EXCLUSIVE: ‘Inclusive Thinking’ – Matt Carbonara, Citi in ‘The Fintech Magazine’

Launched at the start of 2020, Citi Ventures’ Impact Fund is already influencing the future shape of financial services, as it invests in companies that help people thrive in a world impacted by change on an unprecedented scale. Here, Citi Ventures MD Matt Carbonara explains how digital identity solutions are a crucial part of its mission

‘Build back better’ is one of the buzz phrases of the moment – the idea that the turmoil created by COVID-19 gives the world a fresh start to tackle inequality.

And, though this year will be dominated by the gargantuan task of vaccinating billions of people, interest in fintech as an equality solution is gaining traction.

When the pandemic hit and populations were locked down, digital banking systems proved their worth by allowing contactless transactions. This wasn’t just in countries with advanced banking systems, either. Figures cited by the International Monetary Fund (IMF) show that in Rwanda, for instance, the number of people sending money digitally rose from 600,000 the week before the country’s spring lockdown, to 1.2 million one week after, and hit 1.8 million by the final week of April.

Furthermore, in countries where digital banking is established and well-integrated, governments have been able to use it to deploy financial support to those in need. Groups of all sizes have the potential to build on this trend – from fintech startups to major banks and other global organisations.

Citi Ventures, the venture capital arm of the US banking giant, is one such, and is  focussed on building back better with its mission of ‘helping people, businesses and communities thrive in a world of technological, behavioural and societal change’. Its $200million Impact Fund was launched just as the threat of coronavirus became apparent in January 2020. One of its five focus areas is financial capability, which starts with financial inclusion. And the first hurdle to achieving that is often customer identification.

Citi Ventures had already invested in three fintechs in this field – Socure, BioCatch and Trulioo – before the Impact Fund was set up.

“In order to participate in marketplaces, to be digitally enabled and to interact, people need an identity that can be verified,” says Citi Ventures’ managing director Matt Carbonara. “The pandemic, all of a sudden, put a much greater focus on the digital channel and non-physical transactions, starting with the ability to be onboarded in a non-physical way.”

Of the three identity and verification tech companies Citi Ventures backed, New York’s Socure provides tools for onboarding customers, and harnesses artificial intelligence alongside analysis of data from email, phones, addresses, IP addresses, devices and the broader internet, to verify identities in real-time.

BioCatch, based in Tel Aviv, works to weed out fraud both at the onboarding stage and when an account is running, to identify criminality or evidence of hacking.

Then there is Trulioo – a Canadian firm that can verify the identities of people in 80 countries through its GlobalGateway platform, which examines the identification data used in each territory.

Citi Ventures’ investment in Trulioo was made in September 2019, as part of a CAD$70million funding round, alongside Goldman Sachs, Santander, American Express, Blumberg Capital and BDC Capital

Trulioo’s mission is to reach the world’s unbanked and underbanked – which, it argues, is more than just a ‘goodwill effort’, since financial inclusion has the potential to boost the wealth of the individual and the companies serving them, and strengthen the societal and economic fabric of entire countries.

Carbonara liked the Trulioo mission, but said the fintech was also selected because of its global reach and its potential to operationally improve Citi’s own services.

“Digital customer onboarding was already a trend, but the current environment has accelerated it, and Trulioo is well-positioned to take advantage of that,” he says. “We liked the fact that the Trulioo team were very much thought leaders for their market, and they allow their customers to take advantage of all their data. They’re a network of networks, if you will.

“They plug into 400 different data sources around the world, and allow their customers to apply whatever policy they want to those different data sources. That flexibility, that ability to customise  all those data sources through one API, is really the strength of the Trulioo system. So that’s what really got us excited.”

GATEWAY TO CHANGE

The task of improving financial inclusion is huge – the IMF estimates that 1.7 billion people globally have no access to a bank account, while billions more are classed as ‘underbanked’, able to use only the most basic services.

If more of the world could be reached, benefits could cascade from it. Democratising finance has been shown to foster gender parity and increase gross domestic product, through small business loans, for example. And governments are becoming increasingly sold on fintech and digital banking as ways of delivering it, as a mobile phone is all many digital banking services require. That makes it easier and cheaper to reach un- or underbanked demographics such as poor, rural communities. Indeed, mobile numbers themselves are often a source of identification in emerging economies.

According to a World Bank report last year, ‘adoption of electronic know your customer (eKYC) processes would play a critical role in facilitating access to banking and financial services by individuals and SMEs. Since identification documents are necessary to join the financial mainstream, there is an urgent need to capitalise on digital identity to eliminate barriers associated with accessing financial services, while adhering to anti-money laundering and countering financing for terrorism (AML/CFT) regulations’.

However, while COVID-19 is a catalyst for new digital solutions like these, it poses a risk to fintech, too. Deals dried up and funding stalled last year, so sources of cash such as the Citi Impact Fund are crucial for continued development.

The fund’s investment aims are focussed on tackling inequality and protecting the environment for future generations. Though much of the funding is handed to companies with existing customer bases that have secured prior rounds of cash backing, a portion has been allocated for early-stage seed investment in startups led and owned by women or minorities. As well as financial inclusion, focus areas are ‘workforce development’ such as boosting diversity and lifelong learning.

The ‘sustainability’ strand will see investments into clean energy, recycling and responsible water use. Then there’s ‘physical and social infrastructure’, which will look at housing, healthcare and transport, and ‘access to capital and economic opportunity’, which aims to empower groups that currently lack representation.

So far, 11 startups have benefitted. Relevant to the arena of finance is Perch, in Los Angeles, which provides a platform that helps unbanked and underbanked young adults manage credit responsibly, and Clerkie, in San Francisco, an automated platform built to help people repay debts. Both were founded by entrepreneurs from black communities, helping to level up representation in a predominantly white, male industry.

Beyond the Impact Fund, Citi Ventures is currently invested in 61 companies – many of them fintechs. A team of 15 is responsible for assessing around 1,500 companies each year, and the selection of potential targets is often guided by Citi staff and clients.

Carbonara says: “Sometimes it will be more opportunistic, where we’ll just hear [about a potential target company]. Other times it will be very thematic in nature – we’ll be focussed on a particular problem we’ve heard about from our colleagues inside of Citi, or from other large enterprises.

“If that’s the case, we might seek to meet every company within the relevant space, and assess which we think is solving the problem in the best way, and has the right architecture, the most customer traction, and the best team.

“We feel very privileged to have colleagues and contacts who can give us a nuanced view of a particular market.”

When it came to investing in onboarding and know your customer technology, Citi Ventures backed three businesses because it was aware that different use cases exist.

“The fraud team at Citi is as good as any I’ve met, and they’re able to paint a very detailed picture of how various elements stack up, and why they’re differentiated in the marketplace,” says Carbonara.

“Trulioo is really strong on know your customer and know your business. Socure is more of a consortium of data, plus an algorithm, and BioCatch is focussed on the ability to do always-on authentication.”

You could say that notion of being ‘always on’ is part of Carbonara’s advice to fintech entrepreneurs who seek to build businesses with a long-term
future – especially if they have an eye on attracting venture capital.

“A leadership team must always be open to redefining – willing to take a step back and think about the business they’re in, in the broadest possible terms,” he says. “They need to do that on a regular basis, to understand the broadest, most strategic definition of their business over the next three-to-five years. Doing this will lead them to the biggest opportunity and the best solution.

“And, if they’re trying to solve that financial inclusion problem, I don’t think it’ll be just about a narrow segment of one particular solution over time.”

In fact, Trulioo has already widened its view of the market, and not just geographically. Having started as a provider to the financial services industry, it is now serving customers, including small businesses, in a wide variety of sectors, through its GobalGateway solution, which it promotes as a ‘network of networks’.

“We want to see our companies be as successful as possible, and if a market leader serves financial services plus three, five, 10 other industries, that’s great for us, because we benefit from their diverse knowledge,” says Carbonara. “That incremental revenue drives incremental R&D, which drives a better product roadmap for Citi. So, we’re supportive of our companies being as broadly focussed as possible, and we want to partner with entrepreneurs to make them successful.”

This article was published in The Fintech Magazine #19, Page 58-59