Over the last decade, there’s been an explosion of consumer fintech startups offering digital-first and easy-to-use solutions to lure the next wave of consumers and businesses away from traditional financial institutions. The “unbundling of financial services” has inspired better customer experience, pricing, and more transparent solutions, but it has also led to some significant challenges for the industry as a whole.
While banking, wealth management, insurance, and other financial services have improved substantially during this past decade of unbundling, it doesn’t seem that customers have lost their desire for a more holistic digital banking experience. People want all the new functionality, progress, and mobile-first experiences that have resulted from the unbundling of the traditional bank platforms, but also have their financial services all in one place.
Emerging leaders of this most recent wave of innovation including SoFi, Robinhood, Chime, and Bessemer portfolio company Betterment, among others, are striving to increase their share of wallet with their customers and become as much of a one-stop-shop for people’s financial lives as quickly as possible. As a result, this great “rebundling” is in full swing and is putting strains on legacy technology platforms and the regulatory infrastructure of the existing financial systems across the globe.
To rebundle quickly and cost-effectively, fintech companies have largely relied on bank partners, operating behind the scenes to enable adjacent banking products like checking and savings accounts, brokerage accounts, wealth management, and to provide the balance sheet to support various forms of consumer lending. Many of these forward-thinking banks (and enablers of rebundling) have been innovating their tech stack from the inside out in order to partner with the many emerging leaders across the industry.
At Bessemer, we believe that value will continue to accrue amongst the companies building foundational platforms that facilitate this consolidation of financial services. This is one of the major reasons why we decided to invest in Alloy, the complete API and identity operating system for both banks and emerging financial technology startups.
What inspired Alloy
We initially met Alloy co-founders Tommy Nicholas, Laura Spiekerman, and Charles Hearn back in 2015 during office hours at TechStars’ FinTech accelerator in New York. Based on the co-founding team’s collective insights from their days working at an ACH payments company, they set out to build a bank-grade product to help reduce fraud and streamline workflows using a flexible and powerful developer-first approach.
One area that has not kept up with the pace of technical innovation within banks and startups is the mission-critical processes around regulatory compliance and fraud prevention. Because of this, Bessemer sees regulatory compliance and fraud prevention as one of the largest opportunities to improve upon as the industry rebundles.
Know Your Customer (“KYC”) & Anti-Money Laundering (“AML”) regulatory frameworks attempt to reduce money laundering and prevent financial crime, however these existing processes rely on disparate data vendors, internally built and stitched together systems and lengthy manual review processes. None of these solutions can scale and meet the needs of fintech's new, digital-first paradigm. At Bessemer, we’ve estimated that more than 220 million new accounts are opened in the U.S. each year across savings and checking accounts, personal loans, credit card products, auto loans, and other basic financial services, thus creating a huge opportunity for Alloy’s identification API technology.
Here’s how Alloy works
With Alloy’s identity management platform, banks and institutions can bring together siloed data sources and provide a powerful and customizable decision API that drastically improves the onboarding experience for customers. Account creation is seamless, accurate, nimble, and without those tedious identity verification steps.
Plus, banks and back offices can make smarter and faster decisions so this process is cost-effective and teams can constantly be using the latest and greatest set of data sources and scoring engines that are constantly coming into the market. Top banks and fintech companies that rely on Alloy reduce fraud by 50% and automate 98% of customer onboarding decisions. In addition, good customer conversions have increased by 30%, which directly drives revenue for Alloy’s customers.
While these metrics are certainly impressive, the Alloy team is just getting started. At Bessemer, we regularly meet with innovative fintech entrepreneurs and over the past few years we’ve met with scores of market participants who highlighted the need for a frictionless identity management platform as they have scaled. Many of these companies began switching from internally built, less powerful solutions over to the Alloy platform. Given Alloy’s developer-centric approach, we expect to see Alloy grow with their customers and benefit from some of the same forces as other developer platforms, such as Twilio, SendGrid, Auth0, and PagerDuty.
We look forward to seeing how Alloy powers innovation across the consumer fintech landscape for years to come. Bessemer is thrilled to be partnering with Tommy, Laura, Charles and the entire Alloy team as they continue to develop an enduring platform that allows both large and small players in the industry to move fast, provide a better customer experience, and leave the compliance piece of the equation to Alloy’s single, best-in-class solution.