The Digital High-Five busting scammers in Africa 🖐🏾

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Morning! How has your week been?

ICYMI, We have an exciting event next week with our friends at Raise and Launch Africa: Pitching 101. 

I’m pumped for today’s edition. It’s a sponsored edition with Smile ID [formerly known as Smile Identity] - Africa’s market leader in KYC (identity checks).

Smile ID gave me early access to some very juicy research: Smile ID’s State of KYC Report.

It literally came out an hour ago. Check it out here.

This was one of the most fun editions to write.

I learned a bunch about identity in Africa and how people get scammed online.

And it gets weird 😅 - see the Selfie Spoof section. Pumped to share it with you.

Let’s go 💪🏾

Across Africa, identity theft is a big problem.

Identity ‘thieves’ are getting smarter at getting victims’ personal information, impersonating them online, and stealing their funds.

As more people and companies come online and as tech develops (cough cough AI) identity thieves have more tools in their arsenal.

And that’s affecting many African economies.

In South Africa Between April 2022 and April 2023, cases of identity fraud more than tripled (352% increase).

South Africa is losing more than $84.7 million USD a year to this type of fraud.

In Nigeria, bank customers lose millions of dollars to fraud each quarter, and last year, the total amount of money lost to fraud doubled between Q3-Q4.

Which is why right now, ‘identity’ and KYC (or, Know Your Customer) are more than just big buzzwords.

Identity and KYC are changing Africa’s digital landscape by helping businesses and consumers stay ahead of the bad guys.

But what is KYC? And what does it really take to Know Your Customer in Africa?

A Digital High-Five ✋🏾

Identity is proof of who you are in the world.

Businesses and institutions collect and check this to make sure it’s really you - before giving access to their products and services.

This process is called Know Your Customer (or, KYC) - and it’s an online ID check.

Think of it like a digital high-five between a business and its customer to confirm safety.

And while verifying ID sounds straightforward, it’s not as easy as it sounds - especially in Africa.

About 1 billion people in the world lack official proof of identity. And half of them (500 million) reside in Africa.

And that’s a big problem. It’s easy to take things like your ID Card, driver’s license, or passport for granted.

But imagine you didn’t have any of these. How would you open a bank account? Rent a car? Or even get into the club?

Lack of ID in Africa locks hundreds of millions out of essential services.

Okay - maybe the club isn’t an essential service, but you get my point.

And on the business side, identifying customers is a do-or-die.

If banks and fintechs don’t identify their customers, they’re at risk of losing money to fraud.

Which is why KYC becomes so important.

The Rise of Digital KYC

Back in the day, KYC was what you needed to open a bank account.

You would go to your nearest bank branch, bring your ID and sit in line for half an hour waiting to open an account.

But with the rise of fintech across the world, everyone is trying to become a bank.

Africa’s startup count was at over 5,200 startups in 2021 (with most of them being fintechs).

And you can’t have your customers waiting in line for 30 minutes.

That’s caused soaring demand for online KYC for your everyday startup. And that needs easier and faster KYC processes.

But with a huge unidentified population across Africa, fintechs and banks are in between a rock and a hard place.

Onboarding new customers who don’t have ID on one hand. And not getting scammed on the other.

So KYC providers in Africa have to get creative.

In lieu of a passport or driver’s license, they need to use things like biometrics, face scans, and other tech magic to create their own digital IDs.

That’s where Smile ID comes in.

Smile ID (formerly known as Smile Identity) is Africa’s market leader in KYC - helping companies verify users and prevent fraud.

And they have had a big year.

In February, they announced their raise of $20 million to expand across Africa.

In April, they acquired Appruve - a Ghanaian identity verification startup.

But today, their most important milestone is reaching 75 million KYC checks.

75 million KYC checks are a lot. It’s also a lot of data.

And they’ve put their findings together in a report that came out today: The State of KYC in Africa.

Smile ID gave me an early look at the report, and it’s a treasure trove of insights.

Today, we’re diving into the Tech Safari Takeaways on Africa’s State of KYC.

Here is the rundown:

• Africa’s Most Identified Countries

• Digital ID Systems are on way up 👆🏾

• The weird world of Selfie Spoofing 🤳🏾

• What KYC tells us about Gender Inclusion 💃🏾

Let’s go!

The State of Identity in Africa

Smile ID’s report gives us a good look at the state of identity in Africa’s major markets.

This can tell us how ‘inclusive’ countries are when it comes to their citizens accessing services.

Let’s take a look.

Africa’s most identified countries are:

🇪🇬 Egypt [92.2%]
🇿🇦 South Africa [92%]
🇰🇪 Kenya [91%]

And the least identified are:

🇪🇹 Ethiopia [59%]
🇨🇮 Côte d'Ivoire [64%]
🇺🇬 Uganda [70%]

But across Africa, identity is becoming a higher priority. Countries are making their moves to identify their populations. And..

Digital ID Systems are on the way up ☝🏾

Smile ID finds digital ID systems as a growing trend in Africa. African countries are turning dusty ID systems into modern and scalable infrastructure.

And they’re not doing it alone.

In 2017, The World Bank rolled out an initiative: Identification for Development (ID4D), to help countries set up safe and private digital ID systems.

And it’s in full swing - The World Bank is working with 30 countries. And African countries are in the loop.

For example, Ethiopia kicked off its national digital ID project, The Fayda Biometric National ID initiative in 2022. It aims to:

• Create a legal identity for Ethiopians within the civil registry system

• Provide a secure digital ID for easy access to online services like banking, e-commerce, and government benefits.

Ethiopia is shooting for 40 million Fayda enrollees by 2024.

And their Kenyan neighbors have hopped on the train too. The Kenyan government plans to introduce new digital ID cards for citizens by the end of this year.

If it works, this will be the ultimate identity document for all Kenyans.

And Smile ID’s report shows that more countries across Africa are making their moves in Identity:

• Gabon, a West African country, is launching a biometric national ID system by the end of this year.

• In November last year, Madagascar rolled out a digital ID system in partnership with MOSIP.

• Burkina Faso is piloting a national digital ID system, which it intends to scale after a pilot.

• And as of today, Nigeria has issued more than 100 million digital IDs in their partnership with the ID4D project.

If successful, these initiatives hold massive potential. They will let millions access financial and other services, and make businesses safer from fraud.

Speaking of fraud, Smile ID’s ‘State of KYC’ report tells us that scammers are getting smarter - and weirder.

Meet The Selfie Spoof 🤳🏾

For scammers and biometric systems, it’s a cat-and-mouse game. And the latest trend to come out of it is a bit of a meme.

Meet the Selfie Spoof. If you live in Kenya, South Africa, Zambia or Gabon, you’re the most likely to get scammed by this.

You know how sometimes websites or apps ask for a selfie to confirm it’s you?

Well, these guys have figured out a way around it.

Also known as a selfie or facial spoofing, scammers with stolen IDs use a person’s face to outsmart facial recognition systems.

And to pretend they’re the real owners of the document - by sticking a printout of your face on top of their face.

Basically, your scammer would do something like this

How do they do it? Mostly using photos - but sometimes, they’ll print out a photo of your face, or create a face mask out of it. Weird, right?

And the next big evolution of the selfie spoof: AI-generated selfies and deep fakes which can look identical to you.

Selfie spoofing can put you in places you've never been, doing things you've never done - all virtually.

Fraudsters could potentially access your personal information, open fraudulent accounts, or even take out loans in your name.

With facial recognition tech on the rise, spoofers are having a field day.

Smile ID reports that in the first half of 2023, selfie spoofs made up 41% of biometric fraud cases they busted.

And Selfie Spoofing is just one type of biometric fraud.

A replay attack is another common type - where a scammer records a victim’s fingerprint scan or facial recognition video and uses it later to log into your account.

Luckily, Smile ID catches and ‘busts’ biometric fraud by using things like face, voice recognition, fingerprints, and even eye scans to verify who you are.

That stops those Selfie Spoofers from printing out your face and getting into your accounts 😅

Smile ID gives us insight into fraud in KYC. But there is some good news.

Gender Inclusion is Up 🔺

Across Africa, 44% of women lack national IDs, compared to men’s 28%, which locks more women out of essential services.

But Smile ID shows that things are getting better and fast.

In the first half of 2021, verification checks on Smile ID were at just 10% for women.

Two years later, in the first half of 2023, verification checks hit 35%.

This means that in the last two years identity verification has increased by 25%.

Gender inclusion is up 🔺

Which types of services are leading the way? Buy Now Pay Later and Lending.

Buy Now Pay Later and Lending has seen its share of female users quadruple from 9% to 36% in the last two years.

Following on from last week’s piece on Fintech’s evolution in Africa - I think that the latest layer of fintech is making financing and banking easier to access for everyone.

It’s a check towards fintech access being inclusive and giving women access to financing.

And generally, a point for technology being a driver of impact in Africa.

KYC is that annoying process we have all come to know whenever we log into a new app or service.

But it’s the protection layer between companies and the big bad world of fraudsters and selfie spoofers out there.

And Smile ID helps those companies grow while staying safe.

Mark Straub, CEO of Smile ID likes to think of the company as a ‘seatbelt’ for African entrepreneurs building rocket ships.

And at 75 million ID checks, they are keeping those startups nice and safe while scaling.

If you want to dig deeper into Smile’s State of KYC Report, you can grab it here.

And - if you’re a founder or just curious about KYC in Africa, Smile and I have something for you.

Our KYC 101 event with Mark Straub, CEO of Smile ID. We’ll dig into the state of KYC and how founders can use KYC to keep their businesses safe.

RSVP here to come along on the 8th of August and hear from Mark on KYC in Africa.

And that's a wrap for this week!

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Catch you soon!

👋🏾 Caleb