ID Verification Threats On the Horizon

Episode 268

03/31/2022

Episode 268

ID Verification Threats On the Horizon

Identity verification beyond a regulatory mandate? Cognito’s CEO Alain Meier, joins the State of Identity host Cameron D’Ambrosi to dive into why industries beyond financial services are now in the market for identity verification. They also unpack the impact of synthetic identity fraud across verticals, and how platforms find the balance when building their onboarding processes.

Host:

Cameron D'Ambrosi, Managing Director at Liminal

Guest:

Alain Meier, CEO of Cognito

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Cameron [00:00:03] Welcome everyone to a state of identity, I’m your host, Cameron Ambrosi. Joining me this week is Alain Meyer, CEO of Cognito. Alain, welcome to State of Identity.

 

Alain [00:00:13] Thank you. Excited to be here and always happy to chat. All things identity.

 

Cameron [00:00:17] Fantastic while you’re in the right place. I like to joke that we’re the leading, you know, the world’s foremost digital identity focused podcast. It may be a low sample size, but that doesn’t mean we’re still not, you know, the place to be. Before we get into, you know, cometo what you’re building, obviously, the Plaid acquisition also super exciting. Want to dove into that? But before we get there, always love to, you know, poke a little bit about folks backgrounds. What was their on ramp to digital identity? I think I’ve had so many different folks from different kind of backgrounds who’ve ended up in the digital identity space and kind of love to hear folks journey like, how did you come to found and lead the cometo team?

 

Alain [00:00:58] Sure. Yeah, and I agree with you. I think people get into identity for all kinds of crazy reasons. I think that our entrance was no exception. So we actually got into identity because of cryptocurrency. So in 2013, when I was at Stanford with one of my classmates, John Backus, we had co-created what was called the Stanford Bitcoin Group, which was one of the first university level research groups into cryptocurrency. That was a long time ago, 2013. It makes me feel ancient when thinking about it in the grand scheme of crypto. But anyway, as part of that group, we started working on a crypto remittance platform because we had this theory that cryptocurrencies were going to change everything and reduce the cost of cross-border money transmission because it’s slightly better now. But at the time, you know, you could easily be paying a 20 30, 40 dollar fee on a $200 transaction. Just truly ridiculous and really, really hard because people who were trying to send money back home, you know, every dollar matters. So we thought, OK, maybe crypto can improve this process and reduce those underlying costs. Long story short, we worked on that for quite a long period of time, and then we decided like, this was not right for us. There’s a bunch of reasons for it. Chief among them, at the time, crypto was way too underdeveloped, and there just weren’t enough crypto to fiat on ramps and off ramps at the time. So it was just very prohibitively difficult to actually reduce the costs with cryptocurrency. But, you know, we kind of we we stepped back and we thought, look, we looked at all the things that we’d built and among that was a bunch of identity tech because of course, every money transmitter has to deal with I.D. verification, KYC, watchful screening, AML, all that good stuff. So we built a bunch of tooling for it and we were like, You know what? This is actually pretty hard for us to build and learn about. And you know, a lot of the systems that are out there are not great. And you know, this was in late 2013 and we set ourselves maybe we could just release this and see if other crypto companies would like it. So we actually went on Reddit and we made this post that we said it was something like I wants to help bitcoin companies comply with the law or something like that. That was the post, and it did pretty well, and we had all of these super early crypto people being like, Oh yeah, we’d love to help, you know, comply with KYC and and all those things. So we built off of that a really early sign up list. I think it was about 200 different companies, something like that. And then a few months later, we released the prototype and blasted it out to that email list of people. And we started taking off and we were still at Stanford at this time. So we were still class. We were still taking classes, we were still doing exams. All that good stuff. And I think that at a certain point, we had enough business going and enough people using the platform that we were like, maybe we should do this full time. So John and I both dropped out and we joined forces with another friend of ours called Chris Martin. And you know, that was the beginning of at the time the company was called Blocks Core because of our really close association to cryptocurrency. And honestly, it was largely a trial by fire. We just. You know, got thrown into the deep end because crypto has such an insane amount of fraud and built identity tools and and just have to learn about identity the hard way.

 

Cameron [00:04:30] Well, it certainly clocks in terms of where I have seen folks on ramps come like cryptocurrency and understanding that intersectionality between this new world of, you know, decentralized systems and quite frankly, then the the pain points that get created when they intersect with existing structure frameworks. You know, I’m not a bitcoin maximalist by by any sense, but like I do really fundamentally believe in the power of these types of networks to change, you know how cross-border payments are accomplished, but also having rooted, you know, the beginnings of my own identity journey in the immense kind of regulatory swamp that is United States Bank Secrecy Act and USA Patriot Act like, look, anytime you’re going to interact with that fiat currency layer like you are now a money transmitter, and that is going to come with all sorts of requirements. And I think there were a number of folks who maybe had a bit of a rose colored glasses approach to like, Hey, we’re not going to have to pay attention to any of this because it’s crypto. And, you know, we don’t play by those rules. And it’s like, Well, that’s all well and good. But you know, the second that you want to actually let someone use the USD to interface with whatever, you know, unit of a value that you’re going to be sharing? Well, congratulations, you now have to perform KYC. And there was really not that much out there and certainly the level of interest in those circles. I think to your point around the success you had from all that inbound, like the traditional players were just not interested in, you know, I was at Deloitte. And you know, Travis, our founder and CEO and myself, we put together right around the same timeframe that you were launching block score. We were at Deloitte Consulting focused on solving these challenges for traditional banks. We saw this opportunity in the crypto space of our own accord and, you know, self initiative put together a 50 state regulatory handbook with regard to how different states and their relevant MSB regulators were handling cryptocurrency and took it to our partners the leads of the entire practice. And they basically laughed us out of the room. They were like, This is a waste of our time, like, what are you doing? Now, of course, delay is like this entire crypto practice and, you know, hinged like a ton of the future of their business on it, which is funny how how these things change once the the dollars start flowing in. So I guess to that point, right? So you you launch your block score, how did you transition to cornetto and start realizing like, OK, maybe we have some legs here outside of just meeting the needs of this nascent crypto space?

 

Alain [00:07:11] Yeah. Good question. I think that, you know, for us, first of all, it was very good that we chose a niche for us. That was one of the best business decisions we made was just hyper focusing on the crypto space at first because it helped us really solve the problem for one particular group of people extremely, extremely well. That being said, you know what we were solving for at the time was developer experience. We were like all these XML APIs from the credit bureaus. They suck. They’re super hard to use. They have really protracted, terrible contract periods. So we just want to make something that’s like the stripe for identity, which now is like, I mean, people say that all the time. But I guess in 2013, 2014, it was a relatively novel idea and also relatively unpopular idea. But as part of that, we built really, really easy to use I.D. verification APIs, but we weren’t providing identity features that I felt were great reasons to switch if you already had an identity solution. So it was great for new businesses, which is a lot of crypto businesses, but it wasn’t great for existing businesses. So Block’s core helped us get to like a million dollars a year in revenue. And it’s funny because when I think back to me when we started the company, I always thought like, Oh, if we reach a million dollars a year in revenue, we’ve made it like we built the business at that point, like, we’re unstoppable. And then eventually we reached a million dollars of business. It was a slow, hard grind, and we really, really did honestly struggle to get there because we’re building on this pay as you go revenue from a bunch of small volume crypto companies. And then over time, you know, we learned a lot more about identity when we started the company. We knew basically nothing about it. I think our first version of the product, we thought we were going to use the Social Security Administration’s wet consent form for verifying SSN. We were like, Oh, maybe that’s a good idea. Like, that’s a really authoritative way to verify SSN. So we we started with that level of knowledge and then over time, through just more rapid iteration with our clients, we became industry experts and we became really, really good at it. So at that point, we got a. Her understanding of sort of what are the things that we can do to you uniquely differentiate ourselves within the identity space? And I think that are sort of key insights at that point were authentication sucked. So the status quo at the time was knowledge based authentication. It still exists still around, unfortunately, because it’s codified into law for some places like notaries and the like. But that was the status quo for authenticating identities, which is just a horrific experience. And then from our data was being more accurately answered by fraudsters than it was being answered by legitimate people because legitimate people forget. But fraudsters have an answer key that they can look up. And then the other side was just actually that process of verifying that identity was a was a bad experience. So we kind of went back to the drawing board and we were like, OK, so if we don’t think this is social, the Social Security number is the future of identity because it says on the Social Security number card, this is not supposed to be used as an identifying number to share with people.

 

Cameron [00:10:36] The it’s the equivalent of don’t use your use Q-tips in the ears. It’s like, Well, we all know what we’re buying these damn things.

 

Alain [00:10:42] Right? That’s right. Exactly. So everyone is using Social Security numbers for that. And we’re just like, OK, so what’s an alternative identifier we can use? And at that point, we were like, Well, maybe the phone number because the phone number is globally ubiquitous, it’s one nice unified number that you can use for everyone across the world. It’s authenticated. You can confirm possession of it. So we kind of went back to the drawing board and we did everything we could to try to connect to that phone number with your real world identity, that name, date of birth, address, Social Security number. So that was the thesis that was the nugget of the idea. And we split off a team from block score and kind of worked on this in the shadows. And then, you know, I think six months later came out with a version of it and we started selling it to people. And the identity space. And within six months, we had already eclipsed the revenue that had taken two or three years for block score to to build up. So we were like, Oh, so this is what product market feels like, like product market fit feels like. So at that point, we just essentially put all of our eggs in the Cognito basket and renamed the company, and we were like, OK, this is this is clearly what people really, really want. We can have fantastic developer APIs, but then also just have some super awesome differentiating factors that help that user experience and security. So that’s when we kind of went all in on that.

 

Cameron [00:12:06] I love it. And you know, the other thing that I think has struck me about your platform in the context of the broader space is, I think you guys were really early in understanding that user experience, both on the consumer side, but as well as on the kind of product manager internal analyst side is so, so critical and really an opportunity to drive differentiation. I know Cognito flow, one of the new launches that you guys just kind of unveiled really is continuing that trend of taking this kind of orchestration and end user experience centered approach on both sides of that coin internally at the stakeholder as well as on the consumer side. Did that come about organically similar to this where you were just being responsive to how your customers are using the platform and what kind of feedback you were getting in terms of what features they wanted to see for lack of a better word?

 

Alain [00:13:01] So we actually had the idea for flow. There’s a picture which I just discovered after the Plaid acquisition. We were looking through some old photos of the team and, you know, having a nostalgia trip. And we found this old picture of us drawing on a whiteboard in 2013 and summer of 2013, and we essentially had flow diagrams out because we were like, this would be a really cool way to do identity verification. I think that’s around when Stripe had come out with a product that they called checkout. Now Stripe Checkout is something completely different. But at the time, it was basically this drop in payments model where you could just have five 10 lines of JavaScript and you would be able to collect people’s payment information securely. It used a super unique iframe type of setup, and we’re like, Oh, this is really awesome because you can have a whole bunch of security that separates the API from the end, the end or the actual companies systems. And then you can just send it off and verify everything with very little integration. And then Platt also ended up doing something very similar, and we were very we were enamored by that concept. We thought that like that iframe modal distribution was just so clearly the future. But I think at the time, we didn’t have the chops to pull it off yet. So we kind of we tabled it. We said, we’re going to come back to this when we feel like we’re ready, when we feel like we have deep. Sort of distribution network to actually do this, as well as kind of honestly like the technical chops and we just really wanted to do it well. Everything we do, we want to do really, really well. So we just didn’t feel ready yet. And then I think that in around 2019, we decided, you know, maybe now is the time for us to start working on this. The market really, really needs it. We’re hearing a lot of different companies asking for, you know, because of this Cambrian explosion of identity systems that have occurred over the last few years. There’s just so much complexity with that integration process. And we were like, Well, this is exactly what that concept of Cognito flow is supposed to solve for. So maybe now, maybe now the market’s ready. We’re ready from a technical perspective, and we also have the distribution network of our existing clients. So maybe we should give it a shot. And that’s what we thought about it.

 

Cameron [00:15:18] I love it, I mean, I’ve felt this way for a long time that so many companies that we have worked with, you know, as consultants in our advisory services practice, a lot of their pain points stem from the fact that they kind of got out over their skis and really were trying to be identity companies in addition to whatever their core competency is. And I think, you know, to your point, this Cambrian explosion around platforms just serving this need for identity has really liberated a lot of companies to realize like, look, I’m not I’m not an identity company. I mean, certainly, I believe fundamentally that identity touches on everything and that every business has critical identity components. But that doesn’t mean you should roll it yourself, right? And I think in many ways, being able to have these top quality solutions that can help you understand someone’s identity as you bring them on board, your platform really frees you up to say, You know, I want to focus on, I don’t know, selling wine or widgets or whatever the hell it is. We do and leave identity to folks who really are going to be better at it than than we will because it moves so fast. And I mean, even in the time that you have come to market with the Neato platform, you know what it’s going to look like in another five years, I think is set to be fundamentally different with the rise of idea mobile driver’s licenses. You know, you are not going to maybe need to scan a document. It’s going to be an API call to an issue or a database. But, you know, if I’m a wine store, do I want to have to maintain all of those APIs? Probably not. I would much rather have someone like Magneto worry about that for me, and I just have a few code snippets that I drop in and kind of, you know, outsource this in the most effective way possible.

 

Alain [00:17:06] And yeah, I think to that point, that was a really important existential question for us as a business, which is we see the future and the trajectory of identity right now and the fact that things are improving at a faster rate than ever before. That second derivative is very positive right now. So the way that we think about it is like if we just have a set of very static APIs, then it makes it really hard for us to iterate on identity and always push forward the best and latest methods to people. So the ice cream distribution method that we have with the Cognito flow product allows us to make it so that all we need to do is get in the door with the customers. Once we have them integrate with that verification system once and then, we can perpetually keep it up to date on their behalf so that they don’t then need to keep integrating new APIs that we release or, you know, finding new vendors to handle these different components. So for us, it was largely existential. We were like, if we want to have a clear footing in the future, like we can’t just be APIs anymore, like APIs for some more complex businesses, I think are becoming almost a relic of the past because you can then have much more full service systems that are able to iterate on your behalf much more quickly. So, you know, we hope it pans out and we think that, but we do very firmly believe that this is the future and state of identity right now.

 

Cameron [00:18:36] Bonus points for working the title of the podcast and your response there, thank you. So, you know, in in thinking about what is next, obviously, you know, you guys got acquired by Plaid. I think the possibilities are super exciting in terms of where I see the natural fit for bringing identity more into that plaid stack. Obviously, don’t want you to spill any secret sauce here, but you know, I presume you know you you didn’t have just one potential suitor and would love to hear a little bit about, you know, what excites you about the combination of the plaid platform incognito and where you hope you guys can unlock some some synergies kind of across their entire portfolio?

 

Alain [00:19:22] Yeah. So I guess I’ll start this by saying that we will announce a lot more in the future. So, you know, it’s it’s no longer my my shot to call about how much I can share. So I’ll try to keep it relatively broad here, but just from a high level, even before we joined. I always saw insane amounts of potential for Plaid to be a number one player in identity. I think that they have an extremely, extremely unique distribution method. And by the way, I know I keep saying this word distribution, but I just think this is one of the most underrepresented parts of start up conversation. Everyone talks about how great your product needs to be, but very few people talk about distribution and that is just so important. Probably as equally as important as an actual product execution is. What is your distribution strategy? And I think the Plaid has such unique, incredible, strong relationships with financial institutions all over the world, which allows them to push products in a way that very few companies in the world can. And I think that doing truly sort of revolutionary things with identity requires the buy in from a lot of different participants within the industry. And essentially, like in order to do things that are not just super commoditized, which is honestly half of identity right now, more than half of identity is the super commoditized solutions. You need to be able to have that kind of distribution and that ability and power within the market to change it. So that’s something that very much excites me. I know that sounds broad, but that’s, you know, it is what it is. I guess just honestly, from a cultural perspective, they they’ve got it. They’ve got the right ingredients to be really good at identity. I think in the early acquisition talks. You know, when I was talking to some of their leadership, I was like, but how serious are you about identity? Because everybody in their mother now wants to be in identity? It’s super hot, you know, and we started the company. People were questioning us. They’re like, This is a boring space. Why would you ever want to do identity? But now it’s the opposite. Everyone wants to own identity. You know, Google, Apple, Microsoft, Samsung, everybody wants to have their foot in the door. So my point of view was if someone’s going to acquire us, they need to be all in on identity and extremely serious about it and really wanting this to be an absolutely core embedded part of their platform. And they sufficiently convinced me that they’re all in on identity. So, you know, with that, with that understanding, I think that was super, super important for me to to know before we sort of took the dove there. You know, there’s lots of core features that we’re looking to add to the platform right now. We’re really honestly focusing on delivering Cognito features to apply to existing customers. I think that that’s the number one priority at the moment. There’s just so many low hanging fruit. We have a great existing product that we have right now, and we just want to make sure that as many companies have access to it as possible in the long run. You know, I think the primary categories that we’re looking at are improving user experience. So there is a huge amount that can be done to improve the user experience of verification and returning verification experiences. So we’re really excited about getting that to be in a in a really good place, leveraging, I guess, resources that plot has that no other companies in the world do. And then second secondary to that is anti-fraud. So there’s a lot of great information and knowhow and data that Platt has on their side that we’re planning to leverage to bolster the anti-fraud capabilities of the system. Just because, you know, with fraud, every marginal piece of information can make a really big difference to you being able to catch fraudsters that others can’t. So that’s something that we’re we have our eye on as well. I love it. You know,

 

Cameron [00:23:31] what’s coming coming next down the pike in terms of how you feel, new and emerging technologies are are set to impact the space. Obviously, you know, biometrics has as played a big role in the accessibility of all the sensors and cameras that are in, you know, a modern smartphone, I think have really revolutionized the ability to get a high quality identity proofing at scale. You know, do you think that we are set to see a massive impact from nascent idea initiatives, whether it’s kind of ideas out of Europe, whether it’s MDL in the states, like how quickly do you think that is is set to impact the space and how are you treating the rollout of these new technologies from a platform perspective?

 

Alain [00:24:17] Yeah. So there’s I guess I see it in two ways. So I think that right now there’s two big trends that are occurring. One is obviously all of these new identity initiatives. But then simultaneous to that is also the internationalization of financial services by default. So rather than just launching in one particular jurisdiction and only focusing on the U.S. because of honestly, largely crypto, a lot more companies are expanding their user reach out to much more than just the United States, Canada, U.K., Australia. They’re going global by default. So what that means is if you think about I.D. verification as a security problem. We always think about things in security as well, it doesn’t matter how amazingly secure your best country is or your, you know, your best I.D. verification system in a country is like maybe you have mobile driver’s license in the U.S., it’s cryptographically secured. It’s incredible. It’s super hard to spoof, but you also allow user registrations in a country that doesn’t have mobile driver’s license. Then people will just go to where the water flows and they’re going to flow towards where. You know, there are the lower amounts, there’s a lower fraud barrier. So as great and exciting as all these initiatives are to actually get something that’s properly verifiable behind biometrics because everyone knows that biometrics has its own problems, the fraud problem is going to persist for the indefinite future. Like, I don’t see that subsiding anytime soon. And, you know, I’m very excited about these initiatives. I do think they’re going to roll out much more slowly than people like to think. It just always takes a long time, both for governments, obviously, to do that on a global, on a on a national scale. So right now, it’s it’s a very state by state initiative. And as long as you don’t have every single state on board, you’re always going to require fallback solutions. Right. Because even if one state that you provide customers do doesn’t support it, then you’re going to have to provide that regular standard, you know, I.D. verification method for that one state, which means that fraudsters, rather than just going to the mobile driver’s license states, will go to sign up as that particular state. So I think we’re still a long ways off from those things moving the needle. I think that where they will move the needle is user experience. So, you know, that’s really important. You know, I think something we’ve told our clients frequently is stopping fraudsters is fantastic. But if you look at the LTV of customers who you are potentially turning down, who you shouldn’t be turning down those costs relative to fraud costs are astronomical. You can do so much more by letting in more good users than you can by walking the bad ones. So from that perspective, mobile driver’s licenses and all the identity standards, I think, will be very successful in improving user experience. We’re going to keep rolling those things out as they become relevant and pervasive enough within the market, and that will definitely be a feature that’s a checkbox away within the Coconino platform. But you know, we’re still going to have to keep developing and maintaining and coming up with good solutions because there will always be a lower common denominator in other countries or even other states.

 

Cameron [00:27:50] I love it. I mean, I couldn’t agree with you more, I mean, especially, I feel like it’s something I talk about just about every episode now and with a lot of our clients as well, which is if you are thinking about fraud as an existential threat to your business, you maybe want to reevaluate, you know what those KPIs you know for your team should be, because bringing good customers in is more important. Like, Look, are there businesses for whom fraud is an existential threat? Certainly, you know, if you’re selling, I don’t know, one off rare gemstones or something and only selling four of them a year, like obviously making sure you don’t get ripped off on 25 percent of your transactions by fraud strike. Probably a good strategy for you, but you know, for any sort of especially, you know, early stage growth companies, you only get one chance to make an impression and identity is really the tip of the spear. Right? It’s like when someone is coming on your platform, your user onboarding flow is how they’re going to remember you. And if it’s a bad experience, you’re probably never going to get a chance to get those folks back. They’re going to go to one of your competitors. And, you know, this is another thing that I feel like, you know, beating a bit of a dead horse. But how consumers perceive friction is continually advancing it. And you are not just competing with your peers, it doesn’t matter what vertical you’re in. You are not competing with just your peers. You are competing with Apple, with Google, with Facebook, right? Like consumers, understand what a good, low friction user experiences. And even if they’re not getting it from the vertical you’re playing in, they’re getting it somewhere else, you know, they just bought. I don’t know the Apple credit card and and saw how easy it is, which, you know, I I feel like I should be getting paid as an influencer for talking about the Apple Card. But like, it’s unbelievable. You know, it comes in a beautiful when you get the card comes in this great like little case and it’s just like, Hey, you want to start using your card, just literally tap it against your phone and a thing pops up and it’s like you can start spending money on this immediately. If it doesn’t matter that I’m buying, I don’t know whatever it is. I just had this fantastic experience that’s in my mind, not like, Oh, all the other, you know, crypto platforms are a pain in the butt to use, too. So I think you’re spot on there. And the other thing that I thought was really insightful that you mentioned is, you know, how fraudsters operate. I think people mistakenly assume that fraudsters, you know, have kind of a a mission statement in mind in terms of attack, vector or geography or whatever. And that’s not the case. Like their goal is how can we make money? How can we extract ill gotten gains from, you know, the broader ecosystem and they are going to it’s like water, right? It flows to that lowest point, like they’re going to find, to your point, the vulnerability like, oh, Montana doesn’t have models. Well, guess what? Now we’re going to open a bunch of accounts in Montana. And even when fraud isn’t that issue with regard to, you know, MDL adoption, we saw this playing out in the news recently with ID got me. I think one of the big kind of challenges that they faced was not necessarily that they were using something like facial biometrics, but more critically for the folks for whom that facial biometric matching was not working. They didn’t have an appropriate off ramp to be able to meet those folks needs. Whether it’s like I don’t have internet access, that’s reliable. I don’t have a smartphone with a good enough camera that’s compatible, whatever that case may be. Figuring out how you can meet the needs of 100 percent of the people coming through, and I think some of that digital divide, whatever you want to call it, is really going to get stressed. That’s going to be a key pain point as we move into this realm of MDL, you know, businesses that want or need to have a requirement to service not just high value wealthy customers carrying an iPhone 13, but the full breadth of society you’re going to need, you know, those appropriate off ramps and pathways for those folks to get on your platform and still provide them, ideally with the same high quality user experience that you know someone who happens to have the new California mobile driver’s license, you know, would be able to receive.

 

Alain [00:31:59] Yeah. So that actually reminds me of a point that I was going to talk about, which is that. You know, I think one of the interesting patterns that we’ve seen, particularly with new fintechs, is that they are very much under the gun right now because one of the new fraud vectors we’ve seen is people who are essentially looking through the latest list of Y Combinator launches, and they’re looking at new startups who are just launching, who are in the fintech space. And they’re like, What are the fraud vectors that they are not protecting in so that we can just take a super quick jump at them while they’re while they think, Oh, it’s only going to be friends, family and very few people, you know, within the y’see community who are going after us or who are actually using this platform now, they’re jumping in and saying, Actually, let’s just actively defraud these people. We know that they have at least 120 grand that Weiss’s invested in them. You know, maybe we can take a little jumpstart here. So. That’s becoming really hard for those fintechs because they wants to have an incredible user experience, right, because they’re the newcomer. They want as many people to sign up as possible. But then at the same time, they actually have incredible fraud burden and potential for fraud vectors actually being used because they’re launching for the first time in, fraudsters know that they’re vulnerable. So, I mean, the trade off between user experience and security is just it’s paramount even for the earliest stage companies now. And this is something we’ve just started seeing in the last 12 months. But this is becoming really aggressive, and we just know for a fact that this has happens to a number of different accelerators startups who are in the fintech space. They’ve literally gone bankrupt before Demo Day. It’s terrible. It’s crazy and really a difficult problem to solve for. And honestly, that’s part of why we were like, maybe, you know, Flo would be great for them, because then by day one, with very little work, they can just have that world class verification experience and the world class best practices without having to waste a whole bunch of money and time before demo day building all this identity infrastructure.

 

Cameron [00:34:08] Yeah. I mean, first of all, thank you for sharing that anecdote around, you know, some of these new and emerging fraud threats because I think that’s super interesting data point. And it makes a lot of sense. I mean, like I was alluding to before, like if there’s one thing we’ve learned about fraudsters like, they’re extremely opportunistic and they are going to find those pain points and and whether it’s just because they see, OK, you’re at a Y Combinator and you’re maybe assuming not that many people are going to join and we’re not fully defended against these fraud threats. Or quite frankly, I think fraudsters realize, like for an extremely early stage growth enterprise, like what are you spending your resources on realistically, like your fraud team is maybe not one of your immediate launch priorities. You’re figuring out how do we scale this thing and maybe are not, you know, fully defensively engaged cell makes a ton of sense. I know we’re we’re a little bit over on our scheduled time, but I did want to sneak one last question in for you, which is to take your crystal ball out, make some predictions for the future. I know we made some, some forward looking statements already, but you know, I think you’re in the catbird seat with regard to where this space is headed and and what your customers are expecting of you. You know, what can we expect to see over the next one to two years in the space? And, you know, always love for for folks to prognosticate in a fun way, obviously, where we’re we’re not holding anyone to these predictions, but it is always fun to to get some perspective.

 

Alain [00:35:40] Yeah, I’ll caveat this by saying this is not necessarily how I’m looking at the Komeito product evolving, but as far as the identity space as a whole, I think the big shift we’re going to see over the coming three or so years is the shift towards, you know, pseudo and optimization of identity. So right now, it’s just really, really popular. Crypto is super popular. It’s like it’s the hot new thing. Everyone’s talking about it. And as part of that pseudo pseudo anonymous identity is a is a huge component of crypto, which is that, you know, no longer are people tied to their legal first and last name, but rather they have their own personas and identities and, you know, whatever they’ve created for themselves. And this has largely come about because of the lack of regulation and the ability to essentially circumvent KYC and AML regulations within the crypto space and being able to trade as whoever you wants to trade us or interact is whoever you wants to interact does. So I think this is going to be one of the huge challenges for the current traditional identity world to adapt to is, you know, this is also going to be a big regulatory question that’s going to be extremely difficult for compliance people to get their head around. You’re going to have such a huge chunk of the financial system as part of these un permissioned smart contracts that nobody is able to control. And as part of that, they just won’t be enforcing KYC standards and it’s going to be sued anonymous. And I think that that’s just something that the identity space is going to have to figure out how they’re going to play ball with. I think that there is know this is a conversation for another time, but I think that there’s going to be a lot of evolution with creating split worlds of smart contracts that are specifically for the United States, even though that doesn’t even make sense from a technical perspective. I think that regulation is going to force them. For instance, like Uniswap, one of the big decentralized exchange systems, I think they’re going to have to fork their smart contracts and run like permissioned KYC approved ones that run in the U.S.. I think a lot of traditional finance is going to use those permissioned smart contracts that are for U.S. based companies that are sort of regulated and then a lot of the volume is going to exist in the Wild West. That’s the information. Smart contracts, you know, the analog for this is like the cryptocurrency exchanges know Binance, one of the biggest, highest volume crypto companies in the world. And you know, they had to split off and make Binance U.S. but the vast majority of their revenue is their revenue, and volume is in Binance’s international because it’s less regulated. Similar type of deal with MDX, they had 5X global, then they had to split it off into the US. But the U.S. is way smaller than the global. So we’re going to see a similar type of thing, I think, with smart contracts and that associated. Relationship with identity that people are going to kind of have their traditional identity that exists today and then also there are pseudonymous identity that exists within, you know, the sort of unregulated world and governments will definitely try to dissuade people from using those systems. But I think that, you know, just like a lot of systems that exist on the internet, it’s going to continue to exist.

 

Cameron [00:39:00] I couldn’t agree more with those predictions. Really, really excited for for what you guys are bound to unveil here in terms of your, you know, alliance with Plaid and just excited for the future in general. I think, you know, there’s this kind of conversation is why I got into the space and remain super excited about it. So, Alan, thank you again. So much for your time. A shameless plug before you go. For people who are intrigued by whether it’s you, whether it’s Cognito, whether it’s Cognito flow, whether it’s the acquisition with Plaid and what that means for them, where is the best place for them to go to get in touch with you? Get in touch with the team. Learn more about Cognito Cognito HQ.

 

Alain [00:39:45] Dot com is a great place to go. Check out the site. Check out the products you can follow me on. Twitter Gets Komeito is our handle or you can also follow me. I’m at Allen spelled Allah. I n

 

Cameron [00:39:59] fantastic Allen. Thank you again so much. We’ll be sure to put those links in the show notes below. And thank you so much again for your time.

 

Alain [00:40:06] Thank you. Appreciate it.

Episode 298

On this week’s State of Identity podcast host, Cameron D’Ambrosi sits down with Attila Torok, Head of IT and Security at Zapier to take on the hot topic of managing remote security practices in organizations. We discuss the main security areas for infrastructure; good logging standards, vulnerability scans, and how software development. 

Episode 297

In this month’s Investing in Identity series, we discuss the latest movers and shakers in fraud and fintech and take an analytical look at the digital identity trends that are best positioned for deal activity this fall.
The agenda includes:
  • Sardine, a leading provider of fraud, compliance, and instant settlement solutions raises a $51.5MM Series B led by Andreessen Horowitz
  • Alloy, an ID verification platform for banks and fintech companies, receives $52MM in additional funding to accelerate growth and global expansion
  • We’re seeing record levels of accumulated dry powder. Although there’s been a recent slowdown in deployment, once the market resets, how will VCs put their money to work?

Episode 296

What impact does eID have on the KYC space? On this week’s State of Identity podcast, host Cameron D’Ambrosi is joined by Liudas Kanapienis, Co-Founder & CEO at Ondato. This duo discusses the impact of eIDs on the broader KYC space and where the industry is headed. Find out what lessons the rest of the world can learn from Baltic nations, deployment of eID.

Episode 295

On this week’s State of Identity podcast, host Cameron D’Ambrosi sits down with serial entrepreneur, Mickey Boodaei, CEO and Co-Founder of Transmit Security. This duo discusses the challenges of finding an internal stakeholder champion to “own” identity across business units, why the UX battleground isn’t just about your competitors, it’s about any consumer experience across industry verticals, and the importance of shifting enterprise perspective on identity to encompass the entirety of the “digital identity lifecycle.”

Episode 294

How are organizations building technology that can help prevent fraud and automate KYC and compliance?  State of Identity host, Cameron D’Ambrosi and Gbenga Odegbami, CEO and CoFounder of Youverify take on the hot topic of closing the gaps between businesses and consumer identities. 

Episode 293

Why are banks adopting open banking solutions even when regulation isn’t requiring it? Join this week’s State of Identity podcast with host Cameron D’Ambrosi and Bose Chan, Head of Strategic Partnerships at MX to discuss what “open banking” is to banks, how it differs from end users or non-banking entities, and what to consider when it comes to building open banking capabilities. 

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