Many startup founders dream of selling out. Finding somebody who is willing to pay hard cash or stocks for their company and living happily ever after. But not Kaarel Kotkas, the founder and CEO of Estonian identity verification startup Veriff. Although he was offered a handsome payoff a few years ago, he is more interested in building things. His ambition is to build something quite intangible. “We wish to build trust in the online world,” Kotkas says.
Trust is one of the foundations for businesses. If you have trust, companies from surprising industries can come online.
With the rise of the Internet, at first, people lauded its anonymity, as many do now. But as the internet has become more and more commercialised, anonymity has its obvious drawbacks. How can you tell whether the person you’re dealing with is who they claim to be?
“Verifying an identity is definitely more important than finding answers on Google,” Kotkas quips. “This shows you the scale and potential of this field.”
One estimate puts the size of the identity verification market at 15 billion dollars: “How do we know how large the market is?” Kotkas asks rhetorically. “We really don’t.” But there are about 250 million companies with over 20 employees worldwide, yet the majority (95%) of all transactions take place offline.
A person’s true identity might not be so crucial when selling a few books or CDs online, however, it becomes vital when we are talking about Fintech applications. For example, the providers of financial services have to be certain of the identities of those with whom they are doing business. Even if the companies themselves prefer not to know, they are legally obligated to meet anti-money-laundering legal requirements, for example.
That is where startups providing identity verification services – like Veriff – come into play. “We help to create trusting client relationships in the online world,” Kotkas says.
Veriff starts with the notion that the most trusted proof of somebody’s identity is their government-issued ID. One possibility would be to merely fulfil the criterion of providing an ID. A picture of an ID is uploaded and that’s that. Many companies are quite satisfied with this. But not Veriff.
Veriff users go through a live verification session during which they are required to take a picture of themselves and their documents, which will then be compared to their face. With the help of artificial intelligence, Veriff analyses thousands of technological and behavioural variables in seconds to make sure that the person is who they claim to be and that they are not involved in any fraudulent activity. As a part of the process, Veriff records a video of the verification, looks at the network and device data that the person is using and makes sure that they are conducting the procedure of their own free will, not under coercion. Of course, no technology is completely fraud-proof, but Veriff claims that deceiving its software is thousands of times more expensive than the price of goods or services that could be acquired by doing so.
Obviously, Veriff is not the only player in the market. Kotkas remains positive about the competition. “Since we are not the only player in the field, it shows that there is a market for the service,” he points out. “We all have our different solutions that fit different clients’ needs. Veriff stands out for its highly automated product and great fraud prevention features.”
Entrepreneurial mindset from early on
Kotkas was born in Emmaste, a 200-person village on the island of Hiiumaa, on the west coast of Estonia. The farm on which he grew up had dozens of Hereford cows, sheep and a horse. Kotkas says that working on the farm taught him discipline – there are some jobs that you just have to do, no matter what.
Some say that Kaarel is a serial entrepreneur; Veriff is his 12th business project. He was already demonstrating the first signs of his entrepreneurial mindset on Hiiumaa. He is a persistent guy who has always had objectives and ways to realise them. At a young age, he dreamed of a new BMX bike. At first, he approached some neighbours who came to Hiiumaa for weekends in the summer and proposed that he could mow their lawns for them. Later, other projects followed: making mulch and wine bottle holders, chartering sailboats, launching a platform for short-term jobs, selling power banks and so on.
Sports, windsurfing to be exact, brought him to Tallinn because the best training facilities in Estonia were there. He enrolled in the Tallinn Secondary School of Science, one of Estonia’s top high schools. Kotkas lauds the motivating environment the school had.
In high school, he discovered a new interest – IT. “All of the sudden I had so much free time, unlike on the farm where you always have something to do.” Kaarel does not consider himself to be a developer. “Veriff has lots of talent and there are many much better programmers than I,” he adds.
His plan was to become a doctor and study medicine at the University of Tartu. Life had other plans however, and he ended up defeating global, online identity fraud instead. He founded Veriff shortly after high school and went to study business at the Estonian Business School rather than fully focus on IT.
Finding the right people is the key
Kotkas’ interest in identity verification and online fraud was triggered by a case study that he was conducting for the Estonian Fintech startup TransferWise. He likes to break things into small pieces, which is how he approached identity verification. Looking at the pieces, he found a solution.
“Everything starts with finding talented and entrepreneurial people who see an environment where making great things and taking extra steps are appreciated,” Kotkas believes. “When all these excited, talented people, already over 230 of them as we have now, are moving towards a single goal, you can make great things happen.”
When Kotkas started building the Veriff team, the first employees were carefully handpicked and had wide personal networks. “We approached people I had dreamed of working with one day,” Kotkas says. “If you have such people in your team, they attract like-minded people. Over 30% of Veriff’s employees were found with the help of our teams’ personal references,” he adds.
Today, the company has people from over 34 different nations. “I really enjoy being in the office, learning new things from people who come with their novel ideas and offer a different approach,” Kotkas says. “Our ambition is to maintain this global reach,” he declares.
From banking to smart city projects
Most of Veriff’s employees are located in Tallinn and Tartu but, last autumn, the company also opened an office in New York to be closer to its global clients. You might be in a business where most things can be solved online, but you need to have face to face meetings with your potential customers – the businesses that offer services that need to verify their end-users – you have to be close to them.
Veriff started offering its services to traditional banks in Estonia, proving the concept. After that, it moved on to Fintech, marketplaces, the sharing economy and cryptofinance. However, the COVID-19 global crises accelerated digitalization and changed the IDV business a great deal. Now identity verification is an integral part of any online business that needs to verify the person at the other end of the line.
“We see a lot of possibilities and potential use cases in industries that will grow in volume over the next few years. These industries include telemedicine, education, video conferencing & communications and legaltech, just to name a few, where identity verification is going to be a vital part of the business,” Kotkas explained.
Last summer, Veriff partnered up with Berlin’s main public transport company Berliner Verkehrsbetriebe (BVG) when they launched their mobility app Jelbi, which covers Berlin’s entire public transportation system including scooters, bikes, ride-hailing and car sharing, as well as traditional taxis. Veriff comes in when people need to verify their identity and prove that they have a valid drivers’ licence. Veriff’s other global clients include the shared mobility provider goUrban from Vienna, the Fintech unicorn TransferWise, Mintos, Blockchain and more.
First we take Berlin, then we take Manhattan
Veriff can verify people from more than 190 countries, as well as over 8000 different document types, however, a lot of the verifications come from the US and the UK, so this is where Veriff sees the market potential. It is only natural that the company’s focus is moving in that direction.
“We are working more and more to be there for our US clients,” Kotkas says. “The first large-scale clients will need the most work, and later the others will follow and it should be easier.” During the last two years, he spent 8 months in the US, building a team there and working with customers. But it really does not matter where he is physically located, he has to work in both Estonian and American time zones anyhow. The price, obviously, is long working hours and not much sleep. Now, since the COVID-19 crisis hit in March, there’s been no travelling and all business has moved online.
The smallness of Estonia has been a necessary stimulus to think globally. “To fulfil our ambitions, we should verify every Estonian several times a day.”
Being from Estonia is a definite plus in IT circles, Kotkas says. Firstly, everyone knows Skype. Secondly, in the field of state e-solutions such as e-Identity, Estonia is a well-known pioneer. So, people consider it logical that a startup dealing with identity verification might come from there. “Estonia is much larger than it is physically,” he says. “It is a great opportunity but also a huge responsibility that we have to do our best to preserve.”
Veriff’s longer-term ambition is to create a single global identity for everyone on earth. “The more globally we work, the more we see that the security level of ID documents varies from country to country,” Kotkas explains. “We also see that, in many places, access to ID documents is more difficult. As we strive for a borderless world, we want to make sure that, with the help of Veriff’s identification, people get access to different digital services no matter where they are from.”
At heart, still a boy from Hiiumaa
You might be a global hotshot but that does not count for much among the people in Kotkas’ native Hiiumaa. You can only become a true native by birth on Hiiumaa, no others will be considered native by locals. So Kotkas is understandably a bit troubled by jokes of his relatives who tell him that they will strip him of his local’s status because he has been away for too many years. “I definitely want to go back there,” Kotkas says. “When the ferry lands at Hiiumaa and you drive off the ramp, your heartbeat already slows down – you feel that you are at home.”
Taavet Hinrikus, Co-founder of TransferWise: the speed of Veriff’s development has been amazing
“Kaarel was doing a case study for TransferWise some 5 years ago. Because of this case study, he messed up his state exam in Math and failed to pursue medical studies that he had his heart set on. Even worse, he didn’t get the job in TransferWise. But looking at it today, I am glad that things went the way they did. Kaarel, being a passionate guy, dedicated all his energy to developing Veriff and became a much bolder and hungrier version of himself. About 2 years ago, he demonstrated incredible persistence and creativity to seek me out again. We talked about Veriff and I saw great potential in the company. Looking at the amazing speed of development that Veriff has gone through during a short period of time, I can only imagine where he’s going to be in 10 years with Veriff. Even though he still might be young and green, he learns fast and has all it takes to build great things. He’s definitely on the right track.”
Veriff was founded in 2015 by then 20-year-old Kaarel Kotkas. This year, Kaarel Kotkas was awarded the EY Entrepreneur Of The Year. His company is now one of the fastest growing startups in Estonia, providing web and mobile identity verification solutions that help reduce online identity fraud and theft. In July, Veriff announced a 15.5 M USD financing round that brings the total financing of the company to 23.8M USD.
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