Financial services need digital identity stitched together, investors take note

Investments in biometrics and digital identity have slowed in the wake of an early-2020s hype cycle, but investors are still watching the market closely for opportunities, Centana Growth Partners Co-founder and Partner Eric Byunn tells Biometric Update in an interview.

Centana is a private equity firm focused on “investing in the future of financial services and innovation around financial services” with companies at the growth stage. The firm has offices in New York and San Francisco, with investments around the world but somewhat of an North American focus, Byunn says.

Jumio was one of Centana’s first investments, and is probably the most familiar name among its portfolio to Biometric Update readers. But Centana also has stakes in companies adjacent to the identity verification market like Athennian, SheerID and SpyCloud.

Valuations in the space are much the same as in any other industry or market segment, and Centana uses verified financial data and direct interaction with market participants to make assessments about trends within the market, what customer problem is being solved and how well. The company has a network of hundreds of people in financial services, and relies heavily on them to help navigate rapid changes in the market.

Digital identity “is a category that is both growing enormously both in terms of actual spend as well as interest, and where the approaches to establishing and validating and potentially modifying digital identities continue to evolve very rapidly,” Byunn notes.

Knowledge of the way digital identity has evolved over the years is “quite critical in both evaluating and assisting our portfolio companies within the space,” he says.

The financial service sector’s current digital identity needs

Ultimately, Byunn says, financial institutions are all looking for a low friction, high accuracy way of authenticating customers, prospects and business partners that also keeps regulators happy.

Some of the approaches and techniques used by established players in the digital identity market have achieved good volume and scale, and newer innovative methods are still proving themselves.

Byunn highlights the opportunity in a third layer that’s “all about how you stitch these things together, because so far no one has produced a single solution that addresses everything.” This layer, he says, includes both “orchestration” and elements of holistic scoring (heuristics etc.) “that are not fully covered by what the market calls orchestration.”

Earlier waves of technology serving financial services companies were thoroughly penetrated by fraudsters, and in some cases offered poor user experience, Byunn says. One example of this, knowledge-based authentication, remains “shockingly still prevalent in the industry.”

Checks against government-validated identities or ID documents, along with AI and ML technologies and authoritative databases that directly deliver updated information about identities (rather than inferring it from credit history or the broader web) are delivering much better results.

The threat of deepfakes to financial service institutions seems to be commonly overstated at this time, according to Byunn, at least in part because conventional wisdom is also somewhat underestimating the effectiveness of market leaders’ defense against genAI and deepfakes. However, he notes that the threat has the potential to grow significantly.

The digital identity investment market

Asked about the wave of investments in the early days of the pandemic and the way it has receded, Byunn says the digital identity market has gone through a hype cycle.

In the early days of the cycle, some nice-sounding ideas drew investment. But the market has “in some ways matured.” It is still growing rapidly, with high demand, and a number of companies are doing well in terms of production deployments and revenue.

Investors’ approach has matured as well, he argues, such that “it’s no longer let’s throw a whole bunch of things up against the wall and see what sticks.” The volume of announcements has therefore gone down, but the companies and approaches surviving have traction at every level. Others have fallen by the wayside.

“I think what we’ll see in ‘25 and ‘26 will be a continuation of a lower volume of notable press-worthy announcements but in general the size or magnitude of that measured in either dollars or strategic impact will have risen substantially,” Byunn predicts.

Digital identity verification and biometric providers doing well can show it in their metrics, in qualitative deepening of their use cases and clarity of how their technology fits into the market. Those not reaching good production usage with initial POCs need to figure out how they can fit in with those who are getting traction, Byunn says.

For those that can do so, he says, “we’re here, we continue to have very active interest” in backing technology providers who can improve the security and usability of digital identity in financial services.

This post was updated to correct the location of Centana’s offices at 10:28pm Eastern on December 10, 2024.

Article Topics

biometrics  |  Centana Growth Partners  |  digital identity  |  financial services  |  fraud prevention  |  identity orchestration  |  identity verification  |  investment