Investment money is flowing into a fast-growing digital identity solutions market that is being fueled by the ongoing increase in data breaches launched via identity scams, a government focus on the issue, and the fallout from the COVID-19 pandemic.

“The impact of the pandemic on the digital identity market cannot be overstated,” Liminal, a digital identity strategy firm, wrote in a report earlier this year. “It catalyzed for companies to understand identity’s pivotal role in facilitating seamless digital interactions. Consequently, there was a massive increase in investment deals within the digital identity space.”

In 2020, $29.2 billion was invested across 37 deals, with those numbers jumping to $71.4 billion and 87 deals the next year, according to Liminal. That said, there was a sharp drop last year – $8.7 billion and 32 deals – as investors appeared to be awaiting clearer trends before dropping significant money into the market.

“As the digital transformation wave continues, investments in the identity market will likely grow further, driven by a better understanding of identity’s crucial role in modern business models,” the firm wrote.

Money is Rolling In

If recent weeks are an indication, that understanding is happening. This week, Prove Identity announced a $40 million funding round that will enable the 15-year-old mobile identity verification and authentication solutions company to expand globally and launch new commerce enablement and fraud-fighting use cases. Prove this year has seen a 40% year-over-year increase in customers.

Prove Identity’s Pinnacle identity verification and authentication platform includes features like Prove Pre-Fill technology for pre-populating application forms for 79% faster onboarding for organizations and Prove Identity for verifying consumers. The vendor also offers passwordless and real-time identity management capabilities.

Prove’s technologies use mobile phones to verify identities in mobile and desktop devices as well as in-store systems.

The same day, device identification company Fingerprint said it raised $33 million in Series C funding, which will let it pursue larger enterprise customers. Fingerprint’s device intelligence platform gives organizations an accurate view of users across the web and mobile devices and includes an API for identifying more than 99% of returning users.

The platform is used to not only detect and block account takeover attempts but also to create more personalized experiences for customers.

“With the gradual death of cookies and proliferation of VPNs, high accuracy device identification has never been more important,” Fingerprint co-founder and CEO Dan Pinto said in a statement. “Companies battle sophisticated attacks from online fraudsters while needing to ensure their trusted customers have a frictionless experience.”

Startup Gets $3 Million

A day earlier, startup Anonybit said it raised $3 million, bringing to $8 million the five-year-old company has pulled together. The company’s Genie identity platform offers a patent-pending technology that allows the distributed storage and processing of biometrics and other personal data, with the goal of securing user accounts and data to protect against threats like identity fraud and account takeover. The ability to store biometric and other data across a peer-to-peer network rather than in a single database sets Anonybit apart, according to company co-founder and CEO Frances Zelazny.

“Personal data is stored in central honeypots that are impossible to protect and we allow the use of this data to authenticate ourselves,” Zelazny said in a statement. “Many players in the industry aim to expand their offerings to address more comprehensive use cases in identity. … This key differentiator [for Anonybit] is crucial for account recovery and eliminates the need to fall back on inferior, knowledge-based authenticators, passwords and more, whether online, in a branch, at a call center or in a chat channel.”

As another example, SpyCloud in August raised $110 million that is being used to expand its offerings for enterprises and consumers, develop products to address compromised passkeys, grow its database of recaptured malware assets, and improve its analytics capabilities.

The company uses recaptured data from the dark web to protect businesses against identity-based attacks and provide insights to allow enterprises to prevent ransomware and account takeovers and reduce fraud losses.

Such investments are helping the drive to bolster identity and authentication protections. The global market for digital identity solutions is expected to grow from $27.9 billion last year to $70.7 billion in by 2027, according to Statista.

The White House Weighs In

In addition, the Biden Administration in its cybersecurity strategy released in March made enhancing digital identity solutions and infrastructure an important step in improving protections.

“Today, the lack of secure, privacy-preserving, consent-based digital identity solutions allows fraud to flourish, perpetuates exclusion and inequity, and adds inefficiency to our financial activities and daily life,” the strategy’s authors wrote, noting the rise in identity theft and data breaches and outlining ways the federal government can help through research and enabling investments.

According to the 2023 Verizon Data Breach Investigations Report, 83% of breaches came from external actors, with 49% of those involving the use of stolen credentials.

Identity and access management (IAM) company SailPoint noted that the average cost of a data breach last year was $4.35 million, with fewer than half of those companies that invested early in strong identity programs being victims of identity-related breach.

‘A strong identity program is a critical deterrent to such cyber-attacks and can do much more than boost security: it can reduce costs associated with security operations, improve operational efficiency, and speed attack response and recovery,” Jaishree Subramania, vice president of product marketing, wrote in a blog post earlier this year.