Identiq provides a higher level of risk analysis for buy now, pay later (BNPL) customers by leveraging a technology that has been around for decades but is only recently made accessible by modern computing power.
Co-founder and head of product and research, Uri Arad said Identiq is a peer-to-peer network made up of some of the planet’s largest consumer-facing businesses. The power of the group enables them to validate the identity of their users and the data points belonging to those users by comparing them against each other’s live databases without sharing any information whatsoever.
Perhaps you are applying to a cryptocurrency exchange, he said. Your information is run through a third-party data broker whose files vary in their degrees of currency.
Conversely, Identiq removes the middleman and confirms with Netflix you are a paying customer while doing likewise with Uber, Amazon, gaming companies, and everyone else you’ve spent years with as a consumer.
It confirms you are real but also that you have established trustworthiness. Because no information is shared, the process exceeds the requirements of most regulations such as GDPR, Arad added.
Confirmation without data exposure
What makes it possible is secure, multi-party computation, a process well-established in academia, but one companies are only beginning to leverage in business, chief marketing officer Shmuli Goldberg explained. Because of recent improvements in computing power, the resources needed to provide those quick decisions in BNPL without exposing the underlying information are now available.
It combines seemingly contradictory aims, Arad explained. Someone tells you something, and you need to check its accuracy. That was done by checking with sources who had the most information until recently. The problem was that they kept it in one place, which made them vulnerable to breaches.
“We can give you the utility of being able to validate information, know that it’s accurate, know the quality of the data, strongly identify people, but at the same time protect your privacy because every company remains the sole owner of the data about their customers,” Arad said.
For all of the potential offered by blockchain technology, it does not have the decades-long track record that multi-party computation does, Goldberg said. The process has been tested and proven over and over again.
The issue was scalability. Identiq has several hundred members on its platforms, and a single client might have more than a half-billion identities. Send a query across a network that size and expect a near-real-time answer takes some juice.
‘Wisdom of the crowd’
“This is the power of the crowd. This is the wisdom of the crowd,” Arad said.
“And the more companies join, the better, the higher coverage, the more accurate the decision, the more up to date data you have accessible, and also the more stable and more robust the result is. Because the other advantage of the network is that you don’t only rely on a single source. We’ve only seen too often that you know when there are only a handful of companies that sort of like control the information, then, you know, it becomes only as good as the weakest link.”
That tackles the growing problem of synthetic identities, he added. All fraudsters need to do is find one company with lax safeguards, upload some basic information, and they’re in a system. If that system only checks a few data points, they’re off to the races.
Goldberg said most BNPL is based on scammers locating and exploiting such vulnerabilities.
“The modus operandi of the professional fraudsters using buy now, pay later fraud is to create a very quick, cheap, simple-to-set-up identity connected to a financial instrument, a credit card and buy something quickly they can resell,” he explained. “Buy a laptop, buy an iPad, buy even event tickets. But fundamentally, that only works if you’re looking at just one place to see if this is real or just two places.”
Speed compromises safety
Many BNPL credit decisions are made after a lightweight process because they need to be made quickly, so a compromise is made, Arad said. Identiq removes the compromise and provides more reliable support.
The process does not solely rely on static information, Arad said. It also looks to connect those data points to some real-time elements you might use, such as a mobile.
“How can we connect it to your device? How can we connect it to your IP address? How can we connect it to your phone number so that we can in real-time not only know you exist but actually know that whoever is now applying for BNPL credit is you and not someone else pretending to be you,” Arad said.
BNPL has tremendous potential to help people with thin or no credit files increase their ability to participate in the economy, Arad said. Those folks without credit cards have mobiles, take Ubers and watch Netflix.
The COVID-19 pandemic saw people rush online, followed by companies doing the same as they sought to adjust and stay alive. Goldberg estimates it brought the global online economy forward by a decade in a matter of months.
Old models were instantly rendered useless, he said. Buying patterns changed overnight. Folks bought from new IP addresses at unfamiliar times. They purchased new items – in bulk. Food delivery systems were flooded.
Blessing in disguise
As restrictions abated and accelerated over and over, not only did the old models not work anymore, companies were at a loss to create new ones that could predict this fluctuating behavior. That could turn out to be a blessing.
“As an industry, there needs to be a change away from looking at models to looking towards the identity,” Goldberg said. “Because the people themselves, the end-users, did not change. Nobody changed their phone number in the pandemic. Nobody changed their credit card numbers in the pandemic. Nobody changed their email address in the pandemic.
“So those data points, these points of truths were incredibly powerful endpoints on which we could build that identity. And when you’re thinking of our solution versus a traditional fraud fighting solution, that’s why we were able to very quickly solve the problem which the traditional providers were unable to.”
And consider those businesses that lost much of their customer base then saw the opportunity to reclaim them along with hosts of new ones, Arad noted. They needed to protect themselves without turning any legitimate people away, all with no traditional base from which to assess their credibility.
Account takeovers a concern
Hundreds of millions of real people, whose every behavior suddenly changed simultaneously. How strong are those legitimate identities as the economy comes out of hibernation? It’s a challenge, Arad admitted. Account takeovers are a genuine concern.
The customer hasn’t taken an Uber in two years because they’ve moved to the country. So they have a new address too. Now they take the train back into the city and want to hail an Uber and travel. How does a company know that the one reactivating that account isn’t a scammer?
“The network effects allow us to balance all those things because Uber might not have seen you for the past 18 months, but Netflix has seen you,” Arad said. “Zoom has definitely seen you, and you know your food delivery company has seen you on almost a daily basis. So by connecting all of that, you solve for the gaps that periodically happen in specific industries. And you know the fraudsters are so good that they are leveraging those information gaps.”
Identiq’s vast network has it ready for the next economic downturn, Arad said. What’s unique about much of the BNPL space is that most short-term credit is not recorded anywhere outside the specific company, so no one sees the complete picture. Getting that 360-degree view while protecting customer privacy is a powerful tool.
Goldberg said that addressing BNPL fraud is just the beginning of what these enhanced technologies can do.
Deployed in research project
He envisions matching medical histories when patients change doctors or insurance providers.
Multi-party computation allowed competing companies to leverage the benefits of their combined databases without actually sharing them.
“Think of every part of American daily life where you are asked to give your data away,” he said. “Right now, it’s not even a question that privacy is no longer a thing that exists online. People just assume they know everything about me anyway.
“But we’ve very much given ourselves towards a world where you can expect privacy, and you can get the same level of service, the same level of goods, the same level of care, financial, medical, without worrying about exposing yourself and your data to any bad actors or outside governments.
“I think everyone would agree that being able to get a great customer life, from everything from healthcare to financial services, without giving away privacy is significantly better than having to give away so much data about yourself on a daily basis.”
Goldberg likens the current environment to early efforts to curb fossil fuel pollution. Governments decreed standards for lead in gasoline, but the industry protested that it would kill innovation. The opposite turned out to be true as it forced the industry to think differently about how it produced things. Fast forward, and we are on the cusp of an electric vehicle revolution.
He sees the same shift happening with our perspective on privacy and data.
“If you give us your data, we will not give it, sell it, copy it, expose it in any way because we no longer need to – that’s what we are trying to work our way toward,” Goldberg concluded.
Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.