from the Committee for a Responsible Federal Budget in September 2024 has indicated that the improper payments spiked at USD 281 billion in 2021, pushing agencies to invest in identity controls across benefits, healthcare, and procurement. The programs tied to unemployment insurance, Medicare, and disaster relief have mandated stronger identity checks. Similar spending patterns are visible in Europe via national digital identity and anti-fraud initiatives aligned with public finance accountability. Further, the vendors serving the B2B clients increasingly align their offerings to government assurance requirements, enabling the downstream enterprise adoption via a regulated supply chain contractor ecosystem.

Total Reported Improper Payments Estimates

Source: CRFB September 2024

Challenges

• Stringent and evolving global regulation:  New participants must traverse the complicated web of laws, such as GDPR, eIDAS, and sector-specific KYC/AML norms. Compliance is costly and non-negotiable. Top players in the market, such as GBG, invest heavily in global compliance teams. For example, the eIDAS regulation in the EU creates a standardized framework, but building solutions that comply requires a significant legal overhead, a major barrier for startups without dedicated resources.
• Significant R&D & initial capital investment: Developing a competitive, accurate core engine demands a massive upfront investment in AI training, data security certifications, and global testing. Thales, a leader in biometrics, invests billions in R&D annually. Companies estimate that the spending on AI-powered fraud detection and identity verification will exceed a billion globally, highlighting the capital-intensive nature of simply keeping pace with innovation.