Before we became Passbase, we were a crypto startup. People using our first crypto product meant that we quickly felt the pain point of meeting know your customer (KYC) requirements for compliance. That’s when we realized identity verification was an even bigger opportunity and we pivoted to become Passbase. The fact that we gained 100 new customers in our first year and raised $3.6M in funding just six months after our pre-seed round gives us the confidence that we are indeed moving in the right direction with our privacy-focused, user-centric vision for digital identity. In this blog post, I want to highlight how we got here: how our experiences in crypto shaped what Passbase is today, and why we think identity verification is essential for the future of the new digital economy.
Digital identity can solve interoperability for crypto
Our first product, Coinance, was a cryptocurrency management app that enabled users to manage their crypto portfolio in one central place by linking their exchange wallets. But when it came to allowing users to actually trade crypto on the platform, we encountered a roadblock: all of the liquidity pools we linked up with had to perform KYC checks on their customers as part of their anti-money laundering (AML) regulatory requirements. In addition to that, our company needed to have a KYC process in place for our own transactions. However, none of the existing identity verification solutions enabled users to transfer their digital identity between wallets, which meant that we could not move our product forward and because we could not give users the option to transfer assets between their wallets.
Digital identity, we discovered, is a key challenge for crypto and one of the bottlenecks for the industry as it gains more widespread adoption. When we compared KYC providers as a potential client, we discovered:
- Long sales cycles: you had to talk to sales and have multiple meetings before even testing the solution
- Lack of developer-first integrations: solutions were not meant for fast product iteration cycles, sometimes requiring their tech support
- Lack of flexibility: pricing plans came with fixed features or did not allow for must customisation
None of the solutions were a good fit for a fast-paced environment like crypto, where you have to constantly and quickly iterate.
Making the pivot from crypto to digital identity
After talking to every KYC vendor in the market from a buyer’s perspective and also to our contacts in the crypto sphere, we identified a shared problem space: existing providers were built for traditional finance and not crypto or the new digital economy. However, our product – what would then later become Passbase – hadn’t taken a concrete shape yet.
This is where we took a somewhat unusual approach: instead of working out a polished business plan and present it to investors, we used the investor meetings we had already lined up to iterate on new ideas in real time. Sometimes we would come up with a business idea 48 hours in advance. We pitched our raw ideas and iterated on them using the feedback we got in our conversations. Even after we had made the decision to pivot to digital identity we kept true to our incremental approach by not shutting down Coinance immediately, but instead licensing the product to give us an additional cash runway. Ultimately, however, we arrived at the point where we needed to make the final step over to Passbase and raise funding so that we could build a team that would not fit in our tiny San Francisco apartment
Redesigning identity verification with privacy and security in mind
We wanted to create a digital identity layer of the internet that is based on user consent and would enable interoperability not only between crypto wallets, but between all kinds of online services. We knew we were entering an industry that is high friction and requires high assurance because others have tried to solve the problem of portable digital identity, including governments. Consumer skepticism remains high.
This means that driving adoption would have to come from businesses who wanted to verify their customers, not the customers themselves. Existing providers in 2018 were mostly focused on KYC for AML compliance during user onboarding for traditional finance. We have room to build better identity verification experiences for all the other use cases.
By focusing on building great identity verification to drive adoption, we can build the identity infrastructure that will facilitate the portability of digital identities for consumers. In essence, end users can maintain their digital identity and choose which parts they share with service providers in the future using Passbase.
What we’ve learned since launching Passbase and building alongside clients
Passbase officially launched just before COVID-19 hit the world. Our strategy to make sure we had a working product that clients paid for from day one paid off because we were able to power companies beyond crypto that included Teleclinic, which was directly involved in diagnosing Germany’s first infections, the neobank Binks in France, and gig economy platform Appjobs. We learned and grew with them as their businesses scaled.
Build integration options with developers in mind
When we were working on Coinance, we tried to build a service that connected different services from the crypto industry and found that none of the existing KYC solutions offered the technical flexibility we needed to do that. We wanted a solution that adapted to our tech stack, not the other way around. This is why we created Passbase to be a self-service developer platform. We wanted to grow Passbase through product-led sales, so we developed mobile, web, and server-side SDKs in addition to our API. We also quickly learned that our product was a bit too sophisticated to have an obvious value proposition to developers, who weren’t necessarily aware of compliance requirements. Our SDKs and libraries may not have given us a jump start, but it gave us a solid foundation that differentiated us for digital native companies.
Communication and education is key to adoption
I became the company’s first account executive (AE) in order to prospect clients. We quickly learned that articulating Passbase’s value proposition became about taking complex considerations for companies and breaking them down into digestible concepts. What regulatory requirements does Passbase help companies with? How should product teams incorporate identity verification when managing stakeholders like compliance, customer success, and security?
Helping companies educate their end users is also key. Many consumers are wary of face scanning, even if biometric authentication is more secure than text-based passwords. For companies in crypto, regulatory frameworks like the EU’s 6th Anti-Money Laundering Directive (6AMLD) now apply as well, making identity verification a necessity. Early on, we created our blog to help client companies understand how these features work.
A great verification flow is a conversion opportunity
Compared to traditional industries, like banking, whose digital transformation was oftentimes a cumbersome process, digital native companies can deliver far better user experiences from day one. For industries like crypto, where KYC is a requirement, this step in the user journey became a conversion optimization opportunity as well. We learned with clients like Hurr Collective, which is a rental marketplace that now has a Selfridges partnership, identity verification helped build trust and safety for companies without large engineering resources. We have built advanced customization features into the Passbase dashboard for our clients to insert the company log into the verification flow, manage copywriting and translations, and drag and drop required documents. This helps teams of any technical capacity to fully brand their verification flow and optimize it for customer conversions. Customers who enjoy a feature will use it more often, making use of feature such as biometric authentication. This is a win-win for businesses and end users because it secures digital identities, reduces fraud, and builds online trust.
Companies need flexible tools for different checks in new regulatory markets
Regulations are evolving rapidly, for crypto, financial transactions, and newer industries such as eSports. While choosing a country with low regulatory thresholds may have worked in the past, not investing in thoughtful, privacy-preserving user identification can slow down growth in the future. For now, companies that start with a high AML compliance standard, following FATF guidelines, upfront can ease a businesses expansion into new markets. However, we also know that markets will always their differences. The more sophisticated companies that we’ve worked with have set up specific policies, such as countries they may require additional documents from. Companies have leveraged Passbase’s flexible API to customize identity verification to their needs and we have introduced tools for non-technical teams to do the same, such as create multiple verification flow projects.
There is no "one-size fits all” solution to KYC
Everyone knows this. But it wasn’t until we were talking to prospective clients that appreciated the specific considerations for each company. Passbase’s current identity verification engine can serve a broad range of companies beyond FinTech and crypto, such as real estate and telecommunications. But even if we focused on crypto, companies will want to tailor identity verification for their needs. They also deserve to have these options. It’s a win for the company and for the end consumer. This is why building digital identity infrastructure that allows companies to build their own policy systems and orchestrate which verification flows happen based on specific event triggers is now our main focus. After gaining over 100 clients in our year of launch, we can confidently expand our privacy-focused and user-centric features so that other companies building for the new digital economy don’t have to from scratch.
Even though we started out in the crypto space, the interoperability problem for wallets is actually a universal problem. The truth is, we need a new identity infrastructure — one based on trust and privacy — for services in the new digital economy. In 2021, we have the technologies to ensure trust with privacy. One of the biggest lessons we’ve learned so far comes from the crypto industry: this is not a zero sum game. we as businesses in the digital economy ultimately need to work together to build a universally accessible identity infrastructure for a safer, more human internet.