Smile Identity Raises $7M for KYC & Identity Verification in Africa

The Challenge of Identity Verification in Africa and Beyond

Globally, an estimated one billion individuals struggle with proving their identities. A World Bank Group report indicates that 81% of these individuals reside in sub-Saharan Africa and South Asia, lacking official identification documentation.

Identity Verification Difficulties for Africans

It is well-documented that Africans frequently encounter significant obstacles when attempting to verify their identities. This often hinders access to essential services like proof of address, financial accounts, loans, SIM card registration, and social programs. Reports suggest approximately 500 million Africans currently lack formal identification.

AI-Powered Solutions Emerge

While services addressing this challenge are limited, those that do exist are increasingly leveraging artificial intelligence for more reliable processes. Smile Identity is a prime example of this trend.

Smile Identity Secures $7 Million Series A Funding

Smile Identity provides ID verification and Know Your Customer (KYC) compliance solutions specifically tailored for African identities. The company recently announced the successful closure of a $7 million Series A funding round.

Investment Details

Costanoa Ventures and pan-African venture firm CRE Venture Capital co-led the investment. Additional participants included venture capital firms such as LocalGlobe, Intercept Ventures, Future Africa, and several unnamed angel investors.

Existing investors – including Khosla Impact, ValueStream Ventures, Beta Ventures, 500 Startups, and Story Ventures – also contributed to this funding round.

The Genesis of Smile Identity

Founded in 2017 by Mark Straub and William Bares, Smile Identity was born from a personal observation. Straub, as an investor, frequently traveled between Mumbai and Nairobi, spending a decade in the former.

Inspired by the India Stack

In the early 2000s, obtaining SIM cards or completing identity checks in India proved frustrating. However, this began to change in 2009 with the implementation of the India Stack. This unified software platform, accessible through APIs, streamlined identification, verification, and authentication processes across various sectors.

“The India Stack enabled individuals to easily perform tasks like KYC for digital document signing, sharing credentials, or proving educational attainment,” Straub explained to TechCrunch. “It spurred innovation, entrepreneurship, and fundamentally transformed financial and share economy services in India.”

Bridging the Gap in Africa

While India made significant progress, Africa has largely been playing catch-up. Many businesses across the continent still face considerable challenges when onboarding new customers, employees, or salespeople due to the time and resources required for manual processes and paperwork.

“Having witnessed the transformative impact of the India Stack for over a decade, I recognized the potential for a similar solution in Africa,” Straub stated.

Key Factors for an "Africa Stack"

Straub identified three crucial factors for building an “Africa Stack”: affordability, government independence, and robust technology. Simultaneously, open-source face recognition algorithms were becoming increasingly accessible and improving verification capabilities.

Developing De-Biased Facial Recognition Technology

Leveraging advancements in camera technology, Straub and his team launched Smile Identity. They developed a de-biased facial recognition system that proved more accurate for African faces than standard open-source algorithms originating from U.S. institutions.

“We combined this technology with selfie matching against identity documents or official records,” Straub explained. “The synergy of facial recognition, liveness checks, fraud prevention measures, and source verification was key.”

Current Reach and Impact

Currently, Smile Identity operates in six African markets: Nigeria, Kenya, South Africa, Ghana, Rwanda, and Uganda. The platform supports verification for over 250 million identities and processes more than one million identity checks monthly.

Wide Range of Applications

Its software is utilized in banking, fintech, ride-sharing, worker verification, social welfare programs, and telecommunications. Smile Identity serves approximately 80 customers, charging a per-query fee.

Notable clients include payments companies like Paystack, Paga, and Chipper Cash; neobanks such as Kuda and Umba; traditional banks like Stanbic IBTC; cryptocurrency exchanges like Binance, Luno, and Paxful; and supply-chain businesses like Twiga.

Navigating Product-Market Fit

Achieving product-market fit initially presented challenges for Smile Identity. The company had to develop a unique combination of features and pricing suitable for African markets, smartphones, and internet connectivity.

“We developed Software Development Kits (SDKs) and mobile wrappers compatible with Android, iOS, React Native, Flutter, and mobile web browsers,” Straub noted. “These innovations were often driven by customer friction points, particularly related to device limitations and internet connectivity.”

Future Growth and Compliance

Continuous iteration and collaboration with clients have positioned Smile Identity for continued growth. Recent discussions surrounding fintech and regulatory requirements – including data protection laws, consent protocols, privacy policies, and data impact assessments – highlight the evolving landscape.

Smile Identity is actively developing templates to assist clients in navigating these complexities. “We are integrating compliance measures into our products and services, an ongoing process as new requirements emerge,” Straub said.

An Index of African Fintech Growth

Straub believes Smile Identity serves as an indicator of African fintech growth due to its widespread usage. The company helps fintechs identify both legitimate and potentially fraudulent users, mitigating risk.

“We accelerate the growth of fintechs and shared economy companies by ensuring that customer acquisition investments target genuine, verified users,” he explained.

Looking Ahead

Having secured a $4 million seed round in 2019, Smile Identity’s total funding now stands at $11 million. The company intends to utilize the new investment to enhance its services, expand into new markets, support additional ID types, and recruit more engineers and support staff across Africa.

John Cowgill, a partner at Costanoa, will join Smile Identity’s board of directors.