Payment Now, Fraud Never?
By Alex Johnson
The Payment of the Tithes (The tax-collector), also known as Village Lawyer (1617-1622) by Pieter Breughel the Younger.
3 FINTECH NEWS STORIES
#1: Sell To Banks!
Heron Data launched a neat product:
PDF Bank Statements are the universal standard for underwriting an SMB but are the bane of many business lenders’ Chief Risk Officer. Our latest launch has helped B2B lenders to cut the bank statement review step from 15+ minutes to <1 minute.
Rather than manually reviewing bank statements, you can now use Heron to parse statements in 1 second and recreate a set of standardised Reports either in our dashboard or via API without your team having to manually tag transactions – check out some images in the gallery! You can use our Overview page to customise a report with the metrics most relevant for your underwriting process.
The automated parsing of documents using machine learning isn’t unique, certainly. There are lots of fintech infrastructure companies and traditional bank technology vendors playing a similar game (although the combination of document data extraction and data enrichment from digital sources like Plaid is kinda cool).
The interesting part to me is Heron’s target customers. Based on a quick perusal of the company’s website, it appears that it’s entirely focused on selling to fintech companies (Juni, ClearCo, Rho, and Ramp are among the companies listed).
Look, I get it. Heron came up through YC. Its investors all have deep connections in the tech ecosystem. Getting introduced to the right folks at B2B fintech companies is probably pretty easy, and the actual process of selling to them is probably pretty fun.
By contrast, selling to banks sucks. The big ones have interminably long and complex sales cycles with outrageously rigorous procurement processes. The smaller ones are easier in those respects, but they don’t intuitively understand technology, and the technology that they do have is old, inflexible, and annoying to integrate with.
But you know who does a lot of business lending? Banks! Do you know who relies on a lot of cumbersome manual processes that could benefit from automation? Banks!
Sell to banks!
#2: Payment Now, Fraud Never?
Plaid will enable FedNow access on Plaid Transfer, our flexible platform to manage bank-linked transfers and payments. Through a single API, companies using Plaid Transfer can securely authorize payments, analyze risk, and facilitate money movement. Transfer is a multi-rail platform, supporting the three primary bank rails in the U.S. – ACH, RTP, and soon the FedNow Service.
Customers will benefit from expanded coverage for payouts with the addition of the FedNow Service. We have made it really simple to access the FedNow Service by providing intelligence if an account is eligible for instant payouts and dynamically routing transactions between the FedNow Service and RTP. Existing Instant Payouts customers will benefit from both payment rails.
This is one of the first (if not the first) examples of a fintech company building on top of FedNow through a partnership with a BaaS bank.
There will be a lot more in the future, so it’s worth considering what the main points of competitive differentiation will be.
First, there’s the multi-rail differentiator.
In the short term, as FedNow and RTP continue jockeying to build out ubiquitous instant payments networks, the benefit of such a platform will be to provide an intelligent routing layer over the top of the two rails (plus ACH) in order to ensure that the end experience for the payer and payee is as smooth as possible, regardless of which rails the underlying banks are integrated with. Long term, as RTP and especially FedNow achieve more scale, I’d expect this routing will functionality will be used more to optimize cost (to the benefit of FedNow, I’d guess).
Second, there’s the fraud management differentiator.
One trend that I’ve started seeing (and expect to continue to see) is the convergence of money movement and fraud management within the fintech infrastructure space. The basic idea is that as the velocity of money movement increases, the ability to facilitate money movement, as a standalone product capability, becomes increasingly useless if it’s not paired with state-of-the-art fraud detection capabilities. Here’s Plaid’s blog post again (emphasis mine):
Plaid Identity Verification and the recently launched Beacon go beyond the obvious KYC compliance requirements to monitor changes to identity and risk profiles over time to prevent identity theft, synthetic ID fraud, and account takeovers. Plaid Identity prevents payout fraud by verifying ownership of a specific bank account at the time of linking and over time. As we continue to invest in our real-time payment solutions, we are adopting and evolving our products to detect fraud before the money moves.
#3: Trust, First
Bloom Money raised a round:
Bloom Money, a U.K.-based fintech, has raised £1 million to digitize an informal financial management system employed by ethnic communities across the world.
Often referred to as “rotating savings and credit association” (ROSCA), the model varies in the details around the world, but usually, it involves an informal gathering of people from a certain community who act as a bank, collecting and saving money that members can withdraw. The system is called different names across the world, such as “hagbad” in Somalia or “pardna” in parts of the Caribbean.
The goal is to avoid conventional banking systems, many of which discriminate against minority communities, especially in the U.K.
In the interest of full disclosure, I will say upfront that Bloom Money’s co-founder and CEO, Nina Mohanty, is a friend of mine and a brilliant human being, and I’m personally delighted that she has hit this impressive milestone!
Nina was also the guest for the single most popular episode of the Fintech Takes podcast – Fintech’s Biggest Unsolved Problems.
[OK, now I’m putting my fintech analyst hat back on.]
This is a really interesting concept. The basic idea here is that in many cultures around the world, saving and lending money are inherently social activities conducted informally within tight-knit family and community groups. And rather than attempting to convince new immigrants to give up the ROSCA model and move to a more individualistic system, perhaps we should start by digitizing the model that they are already comfortable with.
My assumption is that Bloom will use these savings clubs as a very gentle onramp into the broader U.K. financial system, which will present additional opportunities for product expansion and monetization.
2 FINTECH CONTENT RECOMMENDATIONS
#1: Sundae set out to build a kinder way to buy run-down houses. Employees say it replicated the industry’s problems. 📚
As I’ve written about before, you are your business model.
This is an interesting account of the challenges at Sundae, a proptech platform focused on the distressed real estate market. As the article details, the company is reportedly struggling to live up to its brand promise in the face of pressure to continue growing in a market that is well-known for sketchy behavior.
The story is based, primarily, on accounts from ex-employees, so take it with a grain of salt.
This is very cool.
Since 2011, the City of San Francisco has automatically opened bank accounts on behalf of kindergarten students, depositing $50 in each one and providing a variety of mechanisms to help students and their families save more. The purpose of the accounts is to help students save for college, and, so far, the program has been an unqualified success. The program has 52,000 active accounts with a total balance of $15 million—$10 million of which came from deposits made by the students and their families.
A few fintech nerd notes:
- The program couldn’t partner with California’s established 529 College Savings plan because the city wanted its program to be opt-out by default, more convenient for families to contribute to, and accessible to all families, including those who are undocumented (which presents KYC challenges).
- Instead, the City designed a custom bank account product structure with Citibank, which mimics some of the structural components of a 529 plan (e.g. the funds can only be used for qualified educational expenses) but is built on top of a FBO account/sub-account structure (with the City of San Francisco being the master account holder).
- Not that it probably matters to Citibank all that much, but I’d imagine that $15 million is a wonderfully sticky source of deposits. Perhaps regional banks should work with cities and states in their own backyards on similar programs?
1 QUESTION TO PONDER
What fintech and banking events are y’all planning to attend this fall and next spring?
I’m back from paternity leave and ready to hit the road again (though a little less intensely), and I’d love to know where you are planning to be!
For reference, this fall, I will be at Finovate Fall and Money20/20. I am, unfortunately, unable to attend Fintech DevCon or Money Experience Summit this year.