Password manager companies face a harsh reality: their core product is becoming commoditized. As browsers build in password management and tech giants offer free alternatives, startups that once thrived on subscription fees are scrambling to find new revenue streams. The answer many are betting on? Identity verification services.
Companies like 1Password, Dashlane, and Bitwarden are quietly expanding beyond password storage into broader identity management platforms. They’re adding features like secure document storage, identity verification for financial services, and business authentication tools. The shift reflects a fundamental change in how these companies view their role in the digital security ecosystem.
The Password Manager Market Reaches Maturity
The password manager industry grew explosively over the past decade as data breaches made headlines and cybersecurity awareness increased. But that growth is plateauing. Apple’s iCloud Keychain, Google’s Password Manager, and Microsoft’s Authenticator now handle basic password storage for millions of users at no additional cost.
“The pure-play password manager business model is under pressure,” says cybersecurity analyst Sarah Chen from Forrester Research. “Companies that built their entire strategy around monthly subscriptions for password storage are finding that feature increasingly available for free.”
1Password, one of the category leaders, has been the most aggressive in this pivot. The company launched 1Password Business in 2019, targeting enterprise customers with features like secure employee onboarding and compliance reporting. They’ve since added travel document storage and family plan sharing features that position them as a comprehensive identity platform rather than just a password tool.
Dashlane took a different approach, launching its VPN service in 2020 and adding dark web monitoring capabilities. The company has also partnered with financial institutions to provide identity verification services for new account openings, essentially turning their user database into a revenue-generating verification network.
Identity Verification Becomes the New Goldmine
The identity verification market is expected to reach over $18 billion by 2026, driven by increased regulatory requirements and the shift to digital-first financial services. Password manager companies are uniquely positioned to capitalize on this growth because they already store verified user information and have established trust relationships.
Bitwarden has been testing business identity verification features with select enterprise customers, allowing companies to verify employee identities during remote onboarding. The open-source password manager is exploring partnerships with HR software providers to streamline the verification process for distributed teams.
“We’re seeing companies willing to pay significantly more for identity verification services than they ever paid for password management,” explains Mark Johnson, a venture capital partner at Bessemer Venture Partners who tracks the cybersecurity sector. “It’s a higher-value service with clear regulatory drivers.”
The regulatory environment is driving much of this demand. Know Your Customer (KYC) requirements for financial services, employment verification for remote work, and age verification for digital services all create opportunities for companies with verified user databases. Password managers, which already require users to verify their identities during signup, have a head start in this market.
LastPass, despite facing security challenges in recent years, has partnered with several fintech companies to provide identity verification services for loan applications. The company uses its existing user verification data to streamline the approval process for personal loans and credit applications.
The Technology Infrastructure Already Exists
Password manager companies don’t need to build identity verification capabilities from scratch. Their existing infrastructure includes encrypted data storage, multi-factor authentication systems, and verified user accounts. Adding identity verification features often requires updating existing systems rather than creating entirely new platforms.
NordPass, the password manager from the team behind NordVPN, launched NordLayer in 2021, a business security platform that includes identity verification features. The company leveraged its existing encryption technology and user authentication systems to offer enterprise-grade identity management tools.
“The technical foundation is already there,” says cybersecurity consultant David Martinez. “These companies have solved the hard problems around secure data storage and user authentication. Expanding into identity verification is a natural evolution of their existing capabilities.”
The shift also makes business sense from a customer acquisition standpoint. Identity verification services create more touchpoints with users and higher switching costs for businesses. A company that handles employee identity verification becomes much more difficult to replace than a simple password storage tool.
Some password manager companies are exploring partnerships with government agencies for identity verification services. While specific details remain confidential, industry sources suggest several companies are in discussions about providing identity verification for digital government services, potentially creating new revenue streams worth millions of dollars annually.
Challenges in the Identity Verification Pivot
The transition isn’t without risks. Identity verification requires different regulatory compliance, higher security standards, and more complex customer support operations. Companies that built their operations around simple password storage must invest heavily in new infrastructure and expertise.
Privacy concerns also loom large. Password managers have historically marketed themselves on their zero-knowledge architectures, meaning they can’t access user data even if they wanted to. Identity verification services often require companies to process and validate personal information, creating potential conflicts with existing privacy promises.
Competition in the identity verification space is intense, with established players like Jumio, Onfido, and Veriff already serving major enterprise customers. Password manager companies must differentiate their offerings while competing against specialized identity verification providers with years of industry experience.
The pivot also raises questions about focus and company culture. Teams that excelled at building consumer-friendly password tools may struggle with the enterprise sales cycles and compliance requirements that define the identity verification market. Several companies have hired new executives with backgrounds in financial services and regulatory compliance to guide their transitions.
Despite these challenges, the pivot appears inevitable for many password manager companies. As their core product becomes commoditized, identity verification offers a path to higher-value services and more defensible market positions. The companies that successfully navigate this transition will likely emerge as comprehensive identity platforms, while those that stick purely to password management may struggle to maintain growth and relevance in an increasingly competitive market.
The identity verification pivot represents more than just a business strategy shift – it’s a fundamental reimagining of what password manager companies can become in the digital identity ecosystem.
Frequently Asked Questions
Why are password manager companies changing their business models?
Free password managers from Apple, Google, and Microsoft are commoditizing the basic password storage market, forcing companies to find new revenue streams.
What identity verification services are password managers offering?
They’re adding secure document storage, employee onboarding verification, financial services authentication, and compliance reporting tools.
