Continuing the fintech market map deep dive today with part 2 of the video series I’ve been working on with Corporayshid.
In this post I’m exploring an infrastructure segment - Identity, Fraud and Risk. I try to highlight some of the nuances and exciting trends in this space.
Click on the video for the full take and check out the highlights below.
What is it?
Identity fraud and risk infrastructure enables companies to manage bad actors on their platform. These tools help companies authenticate users, limit fraud and enhance underwriting. The first wave of tools were bringing offline processes online. We're now seeing digitally native tools enabling net new capabilities like digital fingerprinting and crypto native tooling that was just not possible before.
A hot take
I've heard a ton of investors say that this space is commoditized. I couldn't disagree more. There are pieces that I definitely feel are more crowded than others, but the needs of the customers continue to evolve and become more sophisticated, and I think we'll continue to see more and more tooling to better match those needs.
Prediction for the winner in the space
I think most players today are starting with a very specific part of the customer's broader verification process. This is part of the acquisition or onboarding funnel where there are up to a dozen other vendors. The company that's going to be a multibillion dollar business in this category is going to expand from their initial expertise to add more modules over time and cross-sell them to its existing customers.
Companies on the rise
The Sardine team is awesome and building very sophisticated tooling to combat payment fraud. Middesk’s KYB, or Know Your Business, platform has done a great job of taking a manual offline and really inefficient process and making it accessible via API.
What am I most excited about?
My hypothesis is that being at the top of the funnel is the best place to be in order to expand your product offering, because these vendors are the ones that are going to collect the most data. I mean, they're literally seeing data on every single potential user. They are going to have the biggest base of data to leverage to create smarter products over time.
What do you want to see?
I think the next frontier is better data sharing and more network effects in a space just like with FICO scores. If companies shared their data with each other, presumably it would help the entire ecosystem to share bad actors, best practices and enable better underwriting. I'm excited for companies to be this connective tissue or platform that enables us to become a reality. As an industry, we've talked a lot about the next gen credit Bureau. While I've seen hints of this in alternative data, we haven't seen anything really hold a candle to the predictive power of FICO. At the same time, no one says, I love the credit bureaus and I think it's the best we can do. It's just the best we have so far. I'd love to see someone really emerge that is a true challenger to the existing players and can just level up the entire industry.
Check out part 1 on Consumer Trading & Wealth Planning if you haven’t yet.
Thoughts on this format? Would love to hear your take. If you’re not subscribed already, do so below for future videos and posts.
Identity, Fraud & Risk Infrastructure (Video Series Part 2)