How CLEAR secured a monopoly on airport line jumping

We’re kicking off 2024 with a deep dive into one of America’s least-understood public companies.

CLEAR, the company that runs a private line-cutting service, has an effective monopoly on the airport ID verification market.

But how on earth did they make this happen?

Here’s the inside story.

Let’s go 👇

Note: This issue isn’t sponsored by anyone. But to read the full thing you’ll need the All-Access Pass. 🎟️

How airport security works

Before 9/11, boarding a plane wasn’t any tougher than getting on a bus or a train.

Shockingly few regulations existed, and security was largely the ​responsibility of the airlines​, not the government.

But just a few months after the attacks, that era of lax airport security ended, and a massive new agency was created: the Transportation Security Administration (TSA).

The scope of airport security expansion after 9/11. Launched two months after the attacks, the TSA hired and deployed nearly ​​60,000 employees​ in just one year​ – the largest mobilization of the federal government since World War II. ​Image courtesy of the ​World Economic Forum​​

Today, the TSA is omnipresent at American airports, operating a two-step security process.

America’s two-step security system

To understand how Clear came to dominate, first you need to understand the two components of the process: ID verification and physical screening.

ID Verification

Identity verification involves making sure you are who you say you are. This is most commonly done with documentation, like a passport or driver’s license.

The TSA says that you’ll eventually need to replace your driver’s license with something they’re calling a Real ID-compliant license to get through security. But in true government fashion, the deadline for that change has been ​delayed 15 years​.

Physical screening

Physical screening occurs after identity verification and refers to the system of metal detectors, x-ray machines, and uncomfortably ​intimate pat-downs​ used to ensure neither you nor your bags are carrying dangerous materials.

Fun fact: the TSA has a special ​”master key”​ they use to open most commercially available luggage locks during the screening process. And the key itself isn’t even top secret – you ​can buy one on Amazon​!

As airport security has gotten increasingly thorough, it’s taking longer to make it to your gate. At Newark Airport in New Jersey, wait times during peak travel periods can often ​exceed an hour​.

Frustration with long security lines at airports (like this one at Chicago O’Hare) has spurred the creation of the ​​#iHateTheWait campaign​​, designed to embarrass the TSA into allocating more resources to fix the issue. ​Image Courtesy of ​@zacinsea​​

But now there’s a way to avoid the wait altogether – for a price.

How people legally cut the line

Two different programs allow members to skip the security line in whole or in part: PreCheck and Clear.

PreCheck

PreCheck costs $78 for a 5-year membership and gives you access to a special, separate security line for PreCheck passengers only.

The program runs at more than 200 airports nationwide (and interestingly, just one international airport: ​The Bahamas​).

PreCheck encompasses both identity verification and physical screening, with the line for each tending to be much shorter than usual. Plus, screening is more lenient – you typically ​don’t need to remove​ shoes, laptops, belts, or jackets.

CLEAR

CLEAR is more expensive, costing $189 per year, although many credit cards and airline loyalty programs feature discounts. This program is also more limited, ​offered at just 51 airports​.

Notably, CLEAR facilitates identity verification only. You’ll still need to go through the TSA physical screening process.

That means once you’ve waited on the Clear line and confirmed your identity, an employee escorts you past the TSA identity verification line and right into the screening area – a practice that has (understandably) ​bred contempt​.

Notably, you don’t have to choose one or the other! Some passengers use both Clear and PreCheck. This tactic allows you to pick whichever identity verification line is shorter on the day (PreCheck or Clear) while always benefiting from the easier PreCheck physical screening.

Both programs can help passengers save time, but there’s a core difference between the two:

  • PreCheck is a government-run program offered by the TSA.
  • CLEAR, however, is run by ​Clear Secure​, a publicly traded company with no (official) government affiliation.

Given the government’s post-9/11 takeover of airport security, CLEAR seems oddly out of place.

So how did a for-profit company come to offer an exclusive line-cutting service at American airports?

How does CLEAR work?

Clear offers a fundamentally different approach to identity verification than the TSA. Rather than relying on documentation, Clear uses biometrics.

When you sign up for Clear, the company ​scans your ​eyeballs and fingerprints​​. Then, when you head back to the airport, you can prove your identity with matching scans, rather than needing to fork over your passport or license.

At first glance, it’s not obvious that Clear should even be legal. The TSA has pretty exclusive authority over airport security. Why do they accept this alternative form of identity verification at all?

To truly understand what’s going on, we’ll need to investigate Clear’s murky origin story…

Is CLEAR a government project?

It’s complicated.

Originally, CLEAR was part of a company called ​Verified Identity Pass​ (VIP), launched in 2003 by ​Steven Brill​.

Brill is an interesting character — a lawyer by training, the guy launched numerous successful media ventures you’ve probably heard of, including ​Court TV​ (now TruTV) and ​The American Lawyer​ magazine.

VIP’s focus on security was a bit unusual for Brill, especially considering his recent projects have focused on ​medical costs​, ​public education​, and ​fake news​.

While it’s unlikely that VIP received direct federal investment, the firm definitely rode a wave of government enthusiasm for companies that could help fight terrorism.

In particular, the TSA needed private support to launch its ​Registered Traveler Program​ (RT), designed in the mid-2000s to expedite processing of low-risk passengers.

VIP was one of the first (and only) approved RT firms. They signed up an estimated ​200,000 people​ for CLEAR by early 2008.

When it was part of VIP, doing accurate biometrics on the fly wasn’t really possible. After running a background check and taking your biometrics, you’d get a special card like the one seen here. To verify your ID at the airport, you’d insert the card into a kiosk. ​Image Courtesy of ​Denver Post​​

VIP goes bankrupt (and relaunches)

But in late 2008, the TSA/VIP honeymoon went haywire, when a laptop with personally identifiable information of 33,000 CLEAR applicants was ​stolen​ from San Francisco International Airport.

As a result, the TSA suspended new registrations for the CLEAR program for a few weeks.

Bad publicity and legal expenses associated with the data breach — at the dawn of the Great Recession — proved too much for VIP.

In 2009, after being unable to make payments on a senior loan facility, ​VIP went bankrupt​.

But, just a few months later, ​two former hedge fund executives​ scooped up VIP for $6 million — a small price to pay considering the firm’s incredibly valuable access to the RT program.

After a few years, the firm was relaunched as CLEAR Secure, with a focus on the current iteration of the product.

In 2021, Clear Secure went public, ​raising $400 million​ and trading under the ticker symbol ​$YOU​.

The Registered Traveler Program (RT) is a public-private partnership to expedite low-risk passengers. A company called VIP was the first company approved to process Registered Travelers. VIP folded, and successor company CLEAR is the only approved company remaining, giving them an effective monopoly.

Why doesn’t CLEAR have any competitors?

CLEAR’s two main RT competitors, FLO and Vigilant Solutions, also struggled in the wake of the Global Financial Crisis. Both firms ​ceased operations in 2009​.

Unlike CLEAR, neither of these companies were salvaged or relaunched. They are both completely gone.

CLEAR is the only surviving member of the Registered Traveler program.

RT’s current operational status is confusing and complicated.

The program doesn’t exist in its original form, with some aspects subsumed into the government’s ​Trusted Traveler​ offerings, designed to facilitate the processing of pre-approved low-risk passengers (including the aforementioned PreCheck, launched in 2013).

But CLEAR keeps humming along anyway, enjoying an effective monopoly over non-government airport identity verification due to this odd historical contingency.

There does not seem to be any hard, legal reason a competitor couldn’t sprout up.

It’s more a matter of institutional inertia.

See, there’s no longer any RT pathway for a CLEAR competitor to be approved. (Plus, as you’ll see below, the TSA isn’t particularly fond of CLEAR these days, so they’re unlikely to want to work with yet another ID verification firm.)

It’s also a situation that shows the difference between negative and positive law. Sure, there’s theoretically no rule saying you can’t start a competitor.

But because the TSA has wide latitude over airport security, that’s not enough — you need a “law” (or regulation, or renewed TSA program) saying you actually can.

How CLEAR infiltrated the airports

If CLEAR was started from scratch today, it’s unlikely the TSA would give its blessing.

However, since the firm was in the original RT cohort, it was sufficiently integrated into the system to get approval for its relaunched program.

Of course, CLEAR doesn’t just need TSA’s sign-off to operate — they also need approval from the airports themselves. As it turns out, airports have some powerful economic motivations to work with the firm…

How airports earn money from CLEAR

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Author

Brian Flaherty

Brian Flaherty

Brian's interest in finance started from an early age, when he used money saved from working summer jobs to purchase his first mutual fund at 15. He went on to pursue the field in school, eventually graduating from the University of Virginia with a Bachelor's degree in Economics. After graduation, Brian put his expertise to work advising institutions and high-net-worth investors as a strategist at a wealth management firm. Recently, Brian transitioned to pursue a career as a financial writer, where he leverages his writing skills and his financial knowledge to help investors uncover the best opportunities and make intelligent use of their capital.

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