It’s a real jungle out there for identity verification. (Video still photo credit: Bureau)

WHY WE INVESTED

The startup redefining identity verification in emerging markets

With Bureau, Ranjan Reddy aims to simultaneously solve two key priorities faced by businesses: creating a frictionless user experience while also verifying identity and transactions

Ranjan Reddy has always been a little obsessed with mobile phones. His first phone? A Motorola flip, when he was a sophomore in college. His next phone? A Samsung. And he can probably tell you each make and model he has owned ever since. “Having a cell phone was one of the biggest indulgences of my college years,” he admits now.

Reddy, who grew up in India and has lived all over the world, including Europe, Asia, and the US, would finish college, flip phone in hand, and go on to build his career in payments. But in 2010, while working as VP of Global Business Development for Neomobile SpA, an Italy-based mobile computer software company, he became obsessed with the concept of using a verified phone number as a way to make payments. By the start of 2012, he had founded QubeCell, a mobile billing aggregator based in India. He sold the company two years later to the US-based identity verification platform, Boku.

In early 2014, Reddy moved to the Bay Area of California to manage Boku’s US payment stack and find new avenues for growth. While there, he got close-up exposure to companies of great scale like Uber and Apple and he began to recognize the new challenges facing businesses in this space. “When I started talking to companies about what else they need to solve, identity in global markets was a clear problem,” he says.

For years Reddy had thought of phone numbers as a payment method, but he wondered: What if phone numbers were also used as an identity score? In every digital transaction, regardless of industry or service, there are two basic questions being asked: Who are you, and do you mean well? “At every stage, you are asking those two questions,” he says. “How do we make that better and simpler? Is there a way to build better trust between two entities wanting to work with each other?”

In 2018, while still at Boku, he started to look more closely at this challenge of identity verification. First he created a new division at Boku focused entirely on identity and innovation, understanding that with technology evolving as quickly as it has been, online risk mitigation was sure to be handled far differently in the next 20 years. He wanted to be part of that innovation conversation.

Over the next two years, he learned just how large a problem this was internationally. While the U.S. has a variety of ways to verify one’s identity digitally — including fingerprint authentication and Face ID — most other markets around the world don’t have widespread access to the same technologies. “The moment you step outside the U.S., trust is not as high,” he says. “Trust becomes an important element. I kept asking myself, ‘How do you build this trust online?’”

At the start of 2020, Reddy decided to focus on building a solution to this problem specifically across emerging markets with the launch of Bureau. He understood there was access to an enormous amount of customer data around the world, but no real way to use that data for identity verification. While companies were able to establish a baseline of trust with consumers in the U.S., in other countries, they didn’t even know where to begin. Having worked a long time in India, across Asia, and in other emerging markets, Reddy was familiar with these different geographies. “These are markets where the growth far outstrips the infrastructure that is already there,” he says. “All these markets are getting digitized very fast and experiencing hyper-growth. That is where we want to be a meaningful infrastructure player.”

In order to make this possible, Bureau first needed to build out the technology to process data to make real-time decisions. Reddy decided to launch first in India, the market with which he was most familiar. He wanted the product and engineering teams to be based in India, recognizing that it provided a unique opportunity for the business. “India is a very good laboratory market. The digital infrastructure here is first world, but the physical infrastructure is third world,” he says.

With Bureau, he aims to simultaneously solve two key priorities faced by businesses: creating a frictionless user experience while also verifying identity and transactions. He is the first to admit that these goals are often at odds with each other — something Reddy calls “growth versus risk tension.” To do this, Bureau started by breaking the process into steps, tracking the user journey from beginning to end. The first step is account sign up, which again asks that fundamental question: Who are you, and do you mean well? This involves providing an email address and phone number. Once those things have been approved, you need to use a government ID to verify yourself as a person. But even after this initial step, the process must continue to ensure each transaction is safe and secure.

Reddy equates Bureau to the TSA pre-check at US airports — users experience both protection and acceleration of the identity verifying process. “If a phone number is your public key or currency, that should unlock a better, more seamless experience for you,” he says. “Once they know the persona and the person are the same, they say, ‘Okay, now you can open a bank account, get access to credit, buy stocks or open a profile.’”

The company enables its business customers to use a single platform for identity verification rather than having to engage with a dozen or more different vendors to get individual scores on different identity factors that they then have to aggregate. Companies can customize their workflow, choosing the level of identity verification they want used. Bureau enables them to scale more safely and quickly by creating a cross-functional platform that enables the work of different groups like the onboarding and credit risk teams to happen in tandem. “With Bureau, you get an orchestration across functions, markets and products,” says Reddy.

Another distinction that sets Bureau apart is that while it is a tech software company, it operates with a guarantee model. Bureau underwrites certain transactions so that it takes on the risk of a new client rather than passing it on to the business. For example, in emerging markets, the most prevalent form of payment is cash on delivery, in which an order is placed online and the payment is made at the time of pickup. Often people will change their minds after making a cash-on-delivery order, resulting in the need for a Return to Origin (RTO). But each RTO costs the retailer dearly; with around 10 to 12 percent of orders resulting in an RTO, retailers are often limited in knowing how much they are able to grow. To help combat this problem, Bureau offers an RTO guarantee: if an order results in an RTO, the $3 to $4 in value that the return would normally cost the retailer is passed on to Bureau instead. “Guaranteed growth and protection is what we want to do. We assure identities and we insure transactions,” he says.

The growing number of fintech players entering the market across the globe gives Bureau a market ripe with businesses in need of identity verification services. For example, Bureau began working with a neobank before it launched its platform. The online bank got close to 50,000 new account openings at a fast clip, and Bureau was able to catch a fraud ring that could have been catastrophic to the business. As an incentive to join, the bank was offering new customers a certain amount of credit in each newly opened account. The fraud involved someone who was using a single device to make 700 to 800 different accounts using fake phone numbers and International Mobile Equipment Identities. Bureau was quickly able to spot that many new accounts were being created within seconds of each other, an anomaly from the kind of growth that had been happening, raising a red flag. The fraud was coming from someone using a VPN and fake details with one-time passwords that all originated at a single phone but terminated elsewhere.

Bureau also detects referral fraud and promotion abuse, an area where companies see a lot of collusion, mainly with people generating fake orders in order to get certain incentives.

“Fraud will always be there. The cat and mouse game will always be there, but how do you make sure you have a recourse? Today in the online world, you don’t have much of a recourse,” he says. “This model enables trust between two sides of the marketplace. Our incentive is to generate high-trust behavior in low-trust societies.”

Increasingly more and more services want to create a seamless experience for customers while verifying their identity. While Bureau started working primarily with fintech companies, it has gotten interest from a broader client base including legacy financial institutions, crypto, gaming, and other digital businesses experiencing hyper growth. “More people want to know who they are dealing with,” he says.

Launching a company at the start of a global pandemic has also had a significant impact on the business, with COVID accelerating the digitization of every sphere of life around the world. “There’s a whole lot of activity happening in countries digitizing. They are really leapfrogging,” Reddy says. “The growth is happening because the world is going towards efficiency. Identity as a mainstream industry is really taking off, and Bureau can make it both seamless and trustworthy with just a phone number.”

Quona led the Series A fundraise for Bureau, and we love this quirky video that conveys the problem they are solving!

Disclaimer: Quona portfolio companies were selected for profiles based on objective, non-performance-based criteria for the purpose of illustrating the types of investment made by Quona funds and their impacts. These profiles are being provided for illustrative purposes only, in order to provide examples of the idea generation, research, and thought process of Quona investment teams. No representation is made as to whether or if the investment ideas represented in these profiles have been or will be profitable. It should not be assumed that Quona will be able to identify similar investment opportunities in the future, or that any such opportunities will be profitable. The above statements include the opinions of the Firm and are for illustrative purposes only. There is no assurance that any trends depicted or objectives described in Quona profiles will continue or become successful.

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Quona Capital

Quona Capital

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Quona Capital is a venture firm specializing in financial technology for inclusion in emerging markets. Learn more at quona.com.