The development of digital financial services coincides with an increase in both regulators’ efforts to create better regulatory frameworks to prevent abuse as well as bad hackers’ and fraudsters’ attempts to breach those valued systems.
An Amsterdam-based startup named Fourthline has developed a suite of AI-based tools to assist with identity verification, help businesses comply with anti-money laundering regulations, and more to help the finance sector fulfill those needs. It said today that it has secured finance totaling €50 million ($54 million) to advance that technology.
Finch Capital is leading the all-equity round, which also includes unidentified investors, one of which is a key institutional partner, according to what I’ve been informed. Fourthline was founded in 2013, spent five years developing its technology, and launched commercially in 2018. Since then, it has largely grown on its own, having received only €70 million to far, including this most recent €50 million infusion. The company’s valuation is not being made public.
The five years since its beginning have seen tremendous growth: N26, Qonto, Trade Republic, FlatexDEGIRO, Scalable Capital, NN, Western Union, as well as online marketplaces like Wish, are some of Fourthline’s clients. And during the previous five years, business has increased by 80% every year. It claims that its technology assists in vetting “millions” of customers annually.
In a way, the issue Fourthline is addressing is one that is perfectly suited to the capabilities of artificial intelligence in the best of ways at a time when there is a lot of debate about the potential for artificial intelligence to be mistreated and abused.
Several crucial facts form the basis of its premise: Bad actors have a variety of ways to take advantage of digital financial systems, including data theft, impersonation, and other methods of stealing money or moving funds illegally. Indeed, humans play a key role in finding a solution to this problem. Yet, the difficulty of addressing these hostile approaches and fraud attempts is becoming more and more challenging due to the prevalence and rising sophistication of malicious approaches, which come from humans as well as computers and occasionally AIs.
Thus, it is believed that AI-based methods that use computer vision, machine learning, and massive amounts of data processing to identify when something is not as it should be are not only useful but also essential.
The technology used by Fourthline presently does about 200 checks, including looking at identification documents, decoding biometric information, checking records for residence, and checking names against sanction lists, among other things. While some of them may be simple database checks, others are more complicated moving targets. With this round of finance, on top of what Fourthline has previously invested, that component will receive more R&D resources.
Method is 99.98% accurate
According to Krik Gunning, CEO and co-founder of Fourthline, “We’ve extensively invested on the authentication side.” He added, “Looking at ID and passports in other ways” is part of that.
The business asserts that this method has a 99.98% accuracy rate and can detect 60% more fraud.
Many startups already exist to assist fintechs and others in areas like KYC (know your customer) regulations and ID verification, but Gunning noted that the norm is to take a very different approach. Companies have largely built solutions that typically rely on using APIs and core technology developed by third parties, which is then customized by the startup in question.
According to Fourthline’s alternative perspective, it is preferable to develop your own technology from the ground up using your own private data sets because it is simpler to govern and adapt. In the long run, it also results in greater service margins.
“To check if it has been tampered with, we utilize our own OCR [optical character recognition] model for the numerical zone and another for the visual zone. And while many people do have that, we can also handle the more difficult aspect of it by determining whether something is authentic while also identifying the possible reasons why it could not be. This calls for more thorough analyses of ghostly images and the ability to comprehend even the lighting techniques employed to create an image. “We’ve put a lot of money into this,” It is a major factor in why it took the business years to introduce just one product.
The business’s approach to marketing is incredibly streamlined. There are currently no plans to develop services beyond ID verification, KYC, and AML. So while credit scoring might look like a very adjacent and obvious possibility, it’s not one that Fourthline will be pursuing for now. Similar to this, this is the reason why it primarily focuses on the financial industry rather than utilizing its technology or pursuing commercial opportunities with the numerous other sectors that may also purchase ID services. Governments are not clients; they have attempted to develop universal ID schemes, with widely scattered outcomes. at least not at this time.
There are many businesses in this field that use AI extensively, but, in all honesty, it takes a lot of time, money, expertise, and training to develop AI models to the level you desire, according to the speaker. “Focusing is the only way you can accomplish it. We do this where we can play a role since we couldn’t do it for every industry in every part of the world. That is why we focus on financial institutions in Europe.”
No plans to develop services beyond ID verification
Fourthline’s narrow focus, demonstrated returns, and, crucially, technology developed by its own engineers are examples of what are currently resonating with investors and what is likely seen as a more healthy basis for growing down the road in a market rife with highly capitalized startups that have struggled to live up to their valuations and growth expectations.
According to Radboud Vlaar, managing partner of Finch Capital, “We’re great believers in overcoming the compliance difficulties in this business through a focused growth strategy employing a platform approach using proprietary technology.”