Fraud continues to be a major issue in the world of digital transactions, a situation that research shows was only compounded in the last 20 months of online activity growing as a result of COVID-19. Today, a Melboune startup called FrankieOne that has built an automated platform to help combat that is announcing a Series A on the back of strong customer demand.
The company -- which harnesses some 350 data sources to verify automatically people's identities when onboarding, and then monitor subsequent activity for fraudulent behavior -- has raised $16 million (AUS$20 million). It plans to use the money to grow its footprint internationally after seeing strong demand in the market.
FrankieOne has picked up some 80 customers in the last 18 months, bringing its total to 90, including the likes of Afterpay, Westpac and Zipmex. It also saw its annual recurring revenue grow 20-fold in the last year, with half of those sales coming from outside of its home country (but it isn't disclosing actual revenue numbers). Notably, FrankieOne has gotten to this point with no marketing or sales team.
That traction has also caught the attention of some high-profile investors. Australia's AirTree Ventures and Greycroft, from the U.S., co-led the round, with 20VC, Reinventure, Tidal Ventures, APEX Capital and Mantis (the VC fund started by music act The Chainsmokers) also participating. Individuals in this Series A include Robinhood founder and CEO Vlad Tenev, Monzo founder Tom Blomfield and senior executives from Revolut and Public.com.
FrankieOne identified a critical challenge through its firsthand experience as a fintech startup. Simon Costello and Aaron Chipper co-founded the startup, which was originally called Frankie, in 2017 as a neobank hoping to ride the wave of disruptive fintechs out of Europe that were giving banks a run for their money in winning over younger consumers with more user-friendly, mobile-first options for saving, investing, managing, borrowing and spending money. That may have been ahead of its time for the Australian market, but in the process they also discovered one of the big growing pains for getting a business like that off the ground. There was no efficient way to screen and onboard new users, and subsequently make sure they were transacting on their platforms in a legal way.
"Our journey to building a neobank revealed a single connection for onboarding simply didn’t exist," said Costello in an emailed interview.
That became the focus of the company's pivot (and Costello said that Frankie gave back all the money it took from investors in that first effort).
"We decided to scratch our own itch and built it ourselves. We knew we had found a market niche when this platform also met the needs of our peers. As we pivoted, we quickly found that our first customers were all Australian NeoBanks such as Volt Bank," he continued. "This experience allowed us to understand banking from the inside out, and realise that for existing financial institutions, as well as emerging fintech, regulatory compliance is the single biggest challenge these companies face."
The year was 2019, and the timing turned out to be fortuitous. The pandemic has led to an explosion in the amount and breadth of online transactions. And whether that activity was via financial services or e-commerce or something else, more people and organizations doing business online has meant more fragmentation, more transactions and mainly more money for fraudsters to target.
Unsurprisingly, this is not an untapped area of financial technology. There are a number of companies in the market today building "fraud prevention as a service" and providing it to those companies that need it to run their own businesses. The list includes Alloy (which in September was valued at $1.35 billion in its latest funding round), idwall (which recently raised $38 million), Rapyd (a multipurpose financial services toolkit, now valued at $8.75 billion), Stripe (the payments giant that has made a big move into onboarding, identity and fraud management) and many others.
Costello points out that among FrankieOne's unique selling points is its particularly international profile, with data-sources offered currently into 46 different countries, which he noted "speaks to the global nature of this platform, and its inherent potential to scale." In contrast, he added that other providers of know-your-customer and anti-money laundering services tend to be region-specific. "Very few, if any, have the capacity to service multinational enterprises that require a nuanced approach to regulation, compliance, and digital identity based on the specific requirement of that geography."
Helping with this is that, while Frankie the startup (like other neobanks) might have relied heavily on APIs from third parties to power the services it provided to customers, FrankieOne sits on the other side of that relationship. It has built its own technology stack, Costello said, "much of which was informed by the compliance and regulatory sophistication required to operate a bank." It also does integrate APIs directly into FrankieOne -- the data sources, for example, that power its fraud management and identity verification system, which will also grow in number as FrankieOne continues to expand. It is, for example, going to be offering transaction monitoring for both fiat and cryptocurrencies later this year, and the fact that it's already providing services to customers like Zipmex gives it an opening into doing more around fraud prevention in the still quite wild cryptocurrency market.
"Know your customer (KYC) and digital identity verification are board-level issues for financial services companies," said John Henderson, a partner at AirTree Ventures, in a statement. "The current, manual systems used by fintechs and FTSE100 companies alike are both bespoke and broken. The world needs a better solution, and we believe FrankieOne provides it. After seeing the incredible progress and undeniable traction Simon and the team have had, we're excited to be leading their Series A as they position themselves to be the leading identity verification and fraud risk provider."
“Financial services companies pay top dollar to acquire customers," added Will Szczerbiak, partner at Greycroft. "Upon signup, customers undergo a series of checks—including KYC, identity verification, and anti-fraud—that can force companies to turn away potentially great customers because of reliance on inadequate systems. FrankieOne’s APIs extracts the complexity away, allowing their clients to onboard more great customers while delivering a delightful end user experience. It is a unique approach that scales globally, and we are excited about the partnership”.