The year 2022 was notable for the prevalence of conversations on the need of due diligence for a number of different reasons.
However, due diligence is not just relevant for investors in new ventures or organisations merging with others. Companies, particularly those dealing in financial services, have an additional responsibility to take reasonable precautions against fraud.
According to NPR, a congressional investigation published in December accused many fintechs “of earning ‘billions in fees from taxpayers while becoming easy targets for individuals who tried to scam the PPP,’ or Paycheck Protection Program” during the early stages of the COVID-19 epidemic. Fintechs were also accused of failing to avoid “obvious and preventable fraud” in the study.
Meanwhile, the American Bankers Association and the National Association of Government Guaranteed Lenders are criticising a plan by the Small Business Administration to allow fintech startups “to begin offering government-backed loans under the department’s flagship ‘7(a)’ programme — long the domain of traditional lenders,” as reported by Politico.
Time to bring in TrueBiz. To prevent future fraud incidents and backlash like those outlined above, the firm seeks to reimagine how fintechs evaluate the risks of the companies they join. It was founded by Danny Hakimian and Max Morlocke, and they have secured $2.4 million in a seed round led by Flourish Ventures to reimagine the process of verifying firms for financial services. The funding was contributed by Homebrew, The Fintech Fund, and Y Combinator. The team was part of YC’s Summer 2022 cohort.
The TrueBiz Risk Score, a synthesis of important risk indicators, was announced with the capital infusion.
According to Satya Patel, a partner at Homebrew, TrueBiz seeks to highlight important risk indicators after adding colour to the backdrop of a firm using over 50 data points, such as industry and revenue, from across the web.
Hakimian explained their method, saying, “We achieve this by automating the evaluation of a business’s online and physical presence.” To get a more thorough picture of the organisation, we check over hundreds of various sources, including their website, social network accounts, review sites, and more.
He also noted that manual assessments are still common in legacy systems, which rely too much on unreliable data.
According to Hakimian, TrueBiz’s ultimate objective is to significantly alter the way financial services firms authenticate businesses at the time of account creation.
When combined with searches in best-in-class data sources, “our system also automates the assessment of firm paperwork gathered at registration,” he said. One day, we want to have a universal system for establishing a company’s identification that requires just a single login. When a company uses our service and is verified, they just need to do so once to utilise those credentials elsewhere we operate. The first phase of our mission is to automate the bank onboarding procedure.
According to Hakimian, TrueBiz promises to help banks and other financial institutions enrol new business clients more quickly and reduce the churn that might occur as a consequence of verification bottlenecks.
He said that the PPP initiative placed banks and other financial institutions under extreme time constraints and inadequate resources.
Traditional service providers “couldn’t provide a thorough enough evaluation to strike a good balance between turnaround time and quality,” Hakimian said. Even without the PPP programme, opening a business bank account in the United States still takes about twenty to thirty days.
Medium-sized financial service providers, such banks creating new business bank accounts or payments processors enrolling merchants, are the company’s ideal clients. Insurance firms, for example, may utilise this information to verify the legitimacy of a company before offering commercial insurance to it.
‘There’s a significant tailwind behind this,’ Hakimian added. Consumer financial technology has been a major topic during the last decade. Yet we think the next wave of growth will be powered by identity technology itself; this will come from B2B, embedded fintech solutions that need improved tools to extend processes beyond human inspection.
When using TrueBiz’s API, consumers are charged a price for each search they do. There are less than ten people working for the company right now, and everyone is spread out.
We want to use the funds to make some new hires, enhance our product’s capabilities, and increase our marketing and sales efforts.
Flourish Ventures managing partner Emmalyn Shaw told that the KYB (Know Your Business) issue represents “a big and sizeable market opportunity.”
From our experience with Alloy and other KYC investments, we can attest to the significance of thorough identity verification in preventing fraudulent activity and increasing income. She stated, “KYB adds a whole other layer of difficulty.” Time-consuming and labor-intensive human assessments are necessary due to a lack of API-driven digital sources and inconsistent data tags in already-existing data. The potential for TrueBiz to unleash substantial ROI and drive growth in top-line revenue is significant.
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