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Exclusive: Prove raises $40M at more than $1B valuation

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Oct 17, 2023
a mobile SIM card shaped like a unicorn

Illustration: Tiffany Herring/Axios

Prove Identity, a fraud-reduction startup for companies like Synchrony, Starbucks and Zelle raised $40 million in funding at a valuation of more than $1 billion, the company tells Axios exclusively.

Why it matters: Once considered a "boring" part of the market, anti-fraud and compliance startups have become increasingly hot amid tightening regulatory scrutiny.

Details: MassMutual Ventures and Capital One Ventures led the round, which comes roughly three years after its last.

  • CEO Rodger Desai says the equity up round, which closed in recent weeks, was "clean."
  • He attributes the firm's recent growth to its expansion internationally, and its decision to start serving fintechs in addition to Tier 1 bank customers.
  • The firm is currently cash-flow positive.

The big picture: Regulators have been taking a deeper look at the negative effects of the pandemic-era explosion in online financial services.

  • A staggering 91% of fintechs surveyed by Alloy, an identity verification firm, paid compliance fines between June 2022 and June 2023.
  • It wasn't just fintechs, nor just U.S.-based companies, for that matter. Global compliance fines rose 50% last year, the Financial Times reports citing Fernegos data.

How it works: Prove is best known for using the SIM card and the behavior of the phone number as a proxy for identity.

  • Desai saw that know-your-customer processes that simply sought a name, a Social Security number, and a date of birth would not be enough.
  • "In our view, the better thing to do is to say: 'This phone should be present during the transaction, whether it's an account opening, a login, or a payment,'" he says. "The thing that correlates with fraud risk the most is how long you've had your phone number and how you use that number."
  • For example, If a user applies for an account and their number is only six days old, the applicant is at higher risk of being fraudulent. Similarly, if the user doesn't make calls or use their number, it's also cause for concern.
  • Prove also uses additional sources of data to verify the identity.

What they're saying: "The good thing is phone numbers don't have any bias built in. You can't tell the race or the gender," says Desai.

Of note: The majority of the company's revenue comes from the financial services spaces, though the company also verifies identity for several other sectors, including commerce.

Zoom out: Investors noted the trend, with regtech dealmaking, which includes M&A and private transactions, rising 53% last year, to $18.6 billion, according to KPMG.

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