Digging Deeper with Jumio: Orwellian Overlord or Payment Fraud Fighter?

Andrew Barnes’ series, “Digging Deeper” is based in Silicon Valley and focuses on key startups and innovators, and how they are disrupting digital payments and commerce.

Jumio is one of Silicon Valley’s golden start-ups in a critically painful area in payments: removing friction and fraud from mobile payments, online payments, and from ID verification. Jumio’s founder, Daniel Mattes has gathered the who’s who of venture, including Citi Ventures and Andreessen Horowitz, to the tune of $36MM that has been invested to date in his startup.

And by the looks of it, it may pay off for them.

Quick stats: of the top ten Internet properties, more than half use Jumio. Among travel apps, 75 percent are users. Through their BISION initiative, they plan on working with 70% of all Bitcoin platforms by year-end. Jumio reads passports and drivers licenses in 110 countries. Marquee clients include Airbnb, Travelocity, and Western Union.

So what’s the deal? Why should we take note, and should we be a little worried by these guys being the Orwellian-like curator of our identities worldwide? Andrew sat down with Daniel Mattes, Founder & CEO for some interesting straight talk about the opportunities in ID verification for payments, crypto-currency evolution and FX, and the certain death of transacting anything anonymously.

Andrew Barnes: Hi Daniel, thanks for sitting down with me today, I love your offices here in Silicon Valley. Apparently this is an old converted Mercedes Benz dealer’s showroom? Looks very cool. Let’s jump into it. Why should the payments and commerce world pay attention to Jumio?

Daniel Mattes: Great to talk with you Andrew. I appreciate your making the time to talk as well. Yes, we are very happy with how the space turned out. And yes, let’s jump in. Let’s start by talking about fraud. It’s a big, big industry problem. As a matter of fact, payment fraud in the US is larger than all the electricity bills of all Americans put together. There are companies who are trying to eliminate that fraud but it always comes with the downsides that make it more cumbersome for the user.

So we started with the simple idea that a consumer can take a smartphone camera or desktop camera and turn it into a credit card scanner. This solved two problems. One, it’s extremely fast and easy. You hold your card and boom the transaction is done. And two, you have physical evidence of the card, and you can even apply some fraud checks to see if this is a real card or not.

When we launched, we immediately started to see more and more demand. The first users said, “You know, it’s great, but can we also scan an ID? For instance, driver’s licenses, because filling in a sign-up form is also a lot of work, especially on a mobile device.” Or, “We are in the financial services industry, and we need to keep an ID on file.”

I can see the application. For instance for something as simple as hiring our nanny here in Palo Alto. Getting all of that information secured was a headache.

Yes. This is an industry problem. For example, the procedures for verification on a student loan took seven days. Essentially you have a fax machine or a human-being getting a black and white copy of your passport, looking at it ,and putting it into a file with no way of knowing if it is authentic because of the quality is bad. So we created Netverify where we read passports and drivers licenses in around 110 countries.

How did you tie this together?

In the beginning, obviously, our flagship product was the credit card piece. The average consumer has many accounts. From Amazon, to this, to that, everywhere. And everyone, everybody wants your account. But all the merchants don’t really want to have ownership of all the credentials. They just want to know that you are a valid person, and with that, everything’s fine,

So we then announced that we will start interconnecting all those credentials in our system. Which means, once you have done your identification with us, you can move around, you can fly, you can go into a hotel, you can book your whatever, buy your pizza online, and whatever you do, in the off-line, online, anything world. Just interact once with Jumio as the platform authenticating you, and you don’t have to do it over and over and over again. That’s our vision.

Interestingly, think back to when the Internet was invented. When Tim Berners-Lee invented TCP/IP, in my opinion he forgot one little thing in this protocol. Basically, who is sending this packet out?

He might not have forgotten, maybe he intentionally left it out?

Maybe intentionally, right? But that’s exactly the problem. Let’s take Bitcoin for example. It is touching the sacred, holy part of the government which is money. So either the Bitcoin industry self-regulates, and makes sure it knows who is transacting with who, or else the government will do it. At the moment we are trying to empower the Bitcoin ecosystem to self-regulate.

If you are a valid, normal person and you buy something, you should have no problem. I have no problem if my Bitcoin exchange platform knows it’s me buying coffee. In reality, with your banking relationship and your credit card there’s no anonymity. I think this is where the world is going. I believe that in a few years there will be almost zero transactions that occur anonymously. It will only be between validated and certified users.

So, I can understand your desire to be the hub of information. How do you keep me from being scared out of my gourd that you are curating information about me? While it’s good for Jumio commercially, it feels pretty creepy.

In the end, we let the user choose. It’s your choice whether you want to store your information or not. If you participate in a network, it will always be the user’s choice.

Well, to your point, Google is gathering the same information on me. Granted it’s a different level of detail and opt-in.

Yes, everybody’s using Google, and so far, I haven’t met a consumer who has paid for search. People understand that you’re always giving up some value. And if you start browsing in Google, obviously they present you with these adverts, and you understand that these have to be there because Google is not a charity organization. And they have to optimize it by analyzing your behavior.

Let’s talk about cryptocurrencies. You referenced building a network for ID verification to support transactions. Can you say more about that?

There’s Bitcoin and others, but let’s reference Bitcoin as an example of cryptocurrencies. In my opinion, it’s not the intention of any government to encourage anonymous currency. They don’t even like cash. But now we have the digital version of cash. Total anonymity.

So everybody is scared because in the financial industry, in banks, there are anti-money laundering laws. There are KYC requirements. But the Bitcoin industry has nothing. There’s no regulation. They’re still struggling, but it’s not the intention of those Bitcoin platforms to create a mechanism to breed fraud. It’s basically to help the crypto-currency to grow.

The real advantage of the crypto-currency is actually on the FX side functioning as a forex exchange. That’s where this value is. FX is the biggest market in the world.

Yes, can you speak to that? Seems that FX is ripe for disruption.

Oh yes. It’s the biggest market in the world. And consumers have no choice in the matter. Let’s say I’m a European bicycle store and you have dollars. It is expensive for you if you convert dollars into euros to pay to me. But if it’s ten Bitcoins, it will work because it’s a global currency. Within America, you go to the coffee shop and buy your coffee with Bitcoin. I mean it’s nice, right? But that’s not the point. In reality, it’s the effect of being a global currency where there is no FX trading. It’s just one currency across the globe.

Do you think the Bitcoin protocol itself might end up being the cryptocurrency global standard?

Could be, but only if the participants in the ecosystem mature fast enough and start self-regulating. If identities are being checked, if there’s no fraud and if Bitcoins don’t get stolen so easily…

By the way, do you know who the owner of the largest Bitcoin wallet is? It’s the U.S. government! Nobody knows what’s going to happen, and nobody knows if it will be Bitcoin or another cryptocurrency, but the opportunity is definitely there.

But they are normal growing pains. Think of PayPal, who were the first PayPal customers? Think of Square, who were the first real Square customers? It was not the plumber from next door. It was more a red light kind of business. It’s always like this. These folks people pick up innovation really fast. They also help in the growth process, helping you stabilize and mature, and that’s where we are in terms of Bitcoins. But we are still far from being this mature. At the moment, it’s a speculative currency.

You launched BISON. The opportunity is that you’ll be there as the ID verification piece that makes it all happen, correct?

Yes. My goal is to have almost 70% penetration of all Bitcoin platforms by the end of the year. It’s a feasible goal. When we announced our BISON initiative, we had eight, and now we have almost three times that many members signed up.

This is globally?

Globally it’s 30 more inter-type clients. It’s growing, growing, growing. There’s huge demand. I mean, of course we don’t put our business bet on it, but all this is disruptive technology. It’s good to be there in the beginning. Because if it really happens like this, then we are a player there.

Right, and that’s where the network effect comes in, because you are either in the system or out of the system. That becomes the factor.

Right. That’s how we see it. And we also believe that with our banking knowledge, especially in money transfer, helps these communities grow because things are very immature. For example, they don’t know how an ACH or a check really works, or a KYC check, or things like that.

Changing direction from cryptocurrency, let me ask you about security and merchants. How do retailers feel good about you guys being smart enough and quick enough to be secure?

If you look at customer data, we actually divide it in two pieces. One is the behavioral data, for example what does the consumer buy in my store, and how often. This is the data the merchants want to own. But the real customer data, the sensitive parts, they don’t want to own. With all of the recent data breaches it’s a hot potato for them.

Security is the core of our business. If you look at our product innovations last year, almost 50-60 percent of our resources went into R&D for security.

Which would make sense, because if you become at risk, if you get hit …

That’s the end.

What are your deliverables as a maturing startup by the end of 2014?

For startups it’s all about going through different phases. Last year, we went through the safe learning curve. It was about figuring out our real pricing, how our model works, and if we throw in one dollar into the system, how much do we earn?

This year is to prove that model out, and to scale it. We are significantly ramping up sales and land-grabbing. We are preparing the first soft launch into Asia, and we started that process just yesterday. But very carefully. It’s a big market.

What’s the market outlook in Asia?

Smartphone penetration and camera usage is high. And if you look at the security requirements, the legal situation is almost paradise for us. They are almost checking an ID on everything. You can’t really leave your house without an ID. And it’s all legally required so there is a lot of potential for us, obviously.

In Silicon Valley how tough is it for you to get the right talent?

In the Valley, it’s highly competitive. If Facebook wants or Google wants this one employee they’re going to get them. They pay twice the price, even if it’s commercially not reasonable. One of our challenges is that we are doing computer vision, and this is a talent that is not easy to find. It is a very, very specialized knowledge. Fortunately there are some good universities in my hometown in Austria. With a startup like this, you are the star in the town. Everyone wants to work with you. Not only developer talent. But this is crucial for every company, finding the best talent. How quickly you can find it, how much you really pay, and how fast they’re becoming productive. This is really what it comes down to.

You mentioned you were in a land-grab. If you’re covering as many bases as possible in a finite amount of time, you’ve got to get there and be a contender, right?

Absolutely. If you take the top ten Internet properties, more than half of them are using us already. If you take the travel apps, I think 75 percent are using us. So we’re getting penetration, but we still need to get going.

This has been fantastic. In closing, it’s Friday night. You’re going out. Where do you like to go?

My favorite place is Alexander’s Steakhouse on El Camino in Palo Alto. It sounds old school, but the bar is nice and the food is exceptional… It’s totally modern, sleek, contemporary style. Good wines, good cocktails. You know, you can go there just for a drink, or you can just go for a nice dinner, and especially me with a European taste sense, right? I mean they are just great.

Thank you again. This has been great Daniel.

You’re very welcome Andrew. I’ve enjoyed it.

About Jumio
Jumio is a next-generation payments and ID software-as-a-service company that utilizes proprietary computer vision technology to reduce mobile/online payment and ID friction and fraud, while increasing revenue and customer satisfaction. The company’s mission is to provide its clients with intuitive, consumer-facing technologies that make it possible to conduct a wide range of mobile transactions without a single keystroke. Half of the top 10 consumer internet companies, along with hundreds of other retailers, financial institutions, marketplaces, gaming companies and more have adopted Jumio products and services so their customers may efficiently speed through sign-up and checkout processes with higher completion rates and satisfaction.

Where’s the Money?
Investors include: Eduardo Saverin, Andreessen Horowitz, Citi Ventures, Felix Investments

Daniel Mattes, CEO & Founder
Daniel co-founded Jajah, a VoIP service provider and served as its CEO from its incorporation until summer 2007, following as its Executive Chairman until 2009. Daniel played a prominent role in helping Jajah raise $35 million in venture funding from Sequoia Capital, Intel Capital, Deutsche Telekom AG, Telus AG and Globespan Capital Partners. Jajah focuses on a white-label services for operators and other providers. Jajah took over the operations of Yahoo’s, Microsoft’s, AOL’s and ICQ’s VOIP services and also offered its service to the enterprise market. After reaching 25 million direct and 250 million indirect clients worldwide, Jajah was acquired in late 2009 by Telefonica (NYSE:TEF) for $207 million in an all cash deal.

Andrew Barnes, Managing Director, Emerging Payments
Barnes is a self-confessed payments “geek” and recognized entrepreneur working in Silicon Valley. He leverages his business development track record and network in startups, retail, and FI’s to solve tough revenue problems in payments and mobile commerce. Barnes has held executive positions internationally with Sprint, Global One, and 2Roam Mobile. He founded the National NNN Investment Group, and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from WASEDA in Tokyo 早稲田大学大学院 and a BA from Penn State. He created the widely sourced Digging Deeper series and can be reached at @AndrewinSV and Linkedin.