Fighting Fraud has Become a CX Differentiator

Jim Marous:

Hello and welcome to Banking Transform the top podcast in retail banking. I'm your host, Jim Marous, founder and CEO of the Digital Bank Report and co-publisher of The Financial Brand. Marketers and product teams spend heavily on acquiring a customer only to churn them with a bad first experience. Fraud is very quickly becoming the key element of that bad experience. In fact, research finds that payment fraud has increased by as much as 70% since last year. More than ever, we need a new way of looking at fraud prevention, one that deeply inspects user behaviors before, during, and after the time of purchase, helping move money fast and without risk, improving the overall customer outcome. I'm excited to have Simon Taylor and Soups Ranjan from Sardine on the Bank Transform podcast. We discuss why security and risk management leaders need to focus on the ROI, false positive rates and customer experience to protect the entire payment process.

It was said by one of our guests today that, "Faster payments actually opens the door to faster fraud." As the entire payments ecosystem is built around instant payments, consumers are increasingly vulnerable to social engineering attacks where they are convinced to buy something that they never wanted or never really arrives or to invest in a scam. The holy grail is to be able to get ahead of the payments fraud while not negatively impacting customer experience. So Soups and Simon, thank you for very much for being on the show today. Before we start, can you give us a little bit of a background about both of yours careers up to this point, but also how Sardine was formed and a little bit about what your firm does? So I'll start with you, Simon.

Simon Taylor:

Regular listeners will know the voice, Simon Taylor. I was one of the founders of 11:FS, the boutique advisory firm in the UK, regularly blogging at FinTech Brain Food, but my career is, I worked in banking for five years for Barclays and before that in the payments industry for five years and pretty much did a tour of duty around every department, delivering every different type of financial product from the early days of mobile, right through to faster payments in the UK, separate implementations and quite a lot of experience working with all of the departments. So if you're an operator out there or you work in a bank, I've probably done something close to your job or worked with somebody in your team at some point in a past life. And now joining Sardine was really about getting excited about the opportunity in front of faster payments around crypto, around the future. And I think Soups is really well placed to tell that story about who we are. And perhaps then everybody will see why I got so excited.

Jim Marous:

Soups, you have an interesting background. Do you want to share that a little bit and then also what Sardine actually is focused on?

Soups Ranjan:

Yeah, absolutely. My background is, I have worked in cyber security, payment fraud and ad click fraud, pretty much for my entire career. I got into payment fraud about seven, eight years ago when I joined Coinbase to head their risk and data team was there for about four years. And then after that I went to the UK based Neobank to head financial crime for them first and then later to head crypto. I met my co-founders at [inaudible 00:03:56] Adi and Zahid. Adi launched revenue to the US and we worked together to launch US crypto for revenue. And Zahid was a product manager on my team. And Zahid's background is also like a formal fraud fighter. He has built fraud prevention detection for companies like PayPal and Uber in prior life. So we've assembled a team of folks who have built systems internally in their companies to fight fraud.

And what we've done at Sardine, is all under the theme of safer, faster payments. We have built a product suite where first product is all about fraud and compliance in one unified API. We service about 150 fintech and crypto exchanges including Brex, FTX, Belt, Simple, Chipper Cash, et cetera, all of whom are using us to either detect fraud at account opening or detect fraud when money is moving into the account. We call that account funding fraud or finally to detect fraud, which we call issuing fraud as well whenever you're swiping the card. So that's the first product. The second product that we've launched recently is our Crypto On-Ramp. So now you can use Sardine to purchase crypto on popular browsers like Brave or popular Web3 wallets like MetaMask and if you really think about it's all under the theme of safer, faster payments, as I said earlier.

One of the most critical things when it comes to purchasing crypto, is solving for fraud and compliance issues appropriately, which is why we got into this business of a Crypto On-Ramp, where you collect a bank account or connect your card and we can give you much higher conversion rates and also deliver crypto into your wallet, while taking on the fraud risk. And there's a third product which we just recently announced. We call it Risk Insights. That's all about closing the visibility gap between traditional finance, like banks, as well as new finance, which are fintech and crypto exchanges. As in how do we share data from amongst both parties such that we can actually reduce fraud and increase conversion rates when you are purchasing crypto using a card or when you are loading money into a wallet using ACH debits. And I can get into more depth later.

Jim Marous:

Simon, many times the fighting of fraud, negatively impacts speed, simplicity, and ultimately the customer experience. How can firms address both these? Both the fraud and customer experience at the same time? And I know that's what your solution does, but how does that happen, because it's all about that seamless integration while still staying ahead of what's going on in the fraud world.

Simon Taylor:

Several things blew my mind when I first met Soups. But the first thing was that he said he spent the first two years at Coinbase adding friction and the next two years removing it. And I think that the default motion for preventing fraud is to add friction. But actually there's this thing called a false positive. And the false positive says that, "Hey, we've put in some friction to try and catch fraud and we've stopped a consumer from making a transaction." But a good consumer may have just been trying to pay their grandma. They might have trying to been deal with a bill, they might have been in crisis, there might have been something that was not normal for them. And what did you do as a financial institution? You just stopped them from living their life. You just stopped them from doing whatever it is that they were trying to do.

And the false positives are often measured in ratios. So when I first broke into the payments industry, 20 false positives to one actual case of fraud was industry standard. We got that down to 10, we got that down to five and constantly compressing that is really, really important. The easiest way to solve that of course, is to just let all of the fraud happen. But then on the other side of that, now all of your customers are complaining that they got defrauded and they're blaming you and you have a reputational risk and you've got this other kind of friction, which is starting to happen to some of the Neobanks and De Novo digital banks, which is, suddenly their card stops working. I think there was a famous case, where I think it was Chime cards no longer work with Hertz Rent a Car, and it happens to many others. I don't mean to pick on those guys and I'm sure they're working hard to resolve it, but the card just stops working.

And what does that mean for your complaints? What does that mean for your customer experience? So you have to... I'm thinking of the image of a judge, the two sides of the law. You have to balance both sides of this equation. You have to get false positives down so that good customers can just transact freely, faster, safer, but you also, at the same time, have to ensure that you are preventing fraud. Otherwise you end up in the industry's naughty lists like the chargeback programs and everywhere else and other banks, other big financial institutions will start blocking you. So there's friction on both sides. And I think that was the insight from Soups. That was one of the many where I went, "Okay, if we want to make finance better, like the keystone, the middle, the thing we have to solve, is risk and compliance and fraud. If we solve that, everything else starts to make sense."

And I'm always looking for where can you have the most impact to consumers, to society, to the economy? And I believe that's in financial services because if you change how money works, you change everything else. And within financial services, it's always risk, fraud and compliance. That's the real superpower of fintech to my mind, Jim.

Jim Marous:

Well, it's interesting, Soups, when I think about what Simon just said, there are financial institutions that aren't even integrating with other providers because of their risk aversion. So I often talk about the fact that the avoidance of risk, what we really need to do is manage risk, but managing risk is a careful balance also. Because you see, as Simon mentioned, you have fintech firms, you have services like buy now, pay at a later date. If you get too loose, it immediately takes you over and it messes things up and it messes up everybody's customer experience. So really the answer then is to build a solution that's much more effective without impacting this speed. Correct, Soups?

Soups Ranjan:

Yeah, absolutely. In fact, if you really look into it, most of the newer banks and crypto exchanges, if you dig deeper and look at all consumer complaints, majority of them are because of some fraud or compliance issue gone wrong. It's either a false positive from a fraud point of view or a KYC step gone wrong, et cetera. So oftentimes fraud and compliance are at loggerheads with customer experience. However, we actually think it shouldn't be so. They end up being at loggerheads because most of the time when entrepreneurs are building the fintech app or they're building the crypto exchange, they don't put foreign compliance front and center. It's always an afterthought and then they have these quick knee-jerk reactions when a fraud event happens and they add a lot of friction.

But what we are trying to do is to change that status quo. And we are trying to get ahead of the curve here and let entrepreneurs know that, "Hey, that's not the right way of solving for it because eventually you'll pay a huge price in terms of poor customer experience, people that start preferring that other fintech app, which does customer experience much better because they solve for foreign compliance issues head on."

Jim Marous:

So just stay with you, Soups. One of the major dynamics with financial institutions is, as you said, they keep on adding levels, based on what's happened in the past. How do you convince a crypto firm, a fintech or a traditional bank to rethink that whole risk avoidance function to say, "You've got to give this alternative a try, as opposed to this being just another layer"?

Soups Ranjan:

The way we do it is,, one of our observations was that people were not really relying on behavior data very much at the time of account opening or account funding to detect fraud. So that is the key observation we had. And that is the first product that we built, we call it device intelligence and behavior biometrics. So what we do often is that most of the fast growing or already established fintech or crypto firms, they already have KYC in place. So we can't go in and say, Hey, replace your KYC with Sardine's KYC. But what is the truth though, is that pretty much all of them have a fraud problem. And in fact, when I was at Coinbase, 90% of fraudulent returns and chargebacks that we used to get, used to come from fully verified identities. So therefore fraud is all veg.

And what we go in into financial institutions and crypto friends into them and offering them is that saying that, "Hey look, fraud is a problem for you. You already have KYC, install our SDK at the time of account opening and account funding. It's really 20 lines of code in JavaScript at a very lightweight, a hundred kilobytes worth of Android or iOS SDK. What this SDK does is it actually looks at users innate intrinsic behavior. How do you type? How do you move the mouse? How do you swipe and scroll? Because what we have observed is, that let's say I stole Simon's identity, his social security number, then I'm going to be distracted while typing it. I'll type one character at a time, I'll contact switch into another window, look it up, come back and type. Essentially I'm doing what is known as segmented typing. Or I will, if I'm using his card details to buy crypto somewhere, then I'll copy paste his card number.

And further maybe I want to notch reveal my device identity so I'm going to install a mobile virtual machine or a mobile emulator. And finally I will also use a proxy or a VPN. And even further, sometimes fraudsters go even further. Oftentimes you'll see that they are using a script to remotely program a mobile device, and therefore you'll find that somebody is typing, but the phone is kept upside down. So we collect all of this very, very rich and detailed data and that is our true innovation, that we are able to collect all of this in real time, all this telemetry in real time and do a heavy duty machine learning in real time and give you these signals within a second to tell you whether, it is me using my own identity or is I used Simon's identity or Simon's payment method.

Simon Taylor:

Jim, if I could just say, how on earth do you type on the phone screen whilst the phone is upside down or on the floor? There are all of these things that you don't look at. I was speaking to one of the Sardine clients earlier who said, "We thought when we built this company that we'd done compliance because we put in KYC checks. We didn't realize that most of the fraud was going to come from people who pass KYC." And that's because lots of identities are stolen and you can trivially buy a stolen identity. It's very, very cheap, less than a hundred dollars, in some cases 20. It's super cheap to buy a fake identity, a real identity that will work.

But to Soups's point, the way you detect that is with the signature moves, with the things that they're doing because there are certain things you will do having never signed up for a product before. You'll take a little bit longer, you are not an expert at signing up for fintech apps, but experts at signing up for fintech apps, give away that they're experts just in the way they behave, the way they manage the device, et cetera, cetera. And that to me just struck me as detective work. It's constant and it's evolving and it's ever present.

Jim Marous:

Well that's interesting because that's something that Apple did with their Apple Card is that they're not just looking at what you put into the fields, but where your phone is compared to where you're supposed to be and all those different dynamics. It's interesting, Simon, one of the things that was mentioned by one of the writers I read about Sardine, was that you're implementing a concept called fraud as a service or Fraud Protection as a service actually. Why should traditional banks and fintech firms care about this, besides the obvious?

Simon Taylor:

The traditional challenge that I think a lot of organizations had, especially fintech companies and startups was it takes 15, 16, 17 different vendors to get your fraud performance where you want it to be. And integrating all of that with 15 different contracts, with 15 different dashboards, 15 different APIs, is a heavy lift. Now large financial institutions have probably already integrated more than that into their stack, but you could always be better. And so from a Sardine perspective, we don't say you have to take the whole thing or nothing. We say take the bit we're best at and we'll help you improve elsewhere as well. The second side of it is, one of the things that I've found when I've spoken with Sardine clients, is they absolutely love that this is almost like hiring an extension of your fraud team. We are constantly looking at everything we're seeing in our client base and that we're seeing in frankly some of the most high risk sectors in crypto and in fintech.

And we're updating how the machine learning models work, based on that data, based on stuff that a traditional financial institution would never see. But we see into that. We call it peering into black holes. And so what we'd like to do is even just share that data for the fraud models of the large financial institutions. And that's one of the products we offer called Risk Insights. So it's thinking a bit differently about, rather than as being just a point solution for a small company, we can be almost the entire fraud and compliance and risk department. Whereas for a very large company we can probably make a difference because we peer into these black holes and as Soups said, then the middle piece, the missing piece, is with faster payments, comes faster fraud. We can also deal with the emerging threats and risks.

And as people worry about the scams and hacks happening across things like Zelle and Venmo and Cash App and those peer-to-peer payments types, really, really helpful to see more data to peer into black holes to understand that and to already have views on how you manage it. So that is how I think about that, Jim.

Jim Marous:

It's interesting, Soups. Obviously improving fraud protection, builds customer trust. That said, there's been a great deal of industry concern around the rise of fraud at Zelle and other payment platforms. How can finance institutions, and really the overall ecosystem of payments, stay ahead of fraudsters? Because everything you implement, there's somebody working to say, "How do we get beyond what you're doing?" How do you stay ahead of it?

Soups Ranjan:

Actually there's a couple of different ways. So number one, what we realized is that it's always going to be a game of cat and mouse, but there are certain things which are very, very intrinsic to a fraudster's behavior. And if we start looking at that without them realizing that we are observing their intrinsic behavior, then we will be able to stay ahead of them in one way. I'll give you an example. If I have stolen thousands of credit cards and I'm going to my favorite crypto exchange and I'm creating thousands of accounts and adding each of them one by one, pretty soon I'll become very much familiarized with the account opening process, which means that the way I move the mouse on my screen is going to look very, very different because I'm very familiar with the environment as opposed to Simon who's going to that crypto exchange for the first time and using his own identity. He'll be browsing all over the place.

So that is one intrinsic behavior pattern. The second way we think that we can stay ahead of the curve is by essentially building the largest data consortium, which is only about loading money into a wallet. There exists lots of consortiums, there have been lots of consortiums, but I would argue, most of them they're built for solving for eCommerce fraud. Like, am I using a student card to buy a high value goods at an e-commerce store? But no one has really cracked the nut when it comes to building a data sharing consortium, which ties together data from big banks, processors, fintechs, new banks, crypto exchanges, and that is the second part that we want to do. And if we are successful in that, then what we see in one fintech or crypto exchange can act as an early warning signal to help the others.

Jim Marous:

It's interesting, Simon, we talked about this offline, but for a good fraud solution, it is really not just a back office plug and play solution. It really has to be embedded in the entire organization, the culture, and in the way people do business overall. And that's true with anything, even outside of the fraud area. But I heard you worked with Blockchain.com and you helped them actually implement a program and that they supported, where both the fraud area and the payments team were actually the same team as they looked at fraud. Can you explain this a little bit?

Simon Taylor:

Actually, it's interesting you say that, Jim, we just published the case study, so hot off the presses on sardine.ai. You'll find this case study where blockchain, as you say, crashed together their fraud and payments teamed and you wonder, "Why would they do that?" Well it turns out, you get lower fraud and you get better business results. And I think that's what a lot of listeners really, really care about. So take a business like Blockchain.com. Their lifeblood is conversion of the first wallet funding. So a bit like the direct deposit is to a financial institution, the ability to move money, to confidently load money into that wallet is mission critical. If something goes wrong, the consumer has a bad experience and churns out and never becomes a customer or may never become a customer. And if something goes right, fantastic, but now it's got to continue to go right in the future, otherwise they may churn out.

And from Sardine's own data across our client base, we find that wallet funding, as Soups put it, a coin toss. You have a 50% chance of being declined when you go to fund a wallet. Whereas, with our clients, we can get that up to 94, 98% in some cases by changing the payment method and by understanding the infrastructure and managing the fraud. So that's nearly double the amount of customers walking through the door for a fintech company. And that's meaningful. If you can move that conversion rate up, that's hugely valuable. So Blockchain said, since they've been partnering with Sardine and they adopted this model, their conversion rate is up at least 10% and they expect to see that continue to rise as they partner deeper with us. 10% more customers is very different to making a slight difference elsewhere in the stack.

So really, the case for deeply understanding fraud is huge on the new revenue side, but they've also meaningfully reduced fraud in the process. And how did they do that? Well, they made one team, one set of priorities, one set of OKRs. And what they did is they removed that historically adversarial relationship where the payments team wants the fraud controls to be looser and the fraud team wants to put in more rules. And they worked together and said, "How do we treat this less like a machete and more like a scalpel? How do we go find those good investment?"

Jim Marous:

To benefit both sides, obviously.

Simon Taylor:

To benefit both sides. Exactly right.

Jim Marous:

And Simon, you know you've been on the road quite a bit, I know that, and you're meeting all these financial firms that obviously fraud protection is like mom and apple pie, it's all good. However, you're getting organizations that don't buy it. Your solution is maybe don't buy the updated fraud products out there. What do you see as the biggest reason why organizations either say, "No," or say, "You know what, give me some time. Not right now"? What gets in the way of... We have this often. When we interview companies and we say, "Geez, this sounds so logical. Why would anybody say not right now?" And it's more than just a money thing, but why would people say no?

Soups Ranjan:

I could take that. We like to say that a lot of people think that fraud isn't a problem until it is the only problem.

Jim Marous:

And it only takes a second.

Soups Ranjan:

Yeah, exactly. Like water always moves to the lowest ground. So it's the same thing. If you don't actually take care of fraud, fraudsters are actually going to find you. They're very creative. They've seen fintech apps launched without any fraud protection on the app store and they don't attract any good users, but they do attract a lot of fraudsters the moment they launch. Why? Because these guys are waiting. They're waiting for the next victim. So therefore, it'll require a change in behavior, but we think that the tides are shifting. If you think about it, let's say 10, 15 years ago, I would argue that security and the security industry was in a similar boat as what fraud industry is today, especially financial institution fraud.

Now you have C-I-S-O, CISOs. Pretty much every bank has a CISO, et cetera. And security is also taught in schools and universities. But is fraud taught in schools and universities? No. How many people do who become a victim of fraud? Pretty much all of us can name someone. So it has to come from this change all the way from education. And we are all now carrying our entire wealth in our pockets, in our mobile phone. All my banking brokerage, crypto apps on my phone. If I lose it, I'm toast. So I'm pretty sure the next generation of people, they're going to be very, very conscious about fraud. They'll start asking the right questions. And that's one way you'll get that C-change.

And therefore the smart and the savvy fintechs will quickly realize that they need to have a C-level exec, if they don't already have one, who is directly reporting to the CEO and who is in charge of fraud prevention and whose job is all about finding the best in class fraud product so that they can really use fraud as a differentiator for the product and therefore, in turn, have the best customer experience as well.

Simon Taylor:

And I think just to add to that, Jim, on the financial institution side, AML, were shot right up the agenda in the past 10, 15 years. And your chief risk officer tends to spend a lot of time focusing on that subject. But if you look at the headlines around some of the scams, Zelle and peer to peer payments apps like Venmo and others, those scams are headline news in the mainstream press and taking up a... So when that happens, that takes up mind share in the boardroom amongst the investors, it affects the share price. This becomes something that really meaningfully impacts not just the bottom line of the revenue coming through the door, but the actual long-term potential value and reputation risk of that financial institution. And unless you can start to really meaningfully understand where are the threats and in faster payments and faster fraud, then you are going to be left out in the lurch and dealing with all of these challenges.

And I know a lot of financial institutions are wrestling with that today, and a lot of them have sophisticated fraud controls and fraud teams. Many providers and vendors in there, but we can all do better. And to Soups's point earlier, part of that is pairing into the black hole. Part of that is understanding what's out there and what you could see in some of those high-risk sectors and what you can learn about the faster payments that are already happening with folks like Sardine and its clients, who are able to start sharing some of that data. So to the question, why would somebody say no?

I think on the financial institution side, is what we already take this seriously, "Ah, but do you realize this hurts over here? There's this peering into the black holes problem." "Oh yeah. No, we haven't thought of that." "How do you solve it?" Or, "Yes, that's been bugging us for a while, what can we do about it?" And Soups did a great panel in FinTech DevCon in Denver a couple of months back where we got Shamir Karkal from formerly of Simple, now Sila. We got folks from Alloy and elsewhere. And the consensus of folks that have been industry veterans that have built multiple fintech companies was exactly that point. Fraud isn't a problem as a fintech company until it's the only problem. And we convince ourselves that having a KYC process prevents fraud. It does not. Most of the fraud will come from properly verified customers.

So whether it's scams that are this itch that you can't scratch, this problem that just won't go away as a financial institution, or whether it's, you're about to drive off a cliff and lose a lot of money and end up in this thing called a chargeback program, but don't worry we can help. It really depends on who the buyer is and what's most problematic for them.

Jim Marous:

Soups, on that same subject or a little alternative to that subject. In talking to a lot of solution providers, a lot of solution providers have great solutions, but when they start to implement it at a funny institution as a partner, the partner says, "Well, I like everything you got, but I want to do this and this, the way I used to do it." And it really undermines the strength of your platform. What are the areas that financial institutions, fintech firms, crypto companies, anybody you work with, what is an area as an example where somebody says, "Well, I like everything you've done, but this is the one thing I want to change," but it really negatively impacts the effectiveness of Sardine?

Soups Ranjan:

I would say, that is indeed true. A lot of times they would say, "Yeah, I don't want to embed your SDK in my app," or, "I don't want to use your device behavior signals." Then it's really just a matter of understanding where that challenge, from their point of view, is coming from. And we have actually been pretty successful, so pretty much every one of our customers is required to actually embed our SDK in the app or in the front-end, on the website. And oftentimes the challenge when we dig deeper, the challenge from their point of view comes from, "Hey, you're going to increase the size of our app." The answer to that is that it's only a hundred kilobytes. The second rebuttal comes from, "Hey, are you going to ask for permissions that we don't want to ask our consumers for?" And we've already thought about that as well.

We actually don't ask for any other permissions beyond what you usually give in your app. And then the final challenge usually comes from, "Hey, it'll take my engineers a lot of time to integrate it." And then we've had customers who have integrated our JavaScript DDK in one hour. It's that simple. And we've had customers who have integrated our mobile SDKs on Android or iOS and published it on the app stores and gotten it reviewed and approved in a week. So once we've worked through all those, we've had a hundred percent success rate because we wouldn't be able to service them if they don't have better SDK.

Jim Marous:

Simon, one thing that's happened recently, is your firm's gotten a lot of really strong investments from venture capital firms, at a time when actually the industry for venture capital has softened quite a bit. Alloy Labs also, a firm that represents smaller organizations, has also invested in your solution for their source of smaller banks. How quickly can a fintech firm or a traditional finance institution, actually implement your solution?

Simon Taylor:

Extremely quickly. I don't know what the record is, Soups, but it's 20 lines of code and go. We've had folks I think in less than a week from initial contact to live. That's quite common for very small companies and the modern nature of technology. But a financial institution, we can go faster than you guys can. The question really is, "What's your procurement process and where do we fit?" So ultimately, where do we fit will depend where it hurts, and the answer to that will be different for everybody. At that point, we become more like a personal trainer, trying to understand the organization in front of us and how they get better. And ultimately, Soups said it, we believe in safer, faster payments. Money's better when it moves faster. Merchants get paid sooner. They can hire staff quicker. Consumers can deal with emergencies, they can get the direct deposit sooner.

That's all fantastic, but it just creates a much more of a fraud risk. So if we want that social outcome, if we want the increased revenues, then we have to figure out fraud first. And that's the middle of everything. And I think what's happened is, as fintech companies have started to focus more on the cost line item, suddenly the realization that they were losing a lot of money to fraud, might have kicked in. But also that realization that if somebody can't load their wallet, if they are having a conversion issue, that's going to impact the amount somebody can spend on a day-to-day basis.

So the timing for Sardine is fantastic on that front. And then the timing in terms of the faster payments coming in with FedNow with Zelle, with the increased use of Venmo and Cash App. Venmo just went live with Amazon, for instance. These are payments mechanisms that are becoming the default. And so it's really, really good from that perspective. And internationally, Soups has worked at Revolut, I've worked in the UK for some time. We have quite a great deal of experience dealing with faster payments as the default and some of the challenges that come with that.

Jim Marous:

So Soups, what do you see as the major fraud trends that you see in the future and how can financial institutions continue to protect themselves? What do you see in the future as being the biggest challenges?

Soups Ranjan:

I would say a couple of things. So first one is card fraud, and the second is APP, or authorized push payment fraud. So card fraud. Since, Jim, a lot of your listeners are probably from the traditional finance, which is banking side, one thing that we have realized is that when people are using cards to buy crypto at a crypto firm, or when they're using their debit card to load money into a Neobank wallet, the conversion rate is actually pretty poor. It's anywhere in the range of 60 to 70%. So I would argue that the other 30 to 40% are not really fraudsters, maybe only a slight sliver of them are actually fraudsters. But that then means that all the banks which are issuing cards, they're actually leaving money on the table and a significant amount of money on the table. Crypto is now an industry which, even in the crypto venture, it's not something that can be ignored.

And we dug deeper and we realized that the reason why issuing banks are not able to have a high enough conversion rate is because, perhaps the fraud algorithms don't have the level of data that we really should, which is why they think that anybody loading money into a wallet or buying crypto gets stacked with a high-risk MCC code or merchant category code. And therefore anytime they see this MCC, then they just flag it. So it's as good as a random coin toss. What we would like to do though, is we actually are now plugged in to most of the top crypto exchanges and crypto firms and the newer banks.

So we see a user's behavior when they're trying to load money in a wallet or buy crypto. So our pitch now to the bank says, "Hey, at the time when you have to make a decision on whether to allow your card to be used to load funds, let's make a real time call to Sardines Risk Insights API and we'll give you a much deeper visibility all the way into whether the card number was copy pasted, or did it get autofilled from the browser, did the consumer use a proxy or a VPN, et cetera, et cetera, then that you can then use to increase your conversion rate and actually not leave that much money on the table.

Jim Marous:

Let's take a short break here and recognize the sponsor of this podcast. Obviously the solution you provide is unique to the marketplace and the problem's only getting bigger. Before we finally wrap up the show, I wondered from each of you, is there anything that you'd like to leave behind as a message? Because I think as you said, it's not a problem till it's a really big problem. But we all know it's out there. It's not going to get smaller, it's going to get bigger, it's going to get more challenging. So both Soups and Simon, any message you'd like to leave with the audience that listens to this podcast?

Soups Ranjan:

Yeah, the other thing that Jim I was getting into is authorized push payment fraud. Maybe I can weave that in as the final message as well. I've been in the space, cyber security fraud for 15 plus years, and now I realize that every single Neobank, when they launch, they have fraud. Every single crypto exchange, when they launch, they have fraud. In fact, every single payment network when it launches, it has fraud. Like Zelle and I'm pretty sure when RTP is highly prevalent and FedNow when they're highly prevalent, they'll have humongous amounts of fraud because the fundamental way we think about money is completely shifting. It's instant. It's fast, and it's attracting very, very novel ways of perpetrating fraud.

And what we therefore need to do is, instead of thinking about these new networks as just simply message passing interfaces, we need to actually have an entity like Sardine or maybe others come in and say, "Hey, we are confident in our fraud algorithms. We will help rid this network of fraud," and we won't let our consumers be in the way of harm. The networks can continue to be message passing and we understand they can't get into taking on the fraud liability but Sardine can. And in that regards, even with rise in faster payment fraud like Zelle scams, et cetera, once there's an entity which comes in and says, "We are going to rid the system of fraud," it inspires more confidence. We will provide technique technologies like confirmation of payee or counterparty risk assessment to really assess if I'm sending money via Zelle or RTP to Simon. Do I know Simon? Is Simon trustworthy? Has Simon defrauded other people in the network? So that is our end strategic goal to be this real agnostic fraud system, which works across Visa, MasterCard, crypto and all the other faster payment methods.

Jim Marous:

Great. Simon, any last thoughts on your part?

Simon Taylor:

Yeah, I think the big thing for me and why I got attracted to Sardine in the first place, is just how counterintuitive this stuff is. You think that it's fraud versus experience. You think that a new fraud tool means more pain for my customers, or it's something that I have to do, that it's a tax on the business. But the reality is this is fuel for the business if you do it right, and doing it right means moving safer, moving faster. Safer, faster payments is what I truly believe in and if we unlock that, we unlock the whole economy, we unlock more revenue, we unlock better experiences for consumers. So get in touch, drop us a line, drop in and say hello, at sardine.ai and check out our website. And I'd love to speak to any listener that's curious about, what are the things that we could all do to make the industry better?

Because frankly, it bothers me that the elderly are targeted. It bothers me that people are losing their entire 401K and life savings. It bothers me that this is normal and becoming more normal. In 2021, scams targeting the elderly in particular, were up more than 70% according to the FTC. As we go into digital, as we go into faster payments, we're creating all of these social issues and all of these customer issues that first show up as complaints. They don't show up as a fraud problem. But one of my pieces I'm working on at the moment is called We Don't Have a Fraud Problem because so many people walk around believing they don't have a fraud problem and then they implement something like Sardine and go, "Oh wait, this is incredible. We were getting less complaints. We're seeing higher conversion." And that's, that's not what you expect. It just doesn't make sense. It's like gravity going backwards. How is this possible? Well, really it's because when it comes right down to it, risk, fraud and compliance are financial services. Everything is risk.

Jim Marous:

Well, Simon, on the alternative side of that same coin of somebody saying, "We don't have a problem." It's for the consumer or the merchant to believe that everything is a problem, that the more and more often we're hearing people say, "No, I don't want to do any payments on my phone because it's too risky." And you go, "Oh my God, no, you're blowing me away on these things." But everybody hears their story. And the more stories there are, the harder it's going to be. And I think, Soups, to one of your comments earlier, we have to make sure that this doesn't become additive.

I think financial institutions tend to do things where they go, "Okay, I'll take yours plus what we had before, plus what we had before." You go, "No, no, we got to rethink this whole thing because the more we..." Financial institutions love to add things, we love to think, "I don't want to get rid of what we have, we'll just put something else on top of it," which makes the whole program broken even worse because somebody else is leaving people out and from my perspective, the most frustrating thing is there's some very large financial institutions in the United States that will not use organizations that can make it so I can make payments or transfer of funds between X and Y, but to my Acorns account because of the fraud issues. And you go, "Guys, you're answering the wrong question. By not allowing me to do this does not solve your fraud problem. It really undermines your customer experience problem."

And when you're one of the only organizations of your size that isn't allowing this interaction, isn't allowing this transaction to take place, people will move their money. I've done it already. Others have done it. So again, thank you very much for being on this show and for talking about the challenges because I think there are solutions out there. We have to make sure we don't get in our own way. I use American football as my analogy, but it's one thing to hand off the ball to somebody and say, "Run down the field." It's another thing to then lay on the field and make it difficult for them to run seamlessly. And we've got to get out of our own way when we're trying to implement these solutions as well. Thank you very much, both of you.

Simon Taylor:

Thank you, Jim.

Soups Ranjan:

Thanks.

Jim Marous:

Thanks for listening to Banking Transform the winner of three international awards for podcast excellence. If you enjoyed today's interview, please give our show a five star rating on your favorite podcast platform. Also be sure to catch my recent articles on The Financial Brand and the research we're doing for the digital bank report. This has been a production of Evergreen podcast. A special thank you to our producer Leah Haslage, audio engineer Sean Rule-Hoffman and video producer Will Pritts. I'm your host, Jim Marous. Until next time, remember, the payments process is only as good as the fraud prevention and only with good fraud prevention are you going to create a great customer experience.