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Due diligence was a big topic in 2022 for a variety of reasons.
But due diligence doesn’t just apply to investors pouring money into startups, or companies acquiring other companies. Businesses, especially those operating in financial services, also have to conduct an appropriate amount of due diligence, for example, to avoid fraud.
As recently as December, a congressional report accused several fintechs, according to NPR, “of reaping ‘billions in fees from taxpayers while becoming easy targets for those who sought to defraud the PPP,’ or Paycheck Protection Program” in the early days of the COVID-19 pandemic. Specifically, the report also charged that fintechs neglected to stop “obvious and preventable fraud.”
Meanwhile, the Small Business Administration is facing pushback from organizations such as the American Bankers Association and the National Association of Government Guaranteed Lenders regarding a proposal that would allow fintech startups, as reported by Politico, “to begin offering government-backed loans under the department’s flagship ‘7(a)’ program — long the domain of traditional lenders.”The groups allege, among other things, that the SBA is “ill-equipped to regulate the fintech firms that would want to participate.”
Enter TrueBiz. The startup wants to reinvent how fintechs review the risks of the businesses they onboard, so as to avoid such fraud cases, and pushback, as described above in the future. Founded by Danny Hakimian and Max Morlocke, the company recently raised $2.4 million in a seed round led by Flourish Ventures in an effort to reinvent how financial services verify businesses during account opening. Homebrew, The Fintech Fund and Y Combinator also participated in the financing. The company participated in YC’s Summer 2022 batch.
In conjunction with the raise the company is also announcing the launch of its new product, the TrueBiz Risk Score, a summary of key risk indicators.
Specifically, TrueBiz aims to add color to a business’ background with over 50 data points – such as industry and revenue – from around the web, and then summarize key risk indicators, noted Satya Patel, partner of Homebrew.
“We do this by automating the review of a business’s online and offline footprint,” Hakimian told TechCrunch in an interview. “We look at their website, maybe social media profiles, review pages, and hundreds of different sources to build a more complete picture of the company.”
Legacy solutions, he added, are too dependent on inconsistent and unverified information and often are still conducting manual reviews.
TrueBiz’s end goal is to fundamentally change how financial services organizations verify businesses during account opening, according to Hakimian.
“Our technology also automates the review of company documents captured at registration, and combines this with searches in best-in-class data sources,” he said. “Our ultimate vision is to create a single sign-on for business identity. When a business is verified once using our service, they will re-use their credentials across our network without re-submitting their information. Automating the onboarding process for banks is the first step in our journey.”
Ultimately, Hakimian said, TrueBiz claims it gives financial services providers a way to onboard their business customers faster, and eliminate the churn that can result from verification delays.
Image Credits: TrueBiz co-founders Danny Hakimian and Max Morlocke / TrueBiz
The PPP program, he said, put financial service providers under enormous pressure to move quickly, but unarmed with the appropriate tools to do so
“The legacy providers just couldn’t provide a substantial enough review to balance the speed and quality time,” Hakimian said. “And even outside of the PPP program, it still takes something in the region of 20 to 30 days to open a business bank account in the U.S.”
Its target customers are mid-size financial service providers, such as banks opening new business bank accounts, or payments providers onboarding merchants. Other use cases include insurance companies trying to validate the business to which they’re providing commercial insurance.
“There’s a big tailwind behind this,” Hakimian said. “The last decade the story was about the growth of consumer fintech. But we believe that it’s the underlying identity technology that will empower the next wave of growth, and that is really coming from B2B, embedded fintech solutions that require better tools to be able to scale processes up beyond the manual review.”
As an API-based service, TrueBiz charges its customers a fee per search. Presently, the startup has less than 10 employees and is fully distributed.
The fresh capital will go toward some hiring, expanding product functionality and towards marketing and sales.
Emmalyn Shaw, managing partner at Flourish Ventures, told TechCrunch via email that the KYB (Know Your Business) problem “is a significant and sizable market opportunity.”
“We know firsthand from our investment in Alloy and others in the KYC space the importance of identity verification and due diligence to mitigate fraud and drive revenue. KYB introduces a significantly higher degree of complexity,” she wrote. “Lack of API-driven digital sources, as well as inconsistent data tags in existing data, leads to time-consuming and intensive manual reviews. TrueBiz has the potential to unlock meaningful ROI and drive additional top line revenue.”
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