We don’t spend a lot of airtime on the podcast talking about what happens behind payments and ecommerce transactions, particularly when it comes to ID verification. It’s technical and more than anything, an enabling technology. But from time to time, we invite on companies that are doing something novel in a way that changes the way the game is played.
Today’s guest is Payfone’s Rodger Desai. The company’s raised over $100 million and has corporate investors like Amex, Verizon, TransUnion, MassMutual and Synchrony on the cap table. That’s because Payfone helps make ecommerce - where merchants connect with buyers — as trusted as making a phone call.
In a way, Payfone is creating a new form of credit score — what CEO Rodger Desai calls the Trust Score — which is intended to cover almost every adult in the US.
How to help digital organizations maximize digital opportunities
One of the most important things you have to do is confirm someone’s identity in order to do business with them. We look at the experience of consumers these days -- even our own experiences -- and it’s just riddled with interrogation and intervention. It’s hard to do anything without having to prove who we are, or who we claim to be. That leads to lots of bad outcomes. Whether it’s vetting the transaction or making it so frustrating, you don’t go through with the entire effort, it then adds operating expenses to businesses, which adds cost to products and services.
We look at how simple it is to make a phone call, you just dial a number and take your phone anywhere in the world, and it is an amazing convenience, yet a secure and private experience. We’re trying to extend that same ease and security to all private transactions.
Payfone's big idea
When we look at the world from a lens of where we came from, which is how phones authenticate themselves, it is an amazing experience. It’s everything the web aspires to be: secure, convenient, private. I don’t share my name, address, social security number when I’m traveling abroad on my phone. I can make calls without having to fill out forms. We don’t find phone calls on our phone that we didn’t make. You can take your phone anywhere physically and it just works in a convenient, secure, private way.
Payfone’s intention is to bring that to the web. We thought, well, instead of taking your phone to France, Germany or India, and using it while you’re away, why can’t you take it to a bank or a merchant online? So, instead of somewhere physical, you can take it somewhere digital, and use the same inherent properties that make it so amazing to use and create such a great experience.
Your phone number is now the master key to almost every digital experience, and you need your phone number to interact. Whether you’re calling, texting or on a web session, your phone number is kind of the key to all of those experiences. If you’re creating a password for a given digital service, you often use your phone number to help reset it. It’s almost become an assumption now the phone number is key to everything digital.
The phone becomes an online identity
We found that in 2019 it’s much easier to do business in person than it is online. That’s reflected in almost every kind of transaction. Whether you’re applying for a credit application, a loan, or completing a commerce purchase, it’s just easier to do business in person than online, and it really comes down to this: it’s hard to easily verify people’s identity without sacrificing something along the way.
We call that the Trust Gap, the difference between an in person transaction versus the approval rates for something online. Our mission at Payfone is to close the Trust Gap, and we’ve come up with a very specific product to do so. The Trust Score helps us get a measure of identity confidence -- how confident we are that the person is who they claim to be -- so businesses can have more confidence to approve more transactions.
Trust powers transactions
The basis of trust, based on research, is interactions over time. If I meet someone for lunch every month for the last ten years, that’s a pretty good basis of trust. One of the core problems the internet has is there is no way to store or share that information with consumer consent. For example, I could be one bank’s most profitable customer but then I open an account at another bank and I start all over because there’s no way for the first bank to share my reputation or for me to bring it with me when I open new accounts. The internet is still filled with one-off relationships, and you’re essentially starting over with each one.
Your phone doesn’t really work that way. If I take my phone to another country, or if I’m registered to Vodafone UK when I go to London for a trip, I have no relationship with them. If I had to start over, I could only make a few calls a day until they trusted me. Our notion is that if you look at some basic signals like how long has someone had their phone number, and not just how long they’ve had it with their current provider, but how long have had it from the beginning, and what kind of activity or behavior have they had with that number -- both of those components can be the basis of trust or behavior over time. To us, this gives a great signal as to whether this is a burner phone or someone’s actual phone. That’s one of many signals that we use to make that assessment, but our trust core is a real time assessment of how likely this is you by proxy of that phone number.
Helping companies differentiate between consumers and fraudsters
Often if you look at the profile of fraudster, they’re going to use burner phone numbers, using a variety of attacks to kind of spoof phone numbers. These things are what Payfone can see in real time, assess and calculate as part of our Trust Score. Someone’s trust score could be very high in one transaction, but when we see something that looks like a tactic over the phone number, like a SIM swap, the trust score lowers.
Our customers know that they should complete the first transaction without any interrogation, but the second one they should inspect further. It gives them the insight to know where they should spend their property capital to assess and vet things further versus let things through. In our view, if you look at card acceptance rates, which in the US are 98 percent now, that’s something we could get to digital. We can make digital almost the same where 98 percent of interactions are approved. Whether it’s new account openings or calls to call centers, all of those could achieve the same kind of acceptance rates.
The Mobile Ecosystem
There’s an assumption only a handful of phone companies know the truth about phone activity or signals. The reality is there are about 3,000 phone companies in North America, and they all sit upon a core telecom infrastructure. When it comes to people moving from one country to another, or changing their phone number, all of the things we could do, upgrading your phone, it’s because the core takes care of that heavy lifting.
One of the main things that Payfone does is access the core directly. We see about 8 million events per day in which things change that we have to triage through to manage. Simply put, if this is Zack’s phone number, then how do we make sure that’s the case going forward? Whether he may change his phone number, give up his phone number, or someone takes his number over, all of those are assessments and signals that we evaluate in real time.
Last year in the US alone 15 million people given up their phone number, which is pretty striking. But a rise of prepaid has lead to a lot of noise within the notion of managing a phone number. We take a lot of the complexity out for our customers.
Maximizing identity verification by using the core telecom system
What many of our clients question is having a single source of dependency or failure, and so the question we get asked increasingly is ‘how do I have redundancy in a system in which I’m relying on phone numbers and rely on verifying the ownership of those numbers and managing that client forward?’
What would it look like if you were to have to verify the ownership and operator of a phone number without having to use direct mobile operator signals? In other words, by using core telecom network that all the phone companies use and other signals that we get from traditional sources.
The results were quite striking, which is we’re actually able to identify many more numbers than the operators alone. In the US specifically, the phone companies are good at managing post-pay master accounts. But that leaves about 50 percent of mobile phones, whether they’re family plan or prepaid, in which the major phone companies don’t have a good view on who’s owning and operating that phone number.
Even though mobile is the fastest growing channel, you still have to get a comprehensive view. Covering all kinds of mobile phones, we had to give an assessment of what our rate of identity verification looked like independent of mobile operative signals, and it was quite high.
On Payfone's recent partnership with TransUnion
With the important role that credit bureaus have in the world, especially in the US, in terms of making it easy for people to get credit, there’s still a lot of work to be done from an inclusion standpoint. What we saw was that there is another kind of piece needed beyond a credit score, which we like to believe is our Trust Score.
If ten people apply for something, and several of them don’t get access to credit because there is a lack of confidence that they aren’t who they say they are, with our trust score we see this complementing a credit score so that more transactions can go through.
Our partnership with TransUnion really helps us both extend our services. We complement their services in terms of mobile identity, and they complement our services in terms of plugging into all of the cases the banks already used them for. It also extends globally. TransUnion is in 30 countries, and we’d like to expand our services to everywhere our customers want us to.
Developing into a global digital economy
We see lots of cases of US companies trying to interact with folks abroad, whether it’s Amazon or Mastercard. But over time, I’ve just seen with Facebook’s Libra announcement, we’re going to move to a world where peer-to-peer everything is going to happen. You’ll have two people in different countries that want to transact for whatever means that is. You have to know your customer on each end point.
We think this is the beginning of a very long journey of where we have a truly global digital economy and any two folks can interact with each other. Uber and those kind of companies have showed us this in the US -- it’s the days where the distinction between who are customers and merchants is blurring. In the future we’re all going to be customers, we’ll all be merchants, and you’ll need identity to make transactions more seamless.
Challenges and growth opportunities to come
Identity and authentication are very crucial topics, and I think it’s hard for everyone. I think the biggest challenge is for banks to get clarity through all the information that’s out there, and I think that’s the biggest challenge everyone has in this space.
One of the things we’re trying to do is establish a KPI, what we’re going to call Pass Rate, which can make it easier to evaluate what works and what doesn’t work. If you go back to that notion that if 98 percent of transactions are good, what the current state is at most businesses is around 40 percent. That means they challenge and interrogate over 60 percent of their transactions. So Pass Rate is going to help us figure out how we can get to 98 percent.