It’s harder than ever for financial institutions to open new customer accounts. Credit card application fraud alone can be measured in the billions as fraudsters grow more sophisticated each year. Regulations like Know Your Customer (KYC) and Anti-Money Laundering (AML) are managed by slow and expensive compliance teams. And the incumbent identity gatekeepers – credit bureaus like TransUnion and Experian and data providers like LexisNexis – have been slow to invest in new technologies or upgrade their legacy rules-based solutions.
There’s also a higher-order challenge facing banks, lenders, and insurers: many solutions to the digital identity problem come at the expense of customer experience. It’s not necessarily difficult to design an identity verification system that’s good at detecting and preventing fraud during account origination. But it is very challenging to design one that doesn’t burden the applicant with a lot of identity verification challenges.
And that’s a good description of the status quo today. The average bank or lender is constantly balancing an “acceptable” level of fraud with a “tolerable” amount of friction in new customer sign ups. And these dynamics aren’t unique to financial services – they extend into industries like healthcare, e-commerce, or any market in which new customers are required to transmit proof of identity at the point of onboarding.
Socure has brought to market an identity verification solution powered by proprietary machine learning algorithms that is simultaneously effective, efficient, and customer-friendly. Today, we are pleased to announce that Scale Venture Partners is leading Socure’s Series C financing round. I will also be joining the Company’s Board of Directors.
Why is digital identity such a hard problem?
From the perspective of the account issuer – whether a bank, lender, or insurance broker – there are two rather unappealing ways to sign up a new customer.
The first is to require the customer to appear in a physical branch location and present proof of identity. This method mostly addresses the fraud problem and meets KYC and AML requirements, but is slow, expensive, and, from the customer’s perspective, filled with multiple points of friction: scheduling a visit, traveling to the branch, sitting through a 30 + minute appointment, etc.
The second is online signups, a convenience that most consumers have come to expect. Online signup makes customers happy, but for account issuers, detecting fraud becomes a more significant problem. Knowledge-Based Authentication (KBA) questions such as “What is your mother’s maiden name?” do not provide much value in today’s world of frequent data breaches where, to a rounding error, almost all consumers’ personal information has become available for pennies on the dark web. Alternative solutions like providing one’s Social Security Number and a scan of a government ID, or taking a selfie while holding your driver’s license, all have their shortcomings.
Socure aims advanced machine learning at the identity verification problem
Socure is a true standout in this world of a clunky credit bureaus and expensive, rules-based verification processes. The Company’s core product is a collection of machine learning models that triangulates live digital data and offline information sources (such as phone numbers, e-mail, credit card data, etc.) to assess an applicant’s legitimacy and likelihood of fraud.
Socure offers a compelling solution by leveraging two dynamics: first, its ability to access and correlate far more data points than incumbent providers make use of; and second, its use of dynamic, ML-powered scoring algorithms rather than static, rules-based models. Together, these underpinnings enable the Company to deliver faster, more reliable identification scores that carry less risk of fraud. Socure’s customers report significant increases in new customer revenues, fewer false positives (legitimate new accounts flagged as fraudulent), and less fraud – while lowering the costs tied to manual application reviews without any tradeoffs in customer experience.
We’ve seen companies providing identity and security services struggle to demonstrate clear ROI – that is, to show the value of something NOT happening – whereas Socure’s impact can be clearly measured and communicated to its customers.
The race to identify the human race
We are pleased to partner with Socure during this exciting time in the Company’s development as it scales operations, hires new talent, and launches into new verticals. Congratulations to everyone at Socure on today’s milestone. I look forward to helping you become the leading identity verification service for enterprises around the globe.
Sam Baker contributed to this blog post.