- SentiLink, which creates technology to detect synthetic fraud, announced Tuesday that it raised $US14 million in funding.
- Synthetic fraud is when identities that are completely made up are used to apply for bank accounts, credit and other financial services.
- SentiLink is focusing on technology that identifies and prevents synthetic fraud, and it plans to create an identity bureau to help banks and lenders verify identities.
When Naftali Harris worked as a data scientist at a financial services company, he noticed that multiple accounts would upload the exact same driver’s licence, but use different, completely made up social security numbers.
This type of fraud is called synthetic fraud, something that he constantly noticed while working at Affirm. Harris realised this was an issue bigger than the company, which inspired him, along with his co-worker Maxwell Blumenfeld, to co-found SentiLink, a startup to help financial services companies detect and prevent synthetic identity fraud.
Normally, people may think of identity theft when they think of fraud. But people who commit synthetic fraud invent completely new identities, rather than stealing existing ones. They will make up a fake name, date of birth, phone number, address, and social security number, and even create fake social media accounts.
With this fake information, these fraudsters may apply for credit from multiple lenders, and the more accounts get approved, the more credible they seem.
“Long story short, after we figured it out, we figured that it was an issue that was impacting the entire industry,” SentiLink CEO Harris told Business Insider. “Every top 10 bank, every major fintech lender, all of them were lending to these people who didn’t exist.”
Others in the industry recognised it as a major problem, and on Tuesday, SentiLink announced it raised $US14 million in a Series A funding round led by VC firm Andreessen Horowitz with participation from Nyca Partners, Goldcrest, Felicis Ventures, Caffeinated Capital and individual investors Max Levchin and Zach Perret.
Knowing what to look for
Synthetic fraud is tougher to detect than identity theft because there aren’t any immediate victims affected. When someone’s credit card or identity is stolen, that person often reports it after finding out.
The ultimate victims of course are the lenders. And synthetic fraud can be costly. In 2016, one fraudster was sentenced for coordinating a scam that fabricated more than 7,000 false identities and caused more than $US200 million in losses. Oftentimes, lenders do not rule out synthetic fraud when reviewing applications.
“The implications of this is unlike identity theft, no one tells the bank or bureau they’re the victim of synthetic fraud,” Harris said. “From a lender’s perspective, no one ever calls and says you lent to someone they said was me but it wasn’t me. The only way to find it if you know what to look for.”
When detecting synthetic fraud, one might find patterns such as multiple people in the same address, a fraudster hitting the same sequence of lenders, or multiple accounts uploading the same driver’s licence under the same name but different social security numbers. SentiLink builds technology that is able to detect these suspicious patterns and provide a risk score.
Harris recalls that Blumenfeld made “hundreds of often hilarious phone calls” to suspected fraudsters at Affirm. For example, when verifying an address, he would ask questions like, “What’s the name of the street next to your address?” In the background, they could hear the fraudster frantically typing to find what the name of the nearby street is.
“We really understand what it looks like,” Harris said. “When we talk to a lender, we can talk to them about what we’re actually seeing.”
SentiLink is focusing on detecting synthetic fraud for now, but in the next year or two, it hopes to create an identity bureau that banks and lenders can work with to verify identities, as well as alert the industry about a fraud account.
“If you buy from Capital One and prove who you are and want to do the same thing at Wells, you shouldn’t have to redo the whole process again,” Harris said. ” If Bank of America sees a fraudster that has been attacking them 10 times, there should be some way to alert the industry more broadly.”
Not all investors completely understood the benefit of having an identity bureau, but others, like Andreessen Horowitz, saw the potential.
“The idea of building something bigger is not something everyone grasps so to speak,” Harris said. “For me personally, I find that incredibly propelling. I wake up and think, did I build this yet? I need to build faster. It’s something that clearly should exist, but doesn’t.”
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