Alijah PoindexterGood day and welcome to the Buzz, a Bank Automation News podcast. I’m Associate Editor Alijah Poindexter. Last week, I spoke with Naftali Harris, co-founder and CEO of ID verification provider SentiLink. I spoke to Mr. Harris about how the growth of real-time payments will impact fraud prevention, along with what his thoughts and predictions are for the fraud and fintech space moving into 2022

We can get right into it. For the sake of the interview, would you mind kind of going into your role, obviously, you’re the CEO and all that good stuff, but sort of your role at SentiLink and what you do?

Naftali Harris

Yeah, sure. So, I’m SentiLink’s, co-founder and CEO. Which means that, you know, I oversee your operations and strategy. I’m in charge of recruiting an amazing team and so forth. Our company prevents fraud for banks, lenders and financial institutions. We work with over 100 in the United States, ranging from top 10 US banks to the new startups that are just getting started, I look at the number of different FinTech partners, and follow the space very closely. Hence, I think, maybe a good notion bigger conversation about the future of FinTech for 2022. We stop different types of application fraud. So that means things like identity theft, and synthetic fraud, which is when someone makes up a fake person who doesn’t exist and uses that to try to steal money from banks and lenders. Does that give you a good overview?

Alijah Poindexter

Yeah, that’s perfect. That’s perfect. Yeah. Wonderful. Well, we’ll jump right into it. This is a pretty broad question, what had been your, you know, Chief takeaways from 2021. With regards to you know, fraud and security in the FinTech macro environment?

Naftali Harris

Well, I think a lot of it has been that huge amount of the fraud is actually not really being seen by the public. So probably the biggest thing to happen in 2021, still coming out of 2020 is, um, there’s been a huge amount of fraud related to government benefits programs. The Fraud related to the PPP, I think is a little bit better known. But there’s also a huge amount of fraud related to unemployment insurance. And so what’s happening here for unemployment, insurance fraud, is that a fraudster will steal the identity of a citizen, and they’ll claim to be unemployed, and go to the state unemployment insurance agency and say, I’ve lost my job. And the state will actually be fooled by that fraudster and start giving unemployment insurance benefits to the fraudster who is claimed to be a citizen who’s lost a job that caused a huge number of losses for the different states. On this day, some of which are have been publicized, you know, especially California, Washington, among many others. But, you know, in total 10s and 10s of billions of dollars. It hasn’t been publicized as much. And I think this has been one of the various things on our side is having stolen all this money, the fraudsters had to move it into the financial system somehow, yeah. And that caused a huge amount of knock-on fraud for any institution that touched money at all. So every bank that we serve, every credit union, all the fintechs, all of them saw these huge influxes of identity theft attempts. And the fraudsters weren’t trying to steal money, they were just trying to launder it. So they’re just trying to open up checking accounts, or any kind of account that allows you to transfer funds in order to move the money that they’ve stolen. Fortunately, we were able to stop that. But we saw that throughout the whole industry.

Alijah Poindexter

Do you see that? Do you see any of this? I mean, continuing on as we sort of navigate the pseudo, you know, post COVID landscape, you know, that, you know, as soon as the government may, you know, draw back on, you know, maybe the PPP or PPP loan system or mass unemployment benefits, there could be something else down the pipeline, that’s just as easy for, for fraudster or potential fraudster to sort of attack. So do you see, do you see this continuing? Going into 2022?

Naftali Harris

I certainly do. I think this will continue. I think one of the pretty unbelievable things about this is I think it’s really emboldened the fraudsters. I mean, this is perhaps the greatest year ever for a fraudster. I mean, really, literally, you know, 10s and 10s of billions of dollars. And, you know, I think having seen how easy this was to do, I think the fraudsters when the easy government targets, come out for them, I think they will realize, hey, this is an extraordinarily profitable business for us. Let’s keep doing this. But you know, for other targets. And so I do expect that as some of these benefits programs dry up, the fraudsters will move away from them to other things. But I think having just come off of stealing all this money, I think that they will be more aggressive than they’ve ever been and more creative than they’ve ever been.

Alijah Poindexter

That’s so, so interesting. Just to backtrack a little bit. So, you know, to give people an example of sort of what SentiLink does with with something like just just your basic, you know, PvP loan fraud, what would be the front and back sort of, you know, what does it look like in terms of you know what SentiLink delivers as a product that being ID verification and stuff, how do you guys work in that type of situation?

Naftali Harris

let me give you an example. So we work with credit card issuers, small business lenders, credit unions, banks, and so forth. So an example you might have in mind is, you know, suppose the bank wants to open a new credit card for somebody. Yeah, before they do that the bank will send information about that application over to us. So we’ll receive information like, name, date of birth, as a sign and address, phone number, email, IP address, and so forth about that application. And we received that via API in real time. And take that information and analyze it, we run it through every type of fraud vector that we’ve ever seen and compare it against all that we check each element of that application against a known list of fraudsters that we’ve identified and ultimately run it through machine learning models. Having done that, this all takes, By the way, 300 milliseconds, we return the different risks that we’ve identified, if any, back to the bank, answer, the bank will see different risk scores, attributes related to risk, flags, and so forth. And from that, the bank will make a determination about whether or not it wants to open that credit card. Or instead to ask for additional information or take some other kind of action. It’s all in real time, that’s extremely fast and extremely scalable. We do over a million identity verifications every day, and are able to do and are able to start to help financial institutions stop this kind of fraud. So that’s an example for a credit card issuer. But you know, we do the same thing for small business lenders, including many of whom were part of the PPP, and do the same thing for opening checking accounts or savings accounts, auto loans, buy now pay later. Different kinds of installment loans, utility companies insurance, you name it. Does that give you a good example?

Alijah Poindexter

Oh, yeah, that’s perfect. Yeah. Alright, so we can shift gears a little bit. So with the rise of real time, or as near to, or as close to real time as you can get payments. And of course, this is not just, you know, Venmo or Zelle anymore, I mean, this extends to this extends to rent this is this extends to, you know, paying collections off, stuff like that. How do you see ID verification providers, you know, adapting to the rise of instant and near instant payments for, you know, consumers en masse, because Payments Canada did a study recently, and it’s like, 80%, of all transactions for the 38 million people in Canada are digital. And I think like, more than half of them are, you know, e-transfers and instant sort of digital payments or near instant, because we’re still not in that space yet. But how do you see it? Of course, you say, you know, SentiLink is, you know, real time extremely scalable, all that good stuff? How do you see ID verification providers sort of adapting to the rise beyond just Venmo and Zelle? into? I mean, it’s just like, becoming ubiquitous almost in the payment landscape?

Naftali Harris

Yeah, so I think that there’s a couple of sort of short term impacts of this, and then some longer term ones. You know, short term, the, the stakes are raised a lot. You know, I think, if you think about like an ACH transaction, the fact that that takes several days to clear is a really big, you can do a lot in a couple of days. And, you know, it allows you to be in some ways, more lenient upfront with some of your identity verification. And then as you review something later, and sell this actually is not good, you can go and cancel it and get the money back. And with real time payments, of course, you know, that it’s a lot faster, and you may not have that sort of luxury. And so I think that, you know, for starters, because the stakes are raised a lot, you’ll actually find many organizations being more conservative, for starters, just so they don’t immediately lose a ton of money from this, because I think the time delay for for certain payments is actually a security feature. And we’re just removing one of those big security features right now. So I think that’s kind of the first you know, a sort of initial short term impact. Longer term, though, I think you’ll find many organizations moving into more real time solutions, like SentiLink because they have to, frankly, I mean, the standards that consumer expect are raising, you know, and you know, I think real time payments is a reflection of that. And so I think that service providers and financial institutions will have to want to keep up with that.

Alijah Poindexter

And, you know, on the back end, how do you see that happening? So by backend, I mean, you know, b2b, B2G, business to government, stuff like payroll, insurance covers and payouts, paid time off stuff like that. Do you see anything on the horizon with that in terms of, you know, avoiding fraud in that area?

Naftali Harris

Yeah, I think that you might start to see more robust fraud prevention techniques in areas where previously you wouldn’t have seen that. And even things like, you know, payroll, I mean, signing up for payroll as an employee is pretty straightforward. You basically rely on the, on the employer to do the, you know, identity verification and make sure someone isn’t signing up with a bad with a bad or wrong or stolen bank account or what have you. And I think that even in, you know, previously sleepier backwaters of fraud, like that, I think that because you’re removing this time, the security feature of having more time, I think that you’ll start to see even organizations like that take more stringent steps for identity verification in order to support those sorts of real time use cases.

Alijah Poindexter

Back to the banking side, briefly. Again, we know I mean, it’s becoming ubiquitous, you know, real time payments, and how, you know, ID verification, and just general security and fraud, you know, avoidance providers, you know, will become more ubiquitous in that space. But I think that just like there is with everything, there will always be, you know, institutions or organizations that lag behind. So, you know, for every five, you know, regional, semi regional, national, or local banks that decide to jump, you know, with both feet into the sword into this world, there will always be the, you know, two or three, I don’t even know what the right would be in rural communities, or, you know, the sort of legacy financial institutions, who are still very much physical, very much against, you know, the sort of modernized banking and fintech practices, do you see something in the future where it will, again, as you say, it will, it will almost become unnecessary?

Naftali Harris

I think that over time, people’s expectations will increase. I do think, though, the timeline for that is probably longer than many people think, where Financial Services is one of the slowest moving and most conservative industries in the economy. And, you know, the stickiness of people’s relationships with our banks is really, really high. You know, for a lot of people, the bank account, their primary bank, is the bank that they first got it from when they first got their job and need to deposit their paycheck. And, you know, I think people’s expectations have risen significant significantly, with, I’d say, especially tech companies with their online, online service, not even just FinTech companies, but tech companies in general, you know, people are familiar with using things like Google or Facebook or Twitter, you know, any number of these tech companies that have really nice online presence and really streamlined flows and so forth. But I think in general, a lot of people are, there’s a, there’s a material proportion of population that is happy with their, with the financial institutions that serve them. And, you know, even if they’re not happy, like the switching costs is pretty high. So I think that over the long run, absolutely. That, you know, different banks and financial institutions will be forced to compete to serve people’s higher expectations. Now, but I think that it will be slower than many people expected because of the stickiness of people’s relationships with their financial institutions.

Alijah Poindexter

Do you think this would give fraudsters in the future, a higher opportunity to sort of retro actively go back and attack people who are still banking with these more legacy sort of conservative types of banks or financial institutions, because, say, five years down the line, a fraudster has adapted the best way they can, which, you know, hopefully, you know, we, we don’t want any fraud at all. But let’s say a fraudster does what fraudsters traditionally do, and unfortunately, learn how to adapt semi effectively to whatever sort of security measures are in place for let’s say, 80% of people. Would this give them the opportunity to go back and say, Well, okay, we’re having trouble, you know, committing fraud or committing security or identity theft. With this organization. Let’s go to this place in, you know, a rural area or a place that has underbanked. You know, community and attack them there? Do you think that that unfortunately, would present some opportunities for them?

Naftali Harris

Yes, in a slightly different way, I think that any organization that doesn’t adapt to the changing any organization that doesn’t adapt to the changing fraud and security landscape, will see some of the things start to happen to them. I mean, quite frankly, fraudster doesn’t care if the news security release is coming up, and you’re, you know, q3 2022, you know, new release. I mean, it’s, you know, they don’t respect your timelines, and, and don’t care. And so organizations, I think, actually are forced to adapt much more quickly to fraud and security issues, and they are to customer demand. And so I think it’s absolutely the case, any institution that doesn’t adapt to the changing security landscape will be taken by fraudsters for, I think, a pretty significant amount, if they have any kind of open holes or vulnerabilities. Now, whether that’s, you know, banks in more rural areas that are serving more of the underbanked people, I think it just depends on, you know, whether those banks adapts better security features or security features that keep up with, with changes in fraud and security. But I definitely think that banks that lag behind in general, you know, regardless of where they are, will suffer these kinds of issues.

Alijah Poindexter

All right. And last question here. What are your just general predictions? For 2022? Can be broad, narrow, you know, I mean, have some fun with it. If you, you know, if this is even a fun topic, I don’t know. But, you know, what are your general predictions? What do you see from yout, you know, subject matter expert sort of perspective happening?

Naftali Harris

Yeah, well, we talked about one of them for fraud and identity, where I definitely think fraudsters will be more aggressive and more creative off of their hugely successful 2021. But some other ones I was thinking about, I think that 2022 will really be the year when fintechs are really starting to get mentioned, in the same breath as the largest banks in the United States. Where, you know, right now, if you think about the top 10 banks, you know, it’s all brands that have been around for when Capital One is the youngest major bank in the country. And, you know, even Capital One is, you know, it was started in, you know, a while ago. And, you know, I think that I think 2022, with a year where, you know, in in multiple different categories, whether that’s for traditional banking, or credit cards, or auto lending, or purchase finance, fintechs will really start to be considered as equals with the, the more traditional banks that are out there. So that’s one prediction we’ll have. Another one is, I think 2022 will also have unprecedented for FinTech companies. 2022 will lead to unprecedented customization for each customer. If you look at a number of new FinTech providers that have popped up, they’re going very, very deep into different sorts of customer use cases and into different types of customers. You know, where there are now banks that really serve independent contractors, or banks, that serve different segments of the population that focus on immigrants or students or even different ethnic groups. And, you know, I think that this kind of specialization for different types of customers and their unique use cases, I think, is an amazing thing that allows people that have different financial needs to be best served by companies that really understand them and have designed for those specific use cases in mind, but I think that in 2022, that will only continue and in fact, I think that some banks will even allow you to, like customize your banking experience to you personally, and, you know, to what’s important to you, and to what you know, what your specific financial needs are even beyond just, you know, what your job is, or your affinity group or things like that.

Alijah Poindexter

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