The Future of Identity Verification in Regulated Marketplaces

It’s no great revelation that we live in an always-connected, on-demand society. Want a burger at 2 am? With a few taps on your phone, it’ll be at your door in 30 minutes. Working late and need someone to walk your dog? That, too, is just a few clicks away. The rise of marketplace apps like Uber, Airbnb, and Rover have helped to revolutionize the way we engage with service providers and make our lives easier.
What’s next? Some experts predict (and we agree) that the future of marketplaces is an expansion into the regulated services industry (like Doctors on Demand); but without due diligence on the part of these marketplaces, the need for explosive growth to satisfy investor demands could come at the expense of user trust and safety.
Andrew Chen and Li Jin recently authored an essay explaining the evolution of marketplaces, specifically focusing on the service economy (where most of the person-to-person marketplace interactions exist) which has developed in five distinct stages since the 1990’s:

  • “The Listings Era”
  • “The Unbundled Craigslist Era”
  • “The ‘Uber for X’ Era”
  • “The Managed Marketplace Era”
  • “Marketplaces for Regulated Services Era” – their prediction for the next phase of marketplace evolution

While Chen and Jin present a compelling vision for the future of marketplaces that will make our lives easier to connect with licensed professionals, this next step in marketplace evolution must be taken with great care. In marketplaces outside of regulated industries (the majority of marketplaces you probably use), liability and risk has historically landed solely on the user. This was recently reinforced by the Beckman v. memorandum regarding the lack of a “special relationship” between the platform and user (similar to a doctor-patient relationship where outside regulations like HIPAA are imposed).
However, as the move begins into highly regulated spaces like healthcare, a pre-existing “special relationship” between users necessitates marketplaces to implement a more thorough identity verification process. Building on top of Chen and Li’s framework, I present an alternate visual: the transference of exposure from the consumer to the platforms. As marketplaces enter into highly regulated industries (with the red dotted line indicating the existence of “special relationships” between users and platform responsibility of identity verification).

Compounding the challenges of increased liability is the relentless consumer demand for bigger-faster-stronger. In the world of marketplaces, this demand comes in the form of “low-friction signup” – how quickly can a new user sign up and start using the platform? Jeremy Gottschalk, founder of the Marketplace Risk Management Conference, addressed the need of identity verification in this next era succinctly:
“While platforms have no legal obligation or duty to identify participants on either side of their marketplace, digital identification is the foundation for trust & safety as well as screening, all of which are essential for customer acquisition. As we enter a new era for marketplaces, including ‘Marketplaces for Regulated Services Era,’ identifying marketplace participants becomes more of a ‘must do’ rather than a ‘nice to have.’”
So how does a marketplace with the best of intentions to solve service challenges for their customers meet that demand while still meeting the identity verification requirements of their regulated industry, without overburdening new users during the signup process? That challenge can be answered by a framework that we are beginning to see take hold of many marketplaces entering their “v2” of onboarding, something we call Progressive Metadata Extraction and Corroboration.
This framework promotes best practices for identity verification, through incorporation of metadata providers at the top of the user signup funnel. This allows marketplaces to unlock a low-friction, high-trust pathway for good customers, while building in a high-friction pathway for suspicious sign-ups.
Next month, I’ll dive further into this framework, what these metadata signals encompass, and the top challenges regulated industry marketplaces are facing around user verification.
Jeremy Gottschalk is the founder of the Marketplace Risk Management Conference, the first and most comprehensive risk management resource for marketplaces. Join Ekata and hundreds of other Marketplaces at the Conference in May 2019.

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