In Ron Teicher’s view, the internet has made money laundering a lot easier.
Back in the old bricks and mortar days, criminals looking to send their misbegotten cash through the washing machine of fake commerce at least had to invest in, well, bricks and mortar. In Breaking Bad, Walter White and his wife ended up buying a car wash. In Better Call Saul, there was a nail salon.
But as commerce moved online, so did money laundering. Mr Teicher’s company, EverCompliant, followed suit, slipping into a niche slot in an estimated $2bn market — helping financial institutions make sure their networks were not the conduit for criminals to clean their money.
The Israeli start-up is coy about its successes, but Mr Teicher estimates that for most financial institutions, up to 10 per cent of the merchants sending payments through their systems are complete unknowns.
“You know nothing about them — who they are, what they do, what countries they are incorporated in,” he says. “They’re hiding behind what seems to be legitimate merchants.”
Take, for instance, the florist in a tiny Dutch town that was generating 70 per cent of its sales on French credit cards. The payments processor — one of the many layers of intermediaries that take a slice out of every swipe (or click) of a credit card — hired Mr Teicher’s crew to figure out what was going on.
Patterns popped out. There were far too many transactions, for instance, on days when people do not normally buy flowers (Fridays, by the way). That led to them uncovering a network of 10 marijuana websites using a fake florist’s storefront to illegally process payments using credit cards.
In another case, a European bank was warned that one of its clients, ostensibly a sports equipment merchant, was actually a front for a dozen illegal websites selling illegal pharmaceuticals on the side.
“These are gigantic markets, and they create a lot of damage to society,” says Mr Teicher.
His company is a small player. It has about 120 employees, with $13m in an initial round of fundraising backed by American Express Ventures. But because patterns, by definition, repeat themselves, the more data EverCompliant crunches, the more it knows about the tell-tale signs of money laundering.
This kind of data analysis is becoming a niche for Israeli fintech companies. There is a big universe of start-ups involved in crunching vast amounts of data — from traffic to transactions — for their clients or to refine their own algorithms.
Start-up Nation Central, an advisory firm, counts at least 60 companies involved in tracking and analysing transactions for financial institutions, and twice as many selling compliance products to deeply regulated western financial institutions.
Many of them are in the midst of fundraising rounds, despite, or sometimes because of, a coronavirus-related slowdown in all investments.
Since crime isn’t going anywhere, except online, Mr Teicher sees a large market. Grand View Research, a US-based advisory firm, estimated pre-coronavirus that the market for products such as EverCompliant was nearly $900m in 2018, and would grow at about 15 per cent a year until 2025.
Covid-19 has accelerated that timeline, says Mr Teicher. As ecommerce companies have boomed, so has the portion of their transactions that are suspicious. “People are looking for alternative ways to make money in financial crisis. And unfortunately, during times of financial crisis, we see more people trying to move into some criminal activity.”
Quick Fire Q&A
Company name: Loanboox
When founded: 2015
Where based: Zurich
CEO: Philippe Cayrol
What do you sell, and who do you sell it to: Loanboox is an independent platform connecting companies and public-sector borrowers with institutional investors and banks.
How did you get started: In 2015, the founding team developed a prototype together with 30 customers and successfully launched the platform a year later.
Amount of money raised so far: SFr30m
Valuation at latest fundraising: SFr120m
Major shareholders: Founders and employees, Deutsche Kreditbank, LGT Group, professor Roland Berger.
There are lots of fintechs out there — what makes you so special: We are a pioneer and market leader in making debt capital markets efficient, transparent and accessible across borders.
Further fintech fascination
Wirecard fallout: The reverberations of Wirecard’s collapse are still being felt around the world. The UK Financial Conduct Authority’s decision to temporarily close Wirecard’s UK business left some people unable to buy food or basic services for several days, the Financial Times reported. Meanwhile, regulators have toughened their scrutiny of the payments sector and potential buyers are looking at several of Wirecard’s businesses. Find FT’s full coverage of the Wirecard saga here.
Stumbling blocks: Business banking start-up Tide is to halt lending under the UK government’s Bounce Back Loan scheme, reports Finextra. Tide’s CEO told customers that the company was unable to win funding to finance the loans. He said that the structure of the scheme was better suited to large lenders than fintech companies.
Follow the money: Root, an US-based insurtech specialising in motor insurance, is in talks to raise $1bn from investors, according to Inside P&C. The publication reports that the company is also looking at a potential IPO following the success of the Lemonade flotation earlier this month.
New frontiers: Sifted lifts the lid on Hedosophia, a secretive venture capital fund run by Ian Osborne which is one of the biggest backers of European fintechs. According to Sifted, the billion-dollar venture fund has invested in a range of companies including TransferWise, Raisin, WeFox and Qonto.
AOB: Payments company Taulia is raising $60m from investors including Ping An and JPMorgan, reports the Wall Street Journal; Spain’s Banco Sabadell is to use WhatsApp to deliver insurance services, says Finextra; Marqeta, the US payment card issuer, is looking at an IPO, according to Reuters.
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