BankTech

Alloy raises $40 million Series B to help banks & fintechs avoid fraud

Canapi Ventures led the round for Alloy, which has seen its customers & ARR double YoY

Alloy, which has built an identity operating system for the financial services industry, announced Wednesday a $40 million Series B raise.

Canapi Ventures led the investment, which also included participation from Felicis VenturesAvid Ventures and existing backers Bessemer Ventures, Primary Venture Partners, and Eniac Ventures. The round brings Alloy’s total venture raised since its 2015 inception to nearly $56 million, according to Crunchbase.

New York-based Alloy’s goal is to help banks and fintechs make better identity and risk decisions using a single API service and SaaS platform. The company uses its data to help financial institutions avoid fraud during initial customer onboarding, for example, and when conducting ongoing transactions. Questions it aims to answer for FIs include: “Is this a real person? Will they defraud us?”

Alloy works across more than 60 identity providers. The company says its offering also reduces burden on the back office “by removing the need for outdated manual review queues.” Specifically, the company claims that its automated platform “delivers a dramatic reduction in fraud, an increase in approval rates for good customers, and a 95% reduction in manual reviews.” Alloy also points out that it is a service that aims to reduce false positives during the KYC (“Know Your Customer”) process and to help financial institutions manage AML (“Anti-Money Laundering”).

Customers are split 50-50 between banks and fintechs, according to Alloy co-founder Laura Spiekerman. And that customer base is growing. Over the past year, the startup has seen both its ARR (annual recurring revenue) and client list nearly double. The company currently has over 90 customers, including Evolve Bank & Trust and Brex. It’s also tripled its headcount to 50 people, Spiekerman said.

“We started the company because we thought that onboarding in financial services was pretty broken,” she told FinLedger. “We found that when users were applying for bank accounts online, for example, roughly half the time they were being sent to a manual review process where someone was having to verify their identity.”

“There was no way to sort of automatically verify these users who are onboarding, which meant a really bad customer experience, and it meant very expensive fraud and back office costs for the bank or the fintech company,” Spiekerman added. “So we started the company with the idea of solving that problem and doing it an API-driven way.”

The COVID-19 pandemic has contributed to the company’s recent success. More consumers and businesses are conducting financial services online. This has inevitably led to more cybercrime.

That’s where Alloy has found opportunity.

“Our API and software platform allows regulated financial institutions to create kind of instant decisioning systems that are customized to their needs from a regulatory compliance and risk perspective, and are fully transparent and fully auditable,” Spiekerman said. “So they have full control, but also ensure the best possible user experience.”

During the pandemic, she added, financial institutions have accelerated planned digital transformation projects. 

“It’s become the hot topic and front of mind for them,” Spiekerman said.

Walker Forehand of Canapi joined Alloy’s board as part of the investment. Forehand also helped lead Canapi’s investment in Built Technologies, a provider of cloud-based software for construction lenders. Canapi is also an investor in Blend, a digital lending platform that aims to streamline the customer journey. The Wilmington, N.C.-based firm announced its $545 million inaugural funds earlier this year to invest exclusively in early to growth-stage fintech startups.

This week, Forehand told FinLedger that Canapi was impressed by the Alloy’s “team, product and market.”

Several of Canapi’s bank limited partners, including one of the 20 largest banks in the US, are current Alloy customers and self-professed ‘raving fans.’ The customer testimonials we heard during diligence were off the charts positive,” Forehand wrote via email. “And the market for onboarding, KYC, and fraud solutions is only exploding as digital channels have experienced decades worth of growth since March.”

Many of Canapi’s partner banks have seen three to five times increases in digital channel usage since the onset of the pandemic, he said.

This has led to “a seismic change in customer behavior that we believe is largely here to stay,” Forehand told FinLedger. “At the same time, cybercrime and online fraud have exploded as bad actors have gotten more aggressive and sophisticated in their attacks.”

And while there are other providers that purport to offer similar capabilities, Forehand believes that “none had the depth of Alloy’s integrations, simplicity of APIs, or laser-focus on building the industry’s first ‘identity core.’

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