I am thrilled to announce that Canaan has backed the team at Beam Solutions – aka The Beam Team– to rebuild compliance software for financial institutions, fintechs AND those consumer companies that don’t yet know they’re fintechs. It’s been an absolute joy watching this team grow from the pre-seed stage – the classic two founders and a pitch deck phase – to one of the strongest and most technical teams out there. In a market that demands deep domain expertise, there’s no better team out there to build this product to reshape the landscape.
As the Chief Compliance Officer of Facebook Payments, Ben Duranske was responsible for building the compliance infrastructure alongside regulators for one of the fastest growing payments products ever. Andreas Bayer brings a deep technical background, having helped build the compliance systems for Xoom and PayPal. To round out this phenomenal team of operators, we’ve been fortunate enough to have Ben Lawsky as an independent board member since Day One. Ben was previously New York State's first Superintendent of Financial Services and knows the challenges that the regulatory landscape faces better than anyone out there.
According to the UN Office on Drugs and Crimes, $3.7 trillion is laundered per year globally, with $2 trillion of activity taking place within the United States. Here and abroad, financial institutions are required by law to police bad actors and fraudulent activity. Every year, global financial institutions are assessed fines in the hundreds of millions, or even billions of dollars for money laundering and/or sanctions violations by regulators. A recent PwC survey indicates that 18% of financial services respondents have recently experienced enforcement actions taken by regulators.
To prevent these one-time fines, financial institutions maintain expensive black box software and large transaction monitoring teams, which manually check flagged activity. As evidenced by the size and frequency of fines, this combination isn’t very effective. My interest in this space was originally born out of a breakfast with bankers from two of the top three U.S. banks, who told me that they have “tens of thousands of analysts working in their compliance departments.” Something must be broken, right? And it’s not just financial services institutions that are experiencing regulatory pressure. Any organization that facilitates financial transactions, including digital payment services, life insurers and retailers, are coming within the scope of anti-money laundering (AML) legislation worldwide. As the world of consumer products has proliferated, so has money laundering.
Global spending on AML compliance is set to grow to more than $10 billion by 2019. In addition, in the United States, 13,000 banks/credit unions and 32,000 money services businesses spend $20 billion on transaction monitoring software. However, despite the massive spend, legacy AML software offerings produce 99% false positives and miss 60% of bad activity, leaving financial institutions vulnerable.
The legacy systems that many financial services institutions are struggling to maintain are poised to go through a substantive transformation.
Enter the Beam Team, led by Ben and Andreas. By harnessing big data and machine learning capabilities, there is an opportunity to innovate on advanced, cost-effective and efficient monitoring systems that will displace the current mechanical and rules-based systems. In addition to increased efficiencies of bad activity detectors, new technology can eliminate data storage and computational processing constraints, enable visibility across multiple disparate data streams, uncover patterns across various filters, customize logic based on business type and facilitate more effective feedback mechanisms on model productivity. The 99% false positive rate putting financial institutions at risk today can be much lower, and I believe that Beam is the team to do it.
Lastly, we are absolutely thrilled to welcome John Elton and the team at Greycroft as the lead Series A investors. Greycroft actually has a team member who previously worked on the compliance team for a major global financial institution – they immediately understood the problem and recognized that Ben and Andreas were the right operators for the task.
Ben and Andreas, thank you for allowing me to be your partner as you go after this massive market and problem. Onward!