Since the credit crisis, we've observed massive growth amongst new entrants disrupting the banks and financial services incumbents: habito and Transferwise are two emblematic examples in our portfolio. Most recently, another category, crypto initial coin offerings (ICOs), has seen an extraordinary hockey stick. In parallel, the on-demand and sharing economies have crossed the chasm to reach the mass market as consumers have warmed to welcoming guests into their homes, driving cars/bikes/scooters they don't own, and sharing a backseat (or: pick your local service) with strangers.

We've also seen API-based services in the tech stack becoming successful by powering these new offerings, among them Stripe for payments, Twilio for communications, and Checkr for background checks. However, a few "picks and shovels" elements of the stack continue to be pain points, with perhaps the most important strategically being online identity verification. Recently, it's become evident that most of the 'natural' contenders for owning this whitespace (e.g. Facebook) have stumbled with their flagrant breach of privacy, and that has terminally compromised their trustworthiness as guardians of the user identity. "Don't be evil" has morphed into "sorry, we screwed up."

From our Yahoo! days, through the early efforts to solve this problem (e.g. openID), we have long recognized that "owning" online identity verification as a service would be a highly valuable and durable business, with massive network effects. It's amazing that, writing in 2018, this is still an unsolved problem. Verification remains a key bottleneck today for startups to grow for three reasons: compliance, scalability and conversion.

Compliance: The ability to verify identity alongside a transaction is key to detecting and preventing fraud, as well as a legal obligation for financial services players. KYC (know your customer), a process that is required to initiate a money transfer, can be performed in a bank branch or post office, where physical scanners can verify documents and a human can check a driver's license or passport to validate identity. But this requires a visit during office hours: it should be a more frictionless process online. As banks move to onboard customers digitally to match new upstarts, it's become a key friction point for them too.

Scalability: Startups often build the identity verification function themselves; for example, Transferwise and Coinbase each have 100+ people focused on KYC and onboarding, while Airbnb and Uber also have massive trust and safety teams to verify users and to limit the creation of duplicate accounts. They sometimes augment these activities with third-party services (Jumio was an early player in this space) but despite these internal teams and third party providers, the function remains a huge pain point.

Conversion: Online KYC services not only have issues with false positives (allowing fraudsters through) but, just as painfully for consumers and businesses, false negatives. Users can have difficulty getting verified, and often meet with fluctuating KYC backlogs - not so long ago, cryptocurrency exchanges such as Kraken and Coinbase had a 6-week waiting time for some users to get verified. Delays drive consumers to find an alternative service or drop their pursuit of a product completely.

The stakes have recently increased, as KYC is becoming an increasingly important pain point due to privacy regulation, online banking and the explosion of crypto offerings, with the latter facing looming SEC regulation.

With all this is mind, we are delighted to be backing Veriff.

Veriff is a two-year old Estonian startup that has built a uniquely compelling approach to these issues, as it focuses on becoming the most effective provider for fraud reduction and conversion optimization. It works by users holding their ID cards up to the built-in camera in their laptop or mobile device. Veriff captures this alongside other data to either (i) approve user IDs with no human intervention, or (ii) in a small minority of cases, to triage to a customer service representative. This is enabled by improved camera quality in laptops and devices, and the increasing ability of machine learning to detect anomalies and suspicious behaviour.

Veriff's go-to-market is also efficient, in that it's the only current solution with a self-serve product. Within minutes, a customer or merchant can sign up without speaking to a rep, integrate Veriff's SDK, and start verifying identification documents within their service. Its customers, who already include several innovative Baltic banks, as well as numerous online merchants and crypto startups undergoing ICOs, are able to reduce their cost base, and improve the overall user experience.

Even more ambitiously, one can imagine a future where learnings around identity theft and bad actors can be shared across Veriff's customers anonymously, to reduce fraud continuously. Veriff can become the standard for digital identity and trust online.

There was another element to our investment thesis that really stood out: the founder. 23 year-old Kaarel Kotkas is an astonishingly impressive first-time entrepreneur, with a high-integrity north star. A graduate of the W18 Y Combinator program, Kaarel is building Veriff for all the right reasons, and has convinced experienced talent from leading Estonian startups, including Skype and Pipedrive, to join his company's mission.

We are also delighted to be working once again with Transferwise co-founder Taavet Hinrikus, one of the early angel investors in Veriff, who first introduced us to Kaarel, and who is also joining the board as part of this Series A financing.

A few years pre- Mosaic in 2010, Simon came close to seeding Jumio, that at the time was focused on validating 'card present' credit card transactions. Since then, the problem of online verification hasn't gone away, and we have continued to follow other entrants closely. With this broad background & prepared mind, when we learned about Veriff's unique approach, we were immediately excited to make an offer to back Kaarel. All of us at Mosaic are thrilled to become his business partner for this journey.