The following interview is with Socure CEO Johnny Ayers, who I spoke with ahead of the company’s recently announced $450 million Series E. The round was led by Accel and T. Rowe Price, included new participation from Tiger Global and Bain Capital, and propels Socure’s valuation to $4.5 billion.
That story can be found here.
Q: Can you explain Socure and the services you offer?
A: We are hired today to answer two questions: ‘Is Joe a real person, and is this Joe?’ That is an internet-wide problem and obviously a massive problem as it relates to fintechs that are trying to verify and file underbanked, credit-invisible people.
It is really easy to commit fraud on the internet, and so we have spent the better part of the last decade building a full end-to-end suite of services that look at every dimension of Joe’s identity. Name, email, phone, address, date of birth, social IP velocity, device, behavioral, physical documents, pictures, and liveness all in a single solution.
So we have 12 products today. We’re really the only pure play identity verification provider at this point. We’re the most highly valued private identity verification provider in the world.
Our customers look at us as a single solution, versus patchworking and frankensteining all these different companies together. We enable them to verify the largest number of good identities, with the least amount of fraud, and solve for false positives and false negatives on each side.
These issues aren’t unique to FinTech and financial services, although we do have four of the top five banks, 12 of the top 15 issuers, and most major fintechs use us. I think we have like 300 fintechs. We do Know Your Customer (KYC), fraud, anti-money laundering (AML), and document authentication for every new account that is opened.
We also have the largest gaming providers, the largest crypto exchanges, the largest Buy Now Pay Later (BNPL) providers, the largest HR payroll companies, three letter agencies, state agencies and a bunch of the largest telehealth providers. And so it really kind of spans all of the different high-value, high transaction volume, highly regulated spaces where it’s really really important that you don’t get identification wrong.
Q: What has been the biggest driving factor when it comes to securing these big names and marketing to those that need your services?
A: I think that the biggest success that we’ve had is because the problem is very quantifiable … you can literally prove the value. We can prove that we can verify 10-15% more people then your whole prior stack combined. And if each customer is worth $300, times that by 10%, times our 12 apps, is your business case.
It’s been very quantifiable in building the business. I think that’s a huge value or we just say we’ll prove it. We’re the best, we know we’re the best and we’ll prove are the best with your own data and your own labels, and working with your data science or engineering teams to do so.
I think there’s also been a lot of persistence and grit from our team. Risk and compliance folks aren’t always the fastest moving, nor should they be. And it’s just taken a tremendous amount of work to build the reputation that we have; as it relates to security, as it relates to model governance, as it relates to our ability to pass audits with FINRA, the OCC, and the FDIC.
There’s a level of maturity that a startup just doesn’t have. It takes time to build up this muscle, and so I think the success we’ve had really has been a combination of performance, innovation and creativity in problem solving that our teams bring.
Q: As a follow up, fintechs want to be fast and nimble. How do you balance being fast for fintech partners, but also doing everything right to manage banks on the other side?
A: The nice thing is the solutions we’ve built can be scaled to end. I could have 10,000 customers on the same solution: a Capital One, or Citi or Chime. They buy the same thing from us. So the speed is really in them making the change, the speed is not on our side per se. This speed is their ability to test new solutions, get them through their procurement engine, get them on their roadmap, get them live.
I think one of the benefits that fast-moving companies have is just size, right? When you have one owner of risk, one owner of compliance and one owner of acquisition, you can move a lot faster than a company that has 300,000 employees.
A company like Socure just couldn’t have existed 10 years ago in this venture-backed model because there just weren’t enough companies moving fast enough. And now, 2/3 of our customers aren’t 15 years old. The pace in which they move and the scale that they’re moving is what enables us to post the growth numbers that you’re seeing. 226% customer growth, 500% year-over-year bookings, we’re at triple digit run-rate from a bookings perspective. It’s pretty massive growth that you just wouldn’t see with more established, legacy institutions.
Q: You just raised a $450 million Series E. How do you plan on using that to further Socure’s goals?
A: Stating the obvious, we’re very excited to announce the round. It’s obviously establishing us as the most valued identity verification company in the private markets, which is pretty amazing, from two of the best investors in the world in Accel and T. Rowe Price.
I think the first thing I’ll kind of break it into two tracks. One, on the product perspective, we will be the first to verify 100% of good identities and completely eliminate identity fraud. That is what we are heads down on, we will be the first to solve that. That is a internet-wide, societal problem that exists for every enterprise across the web. You’re even seeing Bumble, Tinder, Match.com now doing identity verification. Twitter and their blue checkboxes, tons of identity verifications. You’re really seeing this touch every part of the web.
The second on the product innovation line is: as we solve this identity-proofing problem and are the tip of the spear to verify ‘this is Joe,’ we can then move into continuous authentication. When we are the establisher of identity, we can move into authentication, persistent identifier credentialing, and enabling our customers to re-authenticate and re-verify their consumer over the lifecycle of their consumer. So we have like one big investment track there.
The second big product innovation track that we’re accelerating is, we have this amazing network of nearly 1,000 customers of the large guys, the large growth guys, and everyone else across the market. They’re coming to us saying, ‘Hey Socure, you’re solving this identity problem for me. Now, can you solve this first-party problem, this payment risk movement problem?’
Since we already have this network effect, we have their data we have the piping built, it becomes really easy to just add additional columns to the type of data that we’re sharing. And so this network becomes really, really, really valuable. We’ve built the largest identity graph in the space. We have our 8 billion rows of identity data, almost a billion rows of known outcomes. We know that this is Joe, so we can start to look at, ‘Do I actually want to do business with Joe?’, or ‘Does Joe bounce checks, is he disputing transactions? Does Joe have 25 shutdown accounts across this ecosystem?’
There becomes a lot more information that is really valuable in protecting the financial services ecosystem. Our customers are asking us to build a next iteration and then on the go-to-market track, as you think about being the first to be able to verify every identity on the internet. How quickly can you bring that into telehealth and e-commerce marketplaces, cannabis, alcohol, grocery delivery, online gaming, state agencies and federal agencies?
There’s this amazing societal benefit of what we’re working on. You can verify a larger number of people, get them access to services based off socio-economic, gender and ethnicity, and then stop bad actors from stealing people’s money, our government’s money. And so it’s a really fun problem.
We always viewed financial services as being the bedrock, the foundation that we would initially build our business off of. It’s the highest regulated and the most secure. If we could establish trust with 12 of the top 15 banks, and soon I’m sure we’ll have 15 of the top 15; if we can establish trust there, you can move into these all these other verticals that obviously rely on the safety and stability of financial services.
Q: What are important indicators when it comes to deciding if someone will be financially responsible with loans and services?
A: One of the initial challenges that we’re seeing in digital banking is that you have repeat bad actors that are bouncing from fintech to fintech to finTech. Making false disputes, and then the accounts being shut down, but they’re just taking $1,000 each.
We see this as being an enormous problem in digital banking. Banks want to know where the funding sources coming from, because a lot of folks want to offer real time funds availability, money before they get paid right money before the ACH clears. This is a place where banks are taking pretty material losses, where they just want to know, ‘Has Joe had a Bank of America account for 15 years and is it in good standing?’
And so it’s kind of like that query into a large network that our customers are saying, ‘You’re solving this identity problem for me, here’s the next problem. We want you guys to solve and build this as like kind of an overlay to your identity graph.’
Q: Accel and T. Rowe Price led this funding round. Why were they the right choices when it came to leading the round?
A: Accel lead our series D, and I had spent a lot of time for both that round and this round, researching funds, partners, investment strategies, where they are in the life cycle of their fund, who is really helpful to the partnership, and passive capital versus active capital. It’s kind of all this pre-work that I like to do. And just across the board, I think Accel is viewed as best-in-class growth equity investors.
When we looked at capital markets groups at the biggest banks, you can probably guess who, all of them had really marked Tiger and T. Rowe as best-in-class crossover investors. All of them had said look, ‘If you’re designing an optimal round and can have a hedge fund and a mutual fund, these are two of the best that exists in the world.’ We wanted to raise the round so that we could really accelerate a number of these exciting strategic opportunities to service more of our customers and new markets.
We also wanted to find partners that were going to be capital partners for the next 10+ years. And from from my research, I found that Andrew from T. Rowe and John from Tiger had really tremendous reputation in the market. Their funds and their teams had tremendous reputations, and we felt that they would be great partners, as we make this eventual transition from private to public markets.
We were very fortunate with our growth numbers, with the customers that we have the benefit of serving every day. We’re picking between A and A+ investors, so we’re very fortunate in that regard.
Q: As you continue to scale and get bigger, I just want to ask where you’re looking for talent and where you think the best places to find talent are?
A: I’d say far and wide. We’ve been very fortunate to build an amazingly diverse and talented team. We continue to look through academia, we continue to look through blogs, through referrals, through prior teammates, through new vendors. We’re really kind of looking looking across the map, and it’s a big part of this race as you can imagine. We want to be a place for people that are excited and interested in solving this problem and complimentary problems, where this is a place where they want to come work for the next 10 years.
We are hiring about 100 people in Q4. We’re going to grow from like 150 to 500 this year and are looking to grow from 500 to 1,000 next year. We are casting the net wide, retained search, recruitment process outsourcing (RPO), contingency search. We have an amazing group of internal recruiters, we have referrals for our existing employees, we pay referrals for non-employees.
We want to find the most amazing people that we can, no matter where they come from. This is a place where they can come do their best work and shine, and hopefully shine for a long time as we build a huge, time-standing company.
Q: I wanted to ask you about predictive DocV. I’ve been seeing a lot of innovation and news around that and when it comes to machine learning. What are the challenges when it comes to document automation and risk?
A: We build machine learning models. That’s what we do. We have 75 data scientists, some of the best PhDs in math and physics that we can find. Our predictive document verification solution utilizes the industry’s only patent-pending classification models, that pull from computer vision algorithms, pulls from various dimensions across identity. Phone ownership, device liveness and facial recognition, looking at very specific things across every point, not just the document.
This is allowing us to derive very specific, fine-tuned patterns that allow us to deliver the most accurate authentication and classification document verification solution in the market. Most solutions are either using people for 40% to 60% of all verifications, which obviously does not scale at the speed of the Internet. They’re using very heuristic-based models.
We believe that because Socure has built out every dimension of a consumer’s identity in a single service, we are uniquely positioned to have this enormous device graph, enormous phone ownership graph, enormous predictability as it relates to the pie that’s on the document in a way that this is a precision recall problem.
The ability to verify is an age old problem. Is this passport or driver’s license real? At the same time, fraudsters are building tools on their own. They’re getting very sophisticated in terms of beating, spoofing masks and deep fakes, getting very good at beating the system. And there’s varying levels of document authentication. There’s OCR, there’s basic pattern recognition, there’s full authentication, and then you get into likeness. And one to five in terms of pad testing. All these are variations that I think are most people don’t fully understand and appreciate as it relates to ‘How do you really solve this problem more accurately than anyone else?’
Q: KYC and AML are some of the most important focuses for fintechs and financial institutions moving forward. What do you think are the biggest challenges facing the industry at large and where are things moving forward as far as innovation?
A: We’re very heads down focused on being the first to verify 100% of good identities. That today is an unsolved problem. When you think about the Venmo, Cash Apps, and Chimes of the world, [they] are looking to bring services to everyone. KYC/AML is an enormous problem that sits across really everyone you cover.
The second is as data breaches continue to grow, more data becomes available, and attacks are getting more and more sophisticated. As folks provide real-time funds availability and real-time money, the target on their back becomes very big, because it’s very lucrative to steal the correct amount of money. That’s available across the web and I think there’s this near-term enterprise problem in probably three to five years.
When this is like fully solved and broadly deployed across the internet, and we believe we’re going to technically solve it in the next couple of months, how long does it take the adoption cycle across all enterprises to pick the market leader and get it fully deployed across the web? I think that’ll take a couple of years. Then, how do we solve this in ecosystems?
How can a trusted Identity be ported across different enterprises, different application and ecosystems? Eventually, can Joe actually own his identity at scale, and utilize it as an assertion as you go to different sites with something that’s tokenized on your device? Our work is to solve this at the enterprise level, solve it in an ecosystem of enterprises, and then take it to the consumer in a way where this is a fully solved problem, and we can give the consumer control.