spottily We have recently announced our investment in IdentityMind Global, a software-as-a-service company that provides technology solutions for mitigation against financial crimes like identity fraud and money laundering.
The problem of fraud and financial crime has always been with us, before computers and the internet. And as the financial system evolved, so has financial crime. In the age of e-commerce, with an increasingly opaque and intertwined global financial system, a growing proportion of banks and merchants are seeing large losses due to fraud, and rapidly increasing costs to mitigate them. In a related development, after 2001, the U.S. significantly expanded the Bank Secrecy Act of 1970, adding stringent Anti-Money-Laundering due diligence requirements on banks. The stakes for failing to comply with these regulations have never been higher, as in 2012 alone, US regulatory agencies assessed fines in excess of $3.2 billion.
The pain felt by merchants and payment service providers is more operational in nature. There is no shortage of anti-fraud and AML products today. However, most solutions are saddled with “false positives”, rarely being able to reliably differentiate bad guys and bad transactions from the legitimate ones. Even with armies of experts and a steady string of new technology companies addressing the problem, the needle has not really moved, as most solutions, even today, have false positive rates of over 90%. The state of the art is still largely defined by forensic analysis when the losses are large enough to warrant the time and cost.
Identity Mind has stepped into this market by developing a better, faster, cheaper way for banks and online merchants to detect fraud and perform due diligence on the parties involved in a financial transaction (“Know Your Customer” or “KYC” regulations). Their customers include traditional banks, money service businesses (MSBs), online merchants and payment service providers (PSPs).
Unlike alternative products and services, IDM solution is built on technology that intelligently accumulates the “breadcrumbs” pieces of personal identity and financial identity data, which ride along with any financial transaction or account sign-up process. By combining these bits that they call “electronic DNA” over time and over many touch points in the global financial system, IDM is able to build a much more rich and detailed assessment of risk when a bank, payment service, money service or online merchant is about to underwrite or undertake a transaction. When bundled with a turn-key payment gateway service, the IDM solution assesses identity reputation risk in real-time (<300 milliseconds) at the time and place of the transaction, enabling much better up front prevention rather than backend detection long after the fact.
A particularly unique and compelling aspect of Identity Mind is that it operates the world’s first “data cooperative” with a simple value proposition: customers who contribute eDNA get access to real-time, high-resolution reputation data in return. This works much like the way global law enforcement agencies store and share tokenized fingerprint and actual DNA data to make it possible to identify individuals anywhere they go. More than simply analyzing all the parameters of identity, eDNA technology analyzes the connections between them. In this way, the value of the risk assessment – observed as high accuracy or low false-positive alerts – increases as IDMs identity database grows via the network effect.
We are convinced that the IdentityMind team has a shot at significantly reducing fraud in financial services, and have decided to support their growth through our investment.