Jumio s credential scanning and authentication technology reduces ID fraud and mobile payment friction

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1 September 2014 J U M I O Jumio s credential scanning and authentication technology reduces ID fraud and mobile payment friction Jumio, the four-year-old Palo Alto-based venture capital start-up, is breaking new ground in ID verification and ID authentication while enabling faster and easier mobile payments. A valued partner and vendor to e- commerce and financial service companies, Jumio is laser focused on its near-term growth plans and has long-term plans centered on digital wallet credentialing. by Ronald G. Mazursky, Director, Debit Advisory Service Distributed by Arrangement with Mercator Advisory Group 1

2 Jumio: History and Overview Jumio was founded in 2010 by Daniel Mattes, now the company s CEO. After founding and selling several successful telecom start-ups in Europe, Mr. Mattes identified a business he believed to be on par with his former Voice over Internet Protocol (VoIP) business. He believed that just knowing a consumer s IP address on the Internet is not sufficient to sell the person a product. A means to identify the customer and authenticate the identity is what all Internet merchants need in order to avoid fraudulent transactions. So Mattes founded Jumio as a company whose core technology is optical scanning, or Computer Vision Technology as he called it, that would enable consumers to use a mobile phone or a desktop computer camera to scan their personal credentials in order to verify their identity to support transactions. Once the credentials are determined to be bona fide, the scanned information could be input into the transaction record. The initial products were introduced to the market in 2012, selling mostly to companies in the United States and Europe. Jumio operates in multiple countries, with 300+ employees in the Palo Alto, California headquarters, the Linz/Vienna European office, a London sales office, and a technology and support back office located in India. Jumio has been funded by Andreessen Horowitz, Citi Ventures, Eduardo Saverin (cofounder of Facebook), and a handful of other early-stage investors. The company received $60 million in venture funds in the last round of funding about one year ago and doesn t expect to seek another round of funding until Jumio s core products serve two goals: identity (ID) fraud prevention aimed at the financial services industry and e- commerce/mobile payments fraud prevention and payment facilitation. The mobile phone app enables the phone s camera to scan identification and payment documents and digitizes the photo scan to fill in pertinent fields for payment and shipping of a product to the consumer. The other functionality enables ID verification of the individual, filling in the application with the pertinent information, and finally matching the individual s picture to the person s photo on a driver s license or other official personal identification card. Consumer research conducted by Harris Interactive in 2013 appears to support Jumio s contentions. Two-thirds of smartphone and tablet owners polled have attempted to make a purchase on their device, and 66% of them abandoned their transactions due to difficulties consummating the transaction. i Of those reporting problems completing a transaction on their smartphone or tablet, 41% said the checkout was too difficult and 23% said the transaction would not go through. Of those that failed to complete a smartphone or tablet transaction, the majority (51%) said they felt uncomfortable entering their credit card information because of concerns about online security. 2

3 Solution Overview Jumio offers three main solutions, which function as follows: Netverify uses a customer s smartphone or computer to scan the customer s credentials (such as a payment card, driver s license, or passport) and to capture and verify information from the government ID or other credentials to meet Know Your Customer (KYC) requirements and reduce fraud. Jumio supports real-time ID verification in over 100 countries to help clients meet KYC requirements. The ID verification process takes about 60 seconds. Netswipe enables a mobile app or website with credit card scanning and ID validation by use of a smartphone or computer camera. Netswipe reduces customer payment friction and facilitates the customer purchase process by turning the customer s phone or computer into a real-time, secure credit/debit card reader. Fastfill, a solution based on photo scanning of credentials, improves new account sign-up and shopping cart completion with immediate autofill of a customer s personal data (see Figure 1). Figure 1: How Fastfill Works Source: Jumio 3

4 Company s Positioning in the Payments Industry Jumio s goal is to provide its clients with a frictionless consumer experience to expedite e-commerce transactions for new customers and to enable compliance checking to ensure that customers are who they say they are in other words to prevent fraudulent transactions. Competitors in Fraud Prevention/ID Verification Space Jumio has competitors that offer different types of solutions in the two market categories it serves. Among the competitors in fraud prevention/id verification market space are: Knowledge-based Authentication (KBA) providers such as Experian, LexisNexis, IDology, and many others Direct pure-play competitors such as IDchecker (2004, The Netherlands) and CSSN (1999, Card Scanning Solutions Inc.) ID verification vendors such as IDology and Equifax, which are both competitors and partners Emerging competitors in the optical character recognition (OCR) scanning space, such as Mitek Competitors in the E-Commerce Space In the e-commerce space, leading competitors on the credit card fraud prevention side are: Card.io (purchased by PayPal in March 2012) and Apple, with a new capability in the upcoming 2014 ios 8 release, where Apple is edging into Jumio s competitive space on the mobile Web. The new Apple ios 8 will be able to capture card-based information (16-digit PAN) and autofill it in a retail application for the mobile Web and not in native apps. Amazon is the third competitor in the e-commerce space by providing an autofill functionality. Business Model: Revenues and Expenses Jumio s revenue and business model is software as a service (SaaS). The company charges clients a fixed monthly rate within predefined transaction-volume ranges and allows for unlimited transactions. Clients pay from $1,000 per month to as high as $50,000 per month. They sign one-year agreements, although occasional longer agreements of two to three years are signed. There are no setup fees, and application programming interfaces (APIs) or Web calls are already built. For now, there is no licensing of the company s SaaS technology, but the likelihood is strong that the firm will eventually license its technology to certain clients. From the perspective of business expenses, employees are the highest expense category for Jumio, followed by research and development. Sales and marketing represent the third highest expense. There are no large capital expenditures at this time, and all large data storage is done at cloud servers, where Jumio pays only for what is needed. 4

5 Partners Jumio has developed a number of partnerships with companies that are in varying stages of integrating the startup s ID scanning technology into their own product offerings. Partnering is a distinct portion of Jumio s sales engine in addition to its direct client sales. IDology, an example of one type of partnership, maintains a basic reseller agreement with Jumio. IDology provides the Jumio ID scanning functionality to selected clients as an enhancement to its core ID verification capability where its existing tools could not meet client needs for real-time fraud management in account opening or other functionality. Equifax is integrating Jumio s technology into its mobile platform and leveraging its data to enable frictionless and secure mobile commerce for the consumer, reducing fraud, and providing value to merchants by driving store card originations and its marketing and analytic services. Equifax has developed this partnership using mobile technology (although the technology is available for desktop computers as well). Major initial clients are merchants, financial institutions, technology providers, and mobile carriers. According to Anand Krishnaswamy, VP of Mobile Commerce at Equifax, mobile-commerce (m-commerce) cart abandonment due to consumers difficulty in entering personal information and card data on a mobile device is running about 47% and any mechanism that can reduce cart abandonment will raise merchants bottom-line profitability substantially. To that end, Equifax and Jumio have partnered (as announced in April 2014) to reduce fraud and increase purchases for their clients while improving the mobile customer experience. They will accomplish these objectives by combining the Equifax InstaTouch Service with Jumio s Netverify and Netswipe technology to confirm the identity of new customers of Equifax clients and be able to autofill personally identifiable information on a mobile device. In assessing Jumio as a partner, Mr. Krishnaswamy described Jumio as having a combination of three unique capabilities not found by others in the current market. These are functions that Jumio brings to the Equifax mobile platform namely, ID authentication, addition of a new credit or debit card to the mobile wallet via credential scanning, and autofill for in-store private label application and approval. He pointed to synergies that support Equifax s choice of Jumio as a partner: ease of interface into any mobile or desktop application, agnostic to the type of mobile application, and integration with other forms of identification, such as biometric. He pointed to another benefit of the partnering: Jumio s traction with major merchants, which provides Equifax with growth and cross-selling opportunities. This partnership is currently in a pilot stage, with market rollout expected in the next two to three months. Krishnaswamy portrays Jumio as an excellent partner and indicates that Equifax is seeking other ways for the two companies to work together. 5

6 Clients To date, Jumio has half of the top 10 consumer Internet companies as clients as well as hundreds of other retailers, financial institutions, marketplaces, and gaming companies throughout the world using its products. The firm has identified five industry sectors for its initial sales focus and development of clients, which are described below. Airlines. Jumio is in discussions with a number of U.S. airlines and a few carriers outside the U.S. to use its technology as a tool for travelers to expedite identification including for access to airline clubs, airline seating, and gate or security-controlled areas. On August 7, 2014, United Airlines announced that it will be the first U.S. airline allowing travelers to check in for international flights using just their mobile phones. This requires the traveler to take a photo of his or her U.S. passport credentials (name, address, birthdate, photo) using the mobile phone scanning technology embedded in an app on the mobile phone and transmit it to the airline 24 hours before departure to obtain a boarding pass. Once the image is scanned and entered, it is in the airline s system. Etailers/Online E-commerce Companies. Jumio currently works with five of the top 10 consumer e-commerce companies. For example, Groupon is using Netswipe for credit card use and Netverify for account lock-out (by seeking to verify the customer s identity). Airbnb is using Jumio to deliver customer identification functionality. FOAP, a marketplace for photos, uses Jumio technology to establish accounts for e-commerce and uses Netverify to prevent money laundering by identifying the seller of the photos. Figure 2 illustrates how an etailer might use Jumio to facilitate a payment transaction on a mobile device. Figure 2: Example of How an Etailer Might Use Jumio Source: Jumio 6

7 Online Gaming Companies. Jumio now provides ID authentication and validation services for 40% of the major online gaming companies. Most of its clients in this category are based in Europe. Clients include: Yobetit, Youwin, bets4all, betfair, and Rank Group. Financial Institutions. Jumio works with financial service clients that provide various services. These include Western Union, to facilitate money transfer; Higher One, to enable online student lending applications; Wallaby Financial, a cloud-based smart wallet; Gyft, a digital card platform that enables consumers to manage gift cards; online lenders and payment networks; and core retail banking online applications and credit card activation (using Netswipe to validate credit cards). Alternative financial service companies (e.g., Safello and Kraken) are working with Jumio to enable these Bitcoin exchanges to better cater to customers buying and selling bitcoins. Even Bitcoin exchanges are concerned about the identity of online Bitcoin buyers and sellers and want some ability to identify these traders. Travel Companies. Several online travel companies are clients of Jumio, including such companies as Priceline and Travelocity (a division of Sabre Holdings). Jumio s clients are positive about the company. When interviewed by Mercator Advisory Group, one such client, Ben Kim, Lead Project Manager, Mobile Team, Groupon, portrayed Jumio as very responsive, providing a quick resolution to any issues that arose. Jumio provides a form-fill solution to Groupon whereby the front of the credit card is scanned to enter the debit or credit card number, expiration date, and name. This relationship began at the end of 2012, and the service was integrated into Groupon in early Groupon considered at least one other vendor for this service but chose Jumio. Kim described Jumio s Fastfill solution as fast, easy, and highly accurate. When asked if he thought of obtaining elsewhere the services Jumio provides, he expressed no such interest. Mr. Kim sees little weakness with Jumio. He says that under certain (fairly rare) conditions, such as low light or a shaky camera, the scanning technology is not 100% accurate, but he still sees the firm as superior to its competition. He also expressed a desire for address capture, which he says is missing from the current product and which he eventually would like to see. In answer to Mercator Advisory Group s question about client interest in a product that combines address capture and ID verification/authentication, Jumio Chief Marketing Officer Marc Barach stated that a rollout of such a capability is planned for October 2014 that will be an enhancement for mobile shopping carts. A single scan button will guide the customer through two successive scans of one second each to form-fill the shopping cart form. The first scan captures debit or credit card information, the second captures the customer s address from the back of a U.S. driver s license. The customer then enters his CVV to complete the purchase. This is expected to reduce the average time to complete a typical purchase on a mobile device by an estimated two minutes, which should positively impact transaction completion rates. This new product also provides retailers with a new fraud control measure by comparing the customer name on the payment card to the name on the driver s license. The retailer is informed of any differences between the two as additional input for transaction authorization. 7

8 SWOT Analysis Mercator Advisory Group has analyzed Jumio s strengths, weaknesses, opportunities, and threats. Understanding that Jumio is early in its growth trajectory as a company, Mercator views the company as a technology innovator on a controlled burn. STRENGTHS Ahead of the competition. Jumio has a narrow focus on what it does which it does well, making it harder for competitors to match, let alone beat the company s service offerings The company s investment in its core, optical scanning technology has enabled the technology to work well in both desktop and mobile environments, with different types of cameras, and in different lighting situations. The firm has invested heavily to enhance its technology for credential scanning and facial recognition. Unique intellectual property. Jumio s database and processes enable the company to validate individual identification and compare images to confirm identity. This sets the company apart from others that have developed optical character recognition technology to convert images to text. Ease of integration. Partners and clients find it relatively easy to integrate Jumio s technology into their own websites or mobile applications through Web links or APIs. Performance improvement. Clients find performance is improved using the technology. Jumio provided Mercator Advisory Group anecdotal metrics of the impact of its technology on client performance, describing scenarios where Fastfill has improved conversion by as much as 20 30%. Reduction of friction in purchase process. The company has sought to reduce friction for the customer in the buying process by means of trials, testing, and learning from the user base in a variety of situations. Adequate funding. The company claims to have sufficient funding into 2015 and a phased growth plan. WEAKNESSES Resource constraints. Clients are continually requesting more features and enhancements to the current product offerings, and not all these requests can be fulfilled on demand. There is a risk that clients and prospects will test other providers if Jumio cannot fulfill their needs. To prevent competitors from encroaching on the firm s client base, the company will have to carefully weight each request and determine its market potential. New entrant in the ID verification and e-commerce market space. Jumio is competing against older, established companies, but without their technology. The good news is the company s offering has a unique technology angle that makes it harder to compete against. The firm is also partnering with some of its competitors, making alliances that can help to protect it in the long run. The bad news is that lack of experience on the competitive front may not have equipped Jumio with street sense for dealing with competitors actions. 8

9 Questions about staying power. Jumio, like any start-up company, is likely to have its staying power questioned, especially by the banking industry, since start-ups lack a track record of surviving during down cycles in business and the economy in general. Smaller, but growing competitors in the United States and abroad. Jumio is keeping tabs on these competitors, which could, with the right funding and partnerships, potentially replace Jumio s services. OPPORTUNITIES Digital ID. The market s need for a digital ID is large, and Jumio seems on the verge of fulfilling that need. The digital ID would ideally be embedded in each digital wallet providing ID authentication at the outset of any online/mobile new relationship or transaction. This would put the firm in the unusual and enviable strategic role of operating not only in financial transactions within mobile apps or on the Internet but potentially at the leading edge of each new business relationship and providing confirmation as to the identity of each individual. M-commerce and other mobile expansion. Market expansion in the mobile world will be an opportunity for Jumio, which has focused on the mobile world but still operates in the desktop space as well. M-commerce is just beginning to explode with opportunities, and Jumio aims to provide services in this space. Regulatory compliance opportunities on the horizon. The growth of e-commerce and m-commerce almost begs for the introduction of increased government regulation, which will lead to new roles for Jumio to fill in ID verification, ID authentication, compliance, or other areas not yet considered. Official and private access. Other business opportunities for Jumio to explore (if it hasn t already) would include use by government authorities, where authentication of the individual is required for tax purposes or other official access; private clubs and organizations where access is restricted; sensitive materials where access is limited to certain individuals, such as healthcare information. THREATS Executional risk. Like all companies, Jumio faces executional risk from overextension of its resources or potential failures in delivery of services to partners or clients. (The firm has stated its intention to mitigate executional risk through controlled growth and spending, market testing of each new service prior to rollout, and not accepting every new challenge.) Disruptive innovation. The innovator s dilemma of not knowing what s around the corner is another threat. Although Jumio knows who its competitors are today, it doesn t know where the next innovation will come from and whether it will knock the company out of its current sales trajectory. Sales delays with the banking industry. As always for financial institutions, appropriate due diligence is critical when assessing vendors. While Jumio s technology is compelling, each financial institution must go through its own review to obtain comfort with the technology and ID authentication capability. 9

10 Strategic Implications and Market Potential Jumio provides a new mechanism to aid both ID verification and e-commerce. Its scanning technology facilitates the customer experience and helps companies expedite transactions (Figure 3). Besides the five initial industry sectors, the company will eventually serve other sectors where customer identification is crucial or customer information can be scanned and autofilled in applications. Figure 3: Jumio ID Scanning in Action on the Go, for Mobile at the Point of Sale, and on the Desktop Source: Jumio Jumio s ultimate objective is to become the digital credential for the consumer on the Internet and in mobile applications, a key identifier in the evolving digital or mobile wallet space. As the company s CMO says: There is a huge opportunity for us [Jumio] to be the digital credentials company; for us to store and access credentials, and re-use those credentials in other applications and clients Further, no one is prospecting in this space in any specific way and frankly this is who we are. Marc Barach, CMO, Jumio Others may also be prospecting in this space, but competition will likely come from firms outside the U.S. Jumio s longer-term vision was explained to Mercator as follows: We see ourselves as the centralized repository of credentials enabling any online wallet with payment and government IDs that will enable transactions to occur....imagine putting a wristband on your wrist and not having to pull out your wallet for the next 7 days you are on vacation using it everywhere on the resort to interact... with the band [in this analogy, Jumio] enabling the consumer/merchant interaction in a safe, dependable and effortless way. Marc Barach Jumio apps are like the ID wristband, providing the authentication and verification function that will be in all digital wallets, facilitating the consumer payment (and other) experiences. Jumio is in the early days of establishing its place in the developing ecosystem, allowing a plug-and-play ID verification and authentication functionality to other companies mobile and online wallets. Endnote i i Harris Interactive 2013 Mobile Consumer Insights Study for Jumio, based on a research sample of 2,150 U.S. online adults ages

11 Copyright Notice External publication terms for Mercator Advisory Group information and data: Any Mercator Advisory Group information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate Mercator Advisory Group research director. A draft of the proposed document should accompany any such request. Mercator Advisory Group reserves the right to deny approval of external usage for any reason. Copyright 2014, Mercator Advisory Group, Inc. Reproduction without written permission is completely forbidden. About Mercator Advisory Group s Company Snapshot Series This Company Snapshot is one in an ongoing series of research documents designed to highlight payments and banking technology companies of interest to Mercator Advisory Group clients because of their high growth potential. Companies are selected for review based on their relevance to Mercator s members in terms of innovation, opportunity, or potential market offerings or disruptive technology. In general, companies selected for review already have products or solutions in production that have attained meaningful traction in the marketplace. For more information about this report, please contact: Ronald G. Mazursky, Director, Debit Advisory Service rmazursky@mercatoradvisorygroup.com About Mercator Advisory Group Mercator Advisory Group is the leading independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver a unique blend of services designed to help clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Advisory Services. Unparalleled independent and objective analysis in research documents and advice provided by our Banking Channels, Credit, Commercial and Enterprise Payments, Debit, Emerging Technologies, International, and Prepaid practices. CustomerMonitor Survey Series. Eight annual Insight reports based on primary data from Mercator Advisory Group s bi-annual surveys of 3,000 U.S. adult consumers to determine their behavior, use, preferences, and adoption of current and emerging payment methods and banking channels to help our clients identify and evaluate business opportunities and make critical business decisions. Consulting Services. Services enabling clients to gain actionable insights, implement more effective strategies, and accelerate go-to-market plans. Offerings include tailored project-based expertise, customized primary research, goto-market collateral, market sizing, competitive intelligence, and payments industry training. PaymentsJournal.com. The industry s only free online payments and banking news information portal delivering focused content, expert insights, and timely news. For additional copies of this report or any questions, contact Mercator Advisory Group at