These startups are using advanced technology to help strengthen the customer onboarding processes of financial institutions and help them manage risk.
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One of such startups is Mumbai-based Data Sutram, which is providing support to institutions such as IndusInd Bank, IDFC First Bank, Union Bank of India, DMI Finance and IIFL Finance.
Founded in 2018, Data Sutram has developed a product, ‘DS Authenticator Trust Score’, which helps its clients assess each customer during account opening or credit assessment based on a trust score of zero to 1,000. The company analyses data from various sources to assign the score.
“All these banks we are talking about, it is the digital arm that is in the spotlight. Obviously, there is a KYC (know your customer) infrastructure that was built in, but it was not enough to verify the identity of the user. There was enormous misuse of digital accounts,” Data Sutram cofounder Rajit Bhattacharya said.
“The red flag is that from the same IP address and from the same location, there have been multiple identities created and may be the same phone number is being used, and nobody is checking these,” he added.
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The startup has so far raised $5.4 million in equity funding from the likes of Bharat Innovation Fund, Singularity Growth Fund and IIFL Fintech Fund.Banks which have been building digital platforms to engage with their customers have often been found wanting in adequate data security systems. Recently, Kotak Mahindra Bank was on the receiving end of the RBI’s wrath because of issues with its very popular neo-banking application, 811. HDFC Bank was in a similar position some years ago.
Data Sutram relies heavily on data from sources like Unified Payments Interface (UPI), the goods and services tax network, delivery and logistics firms connected with ecommerce, information available digitally from private companies and social media. It also uses satellite-derived datasets for location-based risk detection.
With location-based risk detection, banks can enhance the precision of their lending decisions, which involves analysing factors such as the economic stability of a region, local employment, default rates, and property values.
Quona and GMO Venture Partners-backed Bureau Inc recently introduced a ‘Money Mule Score’ to empower financial institutions to detect potential money mules during user onboarding.
A money mule is recruited by criminals to transfer illegally obtained money between different accounts or locations. This can involve various forms of financial fraud, such as online scams, identity theft, or money-laundering schemes.
Bureau chief executive Ranjan R Reddy said this score, built on the company’s proprietary ‘Link Analysis’, significantly improves mule detection beyond traditional KYC processes used by financial institutions.
The score helps determine users’ legitimacy through device fingerprints, behavioural patterns and historical data.
Bureau’s collaboration with a leading bank to implement the Money Mule Score resulted in a 60% increase in detecting money mules compared to the bank’s existing KYC process, helping it prevent potential fraud losses of over $43 million, Reddy claimed.
RBI data show that the value of domestic payment frauds surged by nearly 42% to Rs 471 crore in March 2024, compared with Rs 333 crore a year earlier.
Industry insiders believe that banks alone cannot update their systems to keep pace with fraudsters; fintechs need to pitch in too.
“With more partnerships between fintechs and banks occurring, and if both parties play to their strengths, you will see the change happening faster, whether it is in KYC technology, loan application processing, or money movements,” said Kunal Varma, cofounder of fintech company Freo (previously Moneytap).
Organisations that prioritise early investment in data analytics gain a competitive advantage over those that delay such investments, he said.
Rishi Agrawal, CEO and cofounder of TeamLease RegTech, said in the modern banking model, fintechs have reduced the time for customer onboarding.
“This rapid pace is driven by the industry’s emphasis on acquiring customers quickly, often leading to a disregard for caution and resulting in shortcuts and compromised processes,” he said. Financial institutions have to take responsibility and build controls in technology to ensure that these are enabled throughout the length and breadth of the organisation,” he added.
