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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 Lucinda 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 data sources 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: Most of the company's revenue comes from the financial services space, though the company also verifies identity for several other sectors, including commerce.

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

1 big thing: Prove becomes a unicorn

Nexu, a startup providing financing solutions to car dealerships in Mexico, has raised $20 million in Series B financing led by Valor Capital, the company tells Ryan exclusively.

Why it's the BFD: Auto financing is tough to come by in Mexico, reducing accessibility for car buyers and lowering conversion rates for dealers.

How it works: Nexu created a platform that enables car buyers to apply for and receive an instant decision on vehicle financing.

The company partners with car dealerships to make that financing available at the point of sale, which increases conversion rates and expands access to previously underserved car buyers.

Context: Unlike the U.S., where financing accounts for 80% of new vehicle sales and 40% of used vehicle sales, auto financing in Mexico is much harder to secure.

Fewer than 60% of new vehicles and fewer than 2% of used vehicles are financed in Mexico.

Between the lines: The lack of financing is due in part to low approval rates from incumbent banks, as well as an analog application process.

"When you apply for financing at a car dealership [in Mexico], you need to wait on average three days, but at least a day to get a response," says Nexu co-CEO Abdon Nacif. "So it's a very bad experience for the car buyer, which provides a lot of uncertainty."

Yes, but: With its proprietary risk algorithm, Nexu says it can approve more than twice as many car buyers as traditional banks.

"We created our own credit score based on information that comes from public and private data sources and variables that we built ourselves," co-CEO Fernando Gómez Arriola says.

Of note: In addition to the Series B round, the company has raised a debt facility from HSBC but isn't disclosing the amount.

Nexu had previously raised a total of $53 million in a mix of equity and debt financing.

Other investors include Fintech Collective, Endeavor Catalyst, Altos Ventures, Wollef, Squareone, Clocktower Ventures, Gilgamesh, FJ Labs, Ivernet and Capem.

2. The BFD: Mexican auto financing gets funded 

Data: Trial evidence courtesy of Molly White; Chart: Erin Davis/Axios Visuals

Sam Bankman-Fried rejected seven iterations of the balance sheet at his hedge fund, Alameda, before settling on one that he felt comfortable showing to lenders, per the testimony of then Alameda CEO Caroline Ellison, who drew up the spreadsheets.

Why it matters: The final version — "alt 7" — is arguably the most vague and notably omits mention of related-party loans (on the asset side) or "exchange borrows" (on the liability side), report Axios' Felix Salmon and Erin Davis.

Both would have been red flags to outsiders: related-party loans, because a hedge fund shouldn't be lending billions of dollars to its executives, and exchange borrows, because Alameda was not supposed to be able to borrow anything from FTX, the exchange in question.

The bottom line: The number of versions — and the massive differences among them — sure look like evidence of fraudulent intent.

3. Alameda's other balance sheets

🛑 Binance to halt new U.K. customers from using exchange (Bloomberg)

The world's largest crypto change has suspended access to new users based in the U.K. The move comes after the country's watchdog terminated a Binance partnership with a third party to approve communications on its platform under new local rules.

❌ Israel orders freeze on crypto accounts (FT)

More than 100 Binance accounts have been frozen at the request of Israeli law enforcement since the Oct. 7 attacks by Hamas. Israel has also requested information on up to 200 additional crypto accounts.

🧑‍⚖️ Solid files countersuit against FTV (TechCrunch)

FTV alleged that Solid's founders had lied to the firm about its revenues, customer churn and business. Arjun Thyagarajan and Raghav Lal filed a countersuit last week, saying FTV resorted to fraud and strong-arm tactics to get their capital back.

💸 Intuit QuickBooks launches bill pay (Finovate)

Aimed at SMBs, the tool will help Quickbooks' clients track and automate bill payments within its platform. It also includes a suite of financial and accounting tools such as digitized record-keeping, vendor management, and customizable team permissions.

4. Credit score

Illustration of a tape measure with "Credit Score" written on the side.

Want more fintech deals? Check out the Axios Pro Deals Tracker beta.

• Procurify, a Canadian spend management platform, raised US$50m in Series C funding led by Ten Coves Capital. Export Development Canada (EDC), Information Venture Partners and HarbourVest also participated. https://axios.link/3FroKv3

• Nova Credit, a New York-based alternative credit score company, raised $45m in Series C funding. Canapi Ventures led and was joined by General Catalyst, Index Ventures, Kleiner Perkins, Y Combinator, Avid Ventures, Geodesic Capital, Harmonic Growth Partners, Radiate Capital and Socium Ventures. https://axios.link/3LZSbrN

• Anonybit, a personal privacy and digital security startup, raised $3m in funding led by Jam Fintop, with participation from Connecticut Innovations. www.anonybit.io 

• Celestia Lab, a blockchain network provider, received an undisclosed investment from OKX Ventures, the investment arm of crypto and Web3 technology company OKX. https://axios.link/3ZZXEVl

• Iwoca, a London-based SME lender, secured a £200m debt funding line from Barclays and Värde Partners. https://axios.link/46sWvIq

• Stax Payments acquired Atlantic-Pacific Processing Systems, a Las Vegas-based payment processing and merchant tracking platform. www.approcessing.com

• Hamilton Insurance Group, a Bermuda-based insurer and reinsurer, filed for a $100m IPO. It reports $1.2b in revenue for the 12 months ending June 30, 2023, and plans to list on the NYSE (HG). Backers include Blackstone. https://axios.link/48VobHs

• Waystar Holding, a Lehi, Utah-based provider of health care revenue management software, filed for a $100m IPO. It reports a $21m net loss on $387m in revenue for the first half of 2023 and plans to list on the Nasdaq (WAY). Shareholders include EQT, Bain Capital, CPPIB and Francisco Partners. https://axios.link/46WOQlH

5. Deals!

• Alex Choi has joined FinanceHQ as CEO. He was previously head of strategy and operations at Betterment. Amanda Cox has been named COO, and Amar Parikh is head of product. www.financehq.com

• Dan Hartley joined alternative lender ThinCats as CFO. He most recently was chief investment officer at Lowell Group. https://axios.link/3Q1QknA

• Jeffrey Brown plans to step down as CEO and board member of Ally Financial in January. https://axios.link/3tx42HD

• Terri Kallsen, former COO of Wealth Enhancement Group, has joined Joe Duran's Rise Growth Partners as a managing partner and senior operating advisor. https://axios.link/45z5yGs

• Ann Olinger, former VP of product at Global Payments, joined Treasury Prime as VP of product. https://axios.link/45DJYR8

• Jason Quinn, chief product officer at electronic trading startup Trumid, has been named global head of sales. www.trumid.com

• Jon Lowe, former head of HR at eToro and Revolut, joined DailyPay as chief people officer. https://axios.link/45AOqjR

• Peter Carter was appointed to lead WTW's refocused climate practice. Carter was previously global head of captive and insurance management solutions at WTW. https://axios.link/45xcdkv

• Coinhouse, a French crypto firm, is cutting 15% of its workforce. https://axios.link/3Fi0UlJ

6. It's personnel

🎰 Situational awareness: Ryan and Lucinda will be in Las Vegas for Money 20/20 next week. Join us and Dan Primack next Tuesday, Oct. 24, for an event exploring the future of fintech. Request an invitation here.

⚾ @Ryan is going to Game 2 of the NLCS tonight. Let's go, Phils!

🎧 @Lucinda is reading about how DJ Sol is hanging up the headphones.

Thanks to George Moriarty and Rob Reinalda for today's edits.

And thanks to you for reading. Please tell your fintech friends about this newsletter. They can sign up here.

October 17, 2023

1 big thing: Prove becomes a unicorn