Timothy Li: Hello everybody. This is Timothy Lee, co-founder and CEO of Lend API. Today we have a special guest, John Gordon, CEO of Validify, one of our one of our top partners on our platform. And I've been wanting to have John coming into the show for a long time now. John and I know each other for a while, and he'll get into it. and I I heard that John on on a podcast earlier last week. I'm like, I gotta get him get him on to really dive into Risk, credit, fraud, identity verification. So I'm super excited about this episode. So, John, welcome to the show and tell everybody about ya. I know you for a long time. Yeah.
John Gordon: Well, I really appreciate you having me. I appreciate you reaching out. As you say, I I think not to age ourselves, but I think we've known each other for wow twelve plus years.
Timothy Li: Yeah. Yep.
John Gordon: So it's it's been a while. So I really appreciate you having me. And yes, I am with Validify and we are excited about the opportunity to both partner with you as well as to talk some about the solutions that we're offering in the marketplace and some of the things that we're seeing f in the broader landscape.
Timothy Li: Yes. Right. Yes. I I love stories. And I was prepping for the show and went into your profile, went onto the website as well. you work with a lot of people, John. My God. I mean I it's endless logo scrolls on your website. Tell us tell us about some of the new ones that you've been working with.
John Gordon: Well, I sure appreciate that. So we have been really fortunate in that we are working
Timothy Li: Yeah.
John Gordon: Across credit and risk, fraud, and account validation. And the account validation side is where we've really encountered some different logos. So we're working with Audin, which has been a wonderful opportunity for us. And we're working across a lot of different verticals that in our credit and risk business, which is predominantly focused on non-prime consumers, we're encountering folks that we haven't in the past.
Timothy Li: Mm-hmm.
John Gordon: And it's driven by the need for them to comply with Notcha's web debit rule, but there's so much opportunity above and beyond just compliance that our solutions are helping our clients realize.
Timothy Li: Right. Right. Yes. Yeah. I I've detect some acronyms, notcha. We're gonna get to that in a second. But when we say accounts, what do we mean? credit card accounts, debit card accounts, check-in accounts? What are we talking about here? Yes.
John Gordon: Yes, sir. So great great question and I should have clarified. Notcha is the National Automated Clearing House Association. It is the governing board for account to account transactions that are not card-based. And so They passed a rule and it went into effect in 2020, and we all realize that 2020, for all practical purposes, was a lost year because of the COVID pandemic. And then they punted compliance to 2021 that said, anytime you take a payment direct from a consumer or business via ACH, automated clearinghouse, account to account payments.
Timothy Li: Right.
John Gordon: You were required to validate that that account was open, valid, and facilitated that type of transaction. They have updated that rule in 2026 to include all transactions, not just those initiated over the internet, and added to that a fraud component that required ongoing fraud checks. And the idea here is that we're going to link the consumer to the account, we're going to do some adjustment.
Timothy Li: Right. Right.
John Gordon: additional checks around those consumers to protect that transaction type and eliminate fraud as best we're as best we're able.
Timothy Li: Right. we know each other for twelve years. We probably work in the industry for 20 plus. Before Nacha handed out this rule in 2021-2020, what what tell us Uncle Gordon, what was the old Wild Wild West felt like? tell us some stories, Mike.
John Gordon: Well, I I'll tell you the the wild wild west continues to exist today. And I'm gonna go even more near term history. So when we look at the or encounter different types of fraud, the reality is that it's the repurposing of accounts. These fraudsters act in mass. It's almost like a they build up
Timothy Li: Yeah. Organized
John Gordon: Little bit of a track record, then it's a large-scale attack of fraud. And we worked with a client whose primary issue was email addresses created in the most recent 30 days was the common thread that we could link across these accounts. When we identify those, we can point that out.
Timothy Li: Sure. Yep. Wow. Right.
John Gordon: I'll share another one with you. For guys yours of my age, landlines are among the riskiest inputs for telephone data that we see from consumers today. It's it's voiceover IP and landlines are the two riskiest types of phone numbers. Outpacing burner phones and all of the different connotations of that that you can arrive at. So
Timothy Li: Mm-hmm. Mm-hmm. Wow. Sure. Okay, so it's not just taking the routing account number. Tell kids, tell us about it. You guys are triangulating all sorts of device location, maybe geolocation for what it's worth, and email, some pseudo PIs really put it to g a story together of why this account exists, how it came to be.
John Gordon: That's right. Well, that's exactly right. You know, and as you know based on your risk background It's never just one thing. It's the compilation of things. So an account, I'm I'm constantly asking our data science team, if an account comes back valid and I can name match the consumer, why would you still not do business with that consumer? And the answer they give me is if I can connect that consumer to greater than four bank accounts, if that consumer's last transaction in a 30-day window was insufficient funds, and as There's a 71% likelihood the next transaction will be NSF. So there are reasons above and beyond that. So you know better than I do that frequency of change, or what we often term velocity, uncovers a huge, huge output of.
Timothy Li: Right. Wow. Right. Right.
John Gordon: That consumer's applying with their fourth phone number, their fourth email address. All of these things are factors that will lead you to making different decisions. And those different decisions might be step-up authentication, where you say, I'm gonna ask that consumer to log into their bank account because there is enough concern here that I want to inject some friction into the process. And the inverse is true as well.
Timothy Li: Yep. Yep. Right. Right. Could be false positive, but you know, prove it out. Yeah.
John Gordon: Yeah, Timothy Lee's clean. That's his account. Everything's good. I want to put him on the fast track. Because a recent study said that consumers, sixty eight percent of consumers will abandon an online transactional process if they encounter friction.
Timothy Li: Right. Right.
John Gordon: And we are living in the world where it's the consumer first environment. Loyalty is largely a thing of the past, and consumers want that opportunity to transact at their own pace without too much encumbrance. And ultimately, they will go elsewhere if they feel like they're up against it or they're being asked, I'm not gonna log into my bank account for a loyalty card program. That's me. Some folks will.
Timothy Li: Yeah. Right. Right. Yeah.
John Gordon: I'm not going to.
Timothy Li: Right. Yeah. Okay. There's a couple of things I I want to touch upon, right? That sequence of events people will use validify as pr product process to kind of just interrogate everything behind the scenes. And you brought up lock into account, right? So that now there's like two camps out there, The open banking folks, hey, you know what? The first thing you gotta do is log in the account and we we can talk about how much drop off there is. And then there's the other camp that are I think is more intelligent, say, hey, do as much background checking without a customer ever noticing what's happening and to bifurcate that experience. Tell us about that philosophy there.
John Gordon: So it is controlled largely by demographics. Younger people live online. Oftentimes they basically tell you everything that's happening on their life online anyway. Our answer largely is why not both?
Timothy Li: Right.
John Gordon: And I think the reality of open banking in the US is it doesn't exist. So if you log in and you credential into a bank account, which that's a solution we support. And there's a lot of people who do it well, and there's a lot of value within that. But not everybody's gonna do it. And there are certain scenarios where I'm not go I'm happy to do it for a mortgage. For
Timothy Li: Mm-hmm. Right. Right. Of course. Boat. Car, whatever, right, yeah. Yeah.
John Gordon: Loyalty card yeah, exactly. Right? Depending on the size of the transaction, I'm more inclined. If you're asking me for that level of access, when I'm signing up for a circle K loyalty card, I'm not going to do it. So I think that's the first thing. The second thing is
Timothy Li: Right. Right.
John Gordon: When consum when you are collecting data from consumers, an accountant routing number is part of that payload, they have to do nothing. The third thing is, we because of the fact that open banking doesn't truly exist today, meaning I can see all your accounts, I think that service providers and financial institutions should be asking themselves,
Timothy Li: Mm-hmm. Yeah. Mm-hmm.
John Gordon: What more is there to know about this consumer's bank behavior? So you just gave me your account. It's clean, looks great, but do you have another account? Do you have other accounts where you're transacting with your gaming, with your buy now, pay later, with other forms of debt that are going to radically change how I view you from a credit risk standpoint? So
Timothy Li: Right.
John Gordon: the answer is Both. The answer is offer both so that you get the highest interaction take rate that you can achieve. And then when it comes down to high-value interactions, there should be step-up authentication where you have an opportunity to say, Hey Tim, looks great, I'm good, or hey Tim. I can give you a better rate or there are a lot of ways to portray this if you're willing to log into your account. I think sometimes using the carrot and not the stick is going to lead you to getting valuable information.
Timothy Li: Right. Sure. Right. You can get your money in three days, or if you just lot one last step, log in, we can instantly wire you the funds, right? In the process, do a little bit more replication. Yeah. You know, one of the things you mentioned earlier about fraud detection, I love the space, is that I just remember, you know, if there's multiple phone multiple SSMs attached to one routing account number, more than you, you and your spouse, right? Five or six.
John Gordon: A hundred percent. Right.
Timothy Li: Yeah, some that's that's that's a bad story, you know. I just reminded me of his attributes.
John Gordon: The magic number we have deduced is four. If you are greater than four, your risk profile goes up seventy percent.
Timothy Li: Right, right. There's no reason why they should have four authorized account you know authorized account holders. Abnormal.
John Gordon: Four people accessing the same account, if it gets to five, and you know, anecdotally we saw a single account that we could connect greater than two hundred Social Security numbers to that one it's fraud. Yeah, it's fraud, a hundred percent it is.
Timothy Li: No other reason why why that account should exist like that. Right. Wow, that's that's insane. Right. So let's talk about this. I can only imagine how how massive this this information set, this database it you know, lies behind below the five. How many accounts, how many transactions, how many of these profiles do you guys see on a hour, daily, monthly basis? It's gotta be humongous to be able to, you know, authenticate or validate, you know I can only imagine f probably a billion check in accounts. You know, I don't know. You give me some data data. Yeah.
John Gordon: Well, I'm I'm glad you said that. From a total inquiry standpoint, we are at 1.75 billion inquiries in our system. So that's a lot of routing number and account number combinations. Now, of course, as with any data set, we have depth of file on a lot of those folks that we work with. So let me give you a use case example. PDI is a company that does convenience store loyalty cards for Circle K.
Timothy Li: Thank you. Okay.
John Gordon: Other folks that operate in that medium. And what they do is they attach the accountant routing number to that loyalty card. And then they are able, their clients are able to incentivize you to buy your gas at their station. So turn left instead of turning right, you're saving money, you're earning loyalty points within the convenience store. So we offer their consumers the ability to log in to their bank account or to provide.
Timothy Li: Yeah. Okay.
John Gordon: Their bank account routing number, and we validate those accounts. We run a fraud check, we run compliance checks.
Timothy Li: Yep. Yeah.
John Gordon: And identity checks, and then from that point forward, that consumer, if they pass those checks, is able to transact on that card. The benefit to the end user, the gas station, if you will, is that they get the loyalty and they get the transactions at lower costs without the discount rates that are associated with credit card transactions.
Timothy Li: Right. It's a debit rail kind of a debit card kind of a process, right? A card associated with the routing account number. you know, like the interchange or like whatever fee savings versus a credit card they can push back to the consumers and say, hey, here's a beefier loyalty program.
John Gordon: Exactly. That's exactly right. That's right. You're increasing profitability. And frankly, I think offering
Timothy Li: Right.
John Gordon: There's benefits to all types of payments. There are some dra drawbacks to many of those types of payments. Offering your consumer the widest available set of options is obviously in the consumer first era the best way to do it. Back to the dreaded acronyms, A2A is account to account payments, where you're simply withdrawing funds from your account and depositing them in mine.
Timothy Li: Right. Right. Yep. Yep. what what about that space? I think I feel like a lot of people are using like, you know, maybe a z Zell or maybe I could just put on my phone and and look at some of the apps. So in that case you gotta verify on both ends, obviously, right? I mean Wow.
John Gordon: Hundred percent. That's exactly right. You you've gotta you've gotta operate on both ends. And there's a myriad of ways that you can do that. The emergence of Fed now. And real-time payments networks that allow for same-day ACH are modernizing some of the opportunities that financial service providers have to utilize legacy things they've done. So if you've you've heard of penny drops or micro deposits where I'm gonna validate your account, I'm gonna deposit three cents in that account, but oftentimes that would take three days.
Timothy Li: Yep. Yeah. yeah.
John Gordon: Well, now what we're helping our clients do is they will ping us and say, Is this financial institution real-time payments enabled or FedNow enabled? Those are the two networks that support these types of payments. And if we say yes, we're able to drop a penny in that account and attach to that account an alphanumeric code.
Timothy Li: It's just Right.
John Gordon: Simultaneously, they will send their consumer utilizing their trusted contact information, a text or an email that says if you will put that information back in the text or email, in this four-digit alphanumeric place that we've marked, then you're validated to use that account. Because the source of fraud has been the consumers will change bank accounts.
Timothy Li: Uh-huh. Right. Right. Right.
John Gordon: So It's and sometimes people change bank accounts because they got a better offer or they want to go somewhere else, convenience, whatever the reason, but it gives you the ability to utilize that. So we have an insurance company that we work with that has utilized microdeposits for decades, and they said we want to keep that, it's ingrained in our business, but we want to take advantage of the modernization, do it the same day. And if the bank account is not RTP or Fed now, that's
Timothy Li: Yeah. Yeah. Yep.
John Gordon: real-time payments are fed now, then
Timothy Li: Right. Yep.
John Gordon: we're going to defer to you, get the account and routing number, you utilize the validified data network to tell us if that account is open, valid, belongs to that consumer, and will facilitate this type of transaction.
Timothy Li: Right. I'm trying to wrap this my head around this whole process. you get the rowdy and count number is passed through Validify. Validify will drop a penny or whatever it might be, micro deposit. How does the consumer get that four-digit code? Are you sending that to them somehow?
John Gordon: Mm-hmm. It's attached to the deposit line. So when they log into the account, it'll say you've received a deposit from ACME Insurance and it's gotten the alphanumeric code. We'll direct them on where to find it. They in it a hundred percent.
Timothy Li: when you log in Right. In the description. In the description of that transaction. Got it. Got it. And then you get a text message saying from I guess the bank or whatever it might be. You look at a transaction and punt pump pump it right back to the to your phone. That demonstrates va verification, authentication, control of the account. That basically is a full circle. That's so really clever, John. Wow.
John Gordon: Exactly. So we believe that can be used step up authentication. It can be a starting place. There's there's any way so we were
Timothy Li: 'Cause I don't have to log into my bank account. I don't have to go through like a open banking process. Yeah.
John Gordon: Well, y that's so ingrained. You think about how many times or how easy it is, me personally, my bank account, if I hit the app on my phone and face facial recognition, I'm there. And
Timothy Li: That's right, yeah, yeah. I don't have to log in in the foreign object. Yeah. Yeah. I log in with a with the app that I'm comfortable with to to read that number of the transaction description. Yeah.
John Gordon: That's right. And studies indicate that ninety percent of people are doing that daily, if not multiple times daily anyway.
Timothy Li: Yeah. Yes. It is that out of body experience. A new box. Put your route put your user user password into some kind of a box they didn't recognize. That's the that's the the allergic reaction to a lot of people. But if you log into my Walt Fargo Chase app anyway, just raise some number, I do that multiple times a day. Sending money out, whatever, right? Wow.
John Gordon: Well I Exactly. And and I was talking to a gentleman who's a noteworthy person in the fraud space last week and he said his sister reached out to him and said, Hey, they're asking me for my bank account or username and password. You told me not to do that. And he said, Yes, I told you that for a reason.
Timothy Li: Right.
John Gordon: Find out if there's an alternative way for you to interact. Some people are comfortable with it and some aren't.
Timothy Li: Right. Yes. And also the friction ha is with respect to where you are in the product process, what kind of product you're doing. You know, you know, I also talked to somebody, super sophisticated person in this industry. If I mention name, you will know. Got got all of Their account wiped out clean. Investment account, bank account, and it's it it is a little bit of social engineering involved, everything's gone.
John Gordon: It's it is scary to think about how I I think that's the reality of it. These fraud changes every day. The goalposts move every day, and these fraudsters are working hard at not working, at not having real jobs, and they find weaknesses in processes and people's behaviors.
Timothy Li: Yeah. Yep.
John Gordon: And frankly, they're good at what they do. So it requires somebody really be locked in on defenses and making sure those defenses are enabled and enacted. So we we do it not.
Timothy Li: You're protecting the lender, the bank, and you're protecting the consumer. That is safe.
John Gordon: it's the cost of credit, right? We're driving up the cost of credit for everyone every time one of these fraudsters wins. So and and say you're saying that I and you said lender, and I think that's a if I may, that's a great segue for us to talk about. The other thing that we utilize this bank and payment intelligence that we have is on the
Timothy Li: Wow. Yes, and they're it
John Gordon: risk assessment side of our business. Where we are helping lenders make better decisions. So boring trivia question. Do you know what year the FICO score as it emerged?
Timothy Li: Right. Uh-huh. You know, I threw right here in San Diego, Far Isaac used to be known as a S3 acronym company. I I feel like maybe in the 30s or 40s it was invented to detect submarines or something like that in World War I or two. Correct me, John. Okay.
John Gordon: Well, that might be right, but the consumer credit score came out in nineteen eighty nine. So I would pose and I often ask people, how different is the process or the ev the ways in which we can acquire credit in twenty twenty six than it was in nineteen eighty nine?
Timothy Li: Well, you know, I I think back in the days you have to like fax somebody, you're quite a report. Today it's like you get it on your any self respecting, you know, Rocket Money app or whatever it might be. It's like right there in front of you. Yeah.
John Gordon: Exactly. Exactly. That's exactly right. It's exactly right. And back in the day, the first house I ever bought, I had to bring two years of bank statements and two years of pay stubs to the mortgage lender. And they took whatever time they wanted to take and you were on pens and needles. Yeah.
Timothy Li: Yeah. If they had to call somebody to pull pull credit, I think it's somebody in some warehouse and literally go and get the binders out.
John Gordon: That's exactly right. And now, today, to your point, you go on rocket mortgage, you've got an answer in minutes. So the reality that is, the ways in which we acquire credit both opens opportunities for consumers and fraudsters, and it changes the way that we evaluate risk. And I think on top of that, when you look at
Timothy Li: Yeah.
John Gordon: Buy Now Pay Later, which issued a billion dollars in originations between Black Friday and Cyber Monday, and the fact that that data is nowhere visible at the credit bureaus. Last year the decision was made to eliminate, maybe it was the year before, eliminate medical debt from your credit report. And now gaming, fan duel, polymarkets.
Timothy Li: Mm-hmm. Chaoshi.
John Gordon: Yes, all of the stuff that's going on, you can't find it.
Timothy Li: Sure. Yes.
John Gordon: But if you don't believe that dramatically impacts how you're gonna view somebody from a credit stand, a risk standpoint, you're kidding yourself.
Timothy Li: Yeah. Yes, that's right. Gaming as well, right? Not just gaming, casino gaming, but online gaming. Billions are transacted on these micro microtran transactions and that's a completely different behavior. You know.
John Gordon: A hundred percent. It's it's Hundred percent. Not not to mention the fact, you know, you used to pay two hundred bucks for cable every month. Now you're paying twenty, thirty bucks to fifteen different companies. And at the end of the day, it impacts what you can afford as a consumer. And that is the bar that, you know, pour one out for the sea. Right.
Timothy Li: Mm-hmm. Right. Yeah. Yeah. I mean the fact that there is a whole industry to help you cancel subscriptions, that's a pro that's a societal problem evolution.
John Gordon: Well, think about it. Right right back to Rocket Money, they've got an app that says, How many subscriptions do you think you have? You know, you've seen the commercials, you actually have fifteen. But all of that now
Timothy Li: Right. Right. Yep. Yep. That's yeah, that's a third of a paycheck for somebody right there, you know? Yeah.
John Gordon: Right. you know, pour one out for the CFPB at present, although it could vary depending on who wins which election, it will likely be back. But at the end of the day, the bar they had set was did you make a consumer a financial offer that they couldn't afford, ability to repay?
Timothy Li: Mm-hmm. Yeah. Right. Right.
John Gordon: And how in the world are financial service providers and lenders supposed to be held to that standard when you can't see how much medical debt, how much buy now pay later, how much gaming this person's involved in? It it's almost like a trap.
Timothy Li: That's right. That's right. That's right. That's right. That's right. Exactly. And the regulators, CIPB, love to use the word, you shouldn't harm the consumer. You know, if you don't have the data, how do we know? Right. We just for the you know, basically their word, we can verify their maybe their income, we can verify their balance, but we don't know their behavior. historical behavior.
John Gordon: That's exactly right. And I'm not suggesting we have all the answers, but I am absolutely certain that we have ingredients that help our clients make better decisions. By looking at the bank behavior of that consumer, the frequency of change, you can begin to see where consumers are stretched.
Timothy Li: Right. Yeah. Yes. We may not know all the cause, but we see symptoms. And you should you should look at it and say, hey, well let's not continue this symptomatic issue, right? There's there's a real cause, maybe instability in their in their home or a job or whatever it might be. Let's not perpetuate the symptom at least. Because we can see it. I get it. I get you know, back in the old days, John, I remember early warning services. I think all the banks were trying to rely on those that service. I think it still exists.
John Gordon: Exactly. Hundred percent. That's exactly right.
Timothy Li: Yeah, what happened to that? Okay.
John Gordon: It does. It is a consortium of banks where th that that business, as I understand it, was originally designed for the banks to pool their data to identify account opening fraud. And it's the largest banks in the country, right? So it's still in operation. That data is immensely valuable. We
Timothy Li: Right. It's like a club, right?
John Gordon: also have a collaboration with JP Morgan Payments where we access data from their payments to further quantify consumers so that we're able to increase the coverage of accounts w that are inquired that our clients inquire about. So that's part of our data network. So I think all of those things are frankly requirements if you're going to
Timothy Li: Yep. Got it. Yep.
John Gordon: Quantify a consumer's bank relationship, the availability of the transaction types that you want to conduct.
Timothy Li: I I I you know earlier in my career I I worked at JP Morgan Chase in their consumer side of the business on the risk side and we did this analysis to see how many relationships, checking account to checking out relationships, does all of our consumers that Chase had. On average, there's four and a half to five relationships. So people writing checks to another bank or taking checks from another bank. So I I felt like at that time we could see everything 'cause we see the checks from Waltz Fargo. We know their route account number at that correspondent bank. We know whether to check, balance and all that stuff, right? I can only imagine how much information that you guys have now and how what kind of derivation you get, you know, write off of that data, with seeing just about everybody.
John Gordon: It's it's amazing and it's meaningful. And so, you know, it's not just that data, it's our own data, and we're delivering it from from simple solutions to high risk bank accounts. You know, that's an example of something where we see massive
Timothy Li: Yes. Okay.
John Gordon: predictive nature is you can simply provide us the ABA number, not the account number, and we can tell you, well, that's a high risk bank account and you should be concerned.
Timothy Li: right. okay, so usually I would I I was seeing that services would would take a routing number. Maybe that is the yeah, that is ABA number. What am I what I'm saying? I remember back in the days, Walmart had a bank, Wolf Forest Bank, I think it still exists. And for what it's worth, right, I don't think they did, you know, KYC correctly. There was lot of people churning through that bank. And every time we see a routing number from
John Gordon: Mm-hmm. Exactly. It does,
Timothy Li: you know, there's like twenty of these wo Forest Bank routing numbers. It's like, we gotta we gotta do a little bit more validation with folks coming through that channel.
John Gordon: Well, with the emergence of branchless banks that were largely pushed forward by the pandemic and the ability for consumers to open accounts without ever being face to face, which is standard practice these days, some of these banks are clearly associated with people who are perpetuating fraud.
Timothy Li: Okay. Yeah. Right.
John Gordon: People who are high risk. And we recently did a study for an auto lender, an indirect auto lender, meaning it it wasn't one of the automakers, right? It was an independent auto lender. And what we found was if their applicant
Timothy Li: Mm. Manufacturers. Yep.
John Gordon: Or the co-borrower listed on the applicant, we could connect to a high-risk bank account, the default rates doubled.
Timothy Li: Mm-hmm.
John Gordon: Not that they applied with it, merely that they have that account that we were seeing in other places.
Timothy Li: Association. Right, my God. ye I mean I've been to these car rental places and right up on the counter there's like a whole printout. We don't accept cars from you know all the all the names of these like headless banks or mobile mobile only banks. And 'cause it's easy to get through and you know, I I don't I don't know what kind of KYC, KYB process. I mean they should I think they should use your process when they onboard a client there to see if they
John Gordon: Yeah. A hundred percent. Well
Timothy Li: If this person dorked up another account somewhere else.
John Gordon: A hundred percent. I I'll tell you a interesting story. I was at with a large rent to own lender. You know But we were talking and they said, John, there is a TikTok that educates our customers on how to defraud us.
Timothy Li: Yeah. Yeah. Mm. Yep.
John Gordon: utilizing certain bank account types and then putting stop payments. And the TikTok ends with how to hide from our repossession personnel. And they said I don't know what's scarier. That they're using TikTok to figure out how to defraud us or they have to be coached on how to hide from the people who are coming to collect our stuff.
Timothy Li: God, right. Yeah, yeah. Yep. Yep. And that's probably listed on Facebook marketplace to be sold, right? It's an industry. my God. Well, I see you at the shows all the time, John. If today, right after af right after the show, you encounter a lender that doesn't use some ri ABA routing count some bank ver bank account rout verification, what would you say to that person today?
John Gordon: Yeah, that's exactly right. I would say you're missing opportunities. There are opportunities and signals in this data that is gonna help you make better decisions. And I would say test with us. Send us a data file. We are fully able to retro. And what we find is that not only do we score non-prime consumers more effectively than traditional scores, but we are able to identify pockets when you matrix our scores with the traditional scores that are going to help you tune in on where your best opportunities are.
Timothy Li: Mm. Right. So reduce fraud, you know, fraud losses, credit losses one one side, but you may this lender may may have this kind of open banking, really frictional process, right? Because they're scared. With this, they can maybe increase conversion because they can, you know, sort of take that off the table from page one to page three, maybe, right, and use your process.
John Gordon: Yep. Absolutely. So we call it manage friction. So don't start with maximum friction. Inject friction in the process where it's warranted based on the risk profile of the consumer.
Timothy Li: A lot of people Yep. 'Cause you you you end up you you're still gonna end up with all the frosters in if you don't have right protection and you're only pissing off good customers. Okay.
John Gordon: That's right. So put those guys on in the express lane to funding them if they're clean accounts. And then only take the risk of abandonment where it's associated with the risk of non payment. And then when those consumers abandon the process, you can you can t feel
Timothy Li: Yep. Right. Right.
John Gordon: The fact that it's, well, I might have just as I put that friction there, maybe I threw out some good with the bad, but I probably captured a lot of the bad. Whereas when that process is at the front, you really don't know because you haven't weeded out the low risk consumers and put them on the fast path to conversion.
Timothy Li: That's right. That's right. That's right. That's right. And the pissed off good customers, they know they have choice. As soon as they see something like this, they'll go somewhere else. And then if Yeah.
John Gordon: That's right. You know, I ask I ask people, Tim, a lot of times. Ten years ago, I had a phone company that I was kind of married to, right? So it was like, I I use Verizon, ATT, T Mobile, whatever. That's who we use. Nowadays, it's who's got the best offer, who's got the cheapest phone, who's got whatever the best deal is. The loyalty scenarios are at a low point.
Timothy Li: Yeah. Right. Right. Right. Right. f fascinating and I wanna I wanna come back to that retroactive testing. you know, surprisingly a lot of people don't know what don't don't actually want know what that is. So the way I understand it is that I can probably take, you know, the last six months, nine months, a year worth of just routing count numbers, maybe some other elements you need. Don't even have to tell John.
John Gordon: Yeah.
Timothy Li: Which one was good, which one's bad? And you will scored it and I'll bring it back and say, you know what? Had I used this score, had I used something analytics from Validify, I would have prevented at least ten percent, twenty percent, thirty percent of the defaults. Is that how it wor kinda kinda works? Okay.
John Gordon: That's right. That's exactly how it works. So you send us, and I would encourage you, you're right, you can send us minimal data. I would encourage you to send us six PII elements. So name, property address, phone number, email address, if you've got social, that's helpful, bank account or routing number.
Timothy Li: Yep. Of course, right.
John Gordon: If you send me those six elements and the time the of the day that you saw that consumer, I'm only going to use the benefit of information I had prior to that moment and I will generate scores.
Timothy Li: Frior. Yes.
John Gordon: If you want us to do it in the blind, meaning we have no idea of who did what, we're happy to do it. We would suggest that once we return that data to you, that you then provide us performance metrics and we will do the analysis that says to you, this is what we would have recommended based on our score sets, our fraud rules, our account validation metrics that would have happened at that time. And we're able in every
Timothy Li: Right. Yep.
John Gordon: Every case to come back and say you would have lost X percent of the funded accounts that you did in this scenario, but the impact to your default rate would have been Y. And it's always That's exactly right. And you will be able to easily connect the dots. And then the other thing about us is if you want to get into an arrangement with us where you say, I don't want to lock in for
Timothy Li: Right. Exactly. It's gotta have a one to three, one to four trade off, whatever the trade off is, right? And then
John Gordon: Three years. I I want the right to terminate based on my unhappiness with whatever happens or change in my business. We're fine with that.
Timothy Li: Right. Wow. is the retroactive anal retro analysis free, John? Is it is it something you guys just do to kind of win the trust of the customer? Wow.
John Gordon: We do. Yeah, we do. I would I would say the caveats to that are are two. First is, you've gotta have enough business to warrant us spending the time and effort. If you send me a hundred records, it's it's not gonna be worth your time or mine. That's one. And then as a quasi
Timothy Li: of course. Right.
John Gordon: Ladies, gentlemen's agreement, we ask that you get back on the phone with us and tell us what you found. Because we're spending the time and the effort and the man people hours to do this. There has been times in the past where people never look at it. And frankly, that's a little out of balance and not something we can support longer term.
Timothy Li: Of course. That's right. Right, yeah, exactly. No, that makes sense as well. I I I can't imagine why anybody wouldn't do this. Any soft respecting lender, financial services companies, or anybody that touches writing account number that has any value transacting through that needs this.
John Gordon: I first of all, it's compliance if you're taking ACH payments. Right? But I'll tell you that's right. But I'll tell you that's the least of the the value-based reasons upon which you would make that decision, because there is so much opportunity. As an example, we recently
Timothy Li: Right, going back to the naughty rule and that's and and that is a rule that you gotta follow. There's no way around that. Yeah. Yeah.
John Gordon: Went live with a company that came back to us and told us: since we have enabled your service, we have a 50% increase in our first-time automated payment acceptance, and we are at an all-time low point of consumer interactions where we're having to help them.
Timothy Li: I feel like John, you should increase your price. I mean, I feel like that one month, I don't know how how big this client is, but one month of savings and improvement pays for the whole years of of cost.
John Gordon: Well They reached out to us and essentially their posture was, What more can we do together? Yeah.
Timothy Li: What else do you have? Right. Yeah. Wow. Are you is are you guys able to validate debit card numbers at some time in the future? I I love that, yeah.
John Gordon: We are working on that. That so the the the the sort of the holy grail is could I take a debit card number and marry it back to the consumer owner of the bank account and get the bank account and routing number? 76% of debit cards are Visa branded, 20% are MasterCard.
Timothy Li: Right. Okay.
John Gordon: They kinda hold the keys and the power in that scenario to make the marriage between those things happen. And there's been some positive movement behind the scenes, but we haven't seen and we're plugged into it, but we haven't seen the ideal answer in a way that it operates with the right coverage and the right timing. You know, you need this stuff in two hundred milliseconds, right?
Timothy Li: Right. That's right. Yep. yeah. Well, I I feel like if anybody validified would be the trusted party to house some of this information because people know their their relationship. The banks know their relationship. The car processors knows their relationship. Right? It just needs to be housed somewhere.
John Gordon: I I appreciate that. We're certainly working to be that and we wanna work with our customers. We believe there's so much opportunity to eliminate fraud, to make better decisions, put consumers, to marry consumers into products that are beneficial for the consumer and the business, so that you start a profitable, beneficial relationship and it grows from there.
Timothy Li: Yeah. Exactly. That's right. That's right. And also it could be tokenized. So if you have more information, it'll make the onboarding process of any kind even smoother. Whatever instruments that I got as my first impression, you can validate the whole thing. Whether it's a debit card number, whatever it might be, or a routing count number, whatever that's out of wallet, I can verify myself. Yeah. Wow. This is what I wanted to talk to you about, man. This is like, you know, we can sit here and talk about it for for for ages. I feel like this finally crunched my thirst.
John Gordon: That's right. That's right. Well, listen, firstly, I'd be remiss if I didn't say congrats to you on all the success. And I mean you are you are n I don't know when you rest, but
Timothy Li: No. thank you, appreciate ya. well.
John Gordon: Not not much because I know you're you're on the wester western side of the US and it doesn't matter what time I email you, I get a response pretty quickly. So I really appreciate you having me here. excited for you, excited for the partnership we have with you guys and and our data being available via your world is helpful to all of those clients and we're looking forward to doing more great stuff together.
Timothy Li: Yes. Yeah. I appreciate you. Yeah. Yeah. Yeah. Yeah, people come in and name it. It's like, do you have a Lidify plug in? I'm like, Yep, yes, here it is. So it it's you made you made my job easier. Yeah. We'll do more. John, thank you so much. We'll see you at length three sixty, money twenty all these shows later this year. I really appreciate you giving me the time to come on and really demystify some of this stuff and and and I think people just need to know
John Gordon: Well, that's that's n music to my ears. You got it.
Timothy Li: That is not just the simple fraud detection. It it'll help their entire business knowing this information. Yeah.
John Gordon: It it really has ramifications across the credit application onboarding life cycle.
Timothy Li: Right. Amen. Well, John, thank you so much for giving us the time on this podcast. We'll give this thing processed and and pushed out there right away. Thank you, John.
John Gordon: Look forward to seeing you soon.
John Gordon: Well, I really appreciate you having me. I appreciate you reaching out. As you say, I I think not to age ourselves, but I think we've known each other for wow twelve plus years.
Timothy Li: Yeah. Yep.
John Gordon: So it's it's been a while. So I really appreciate you having me. And yes, I am with Validify and we are excited about the opportunity to both partner with you as well as to talk some about the solutions that we're offering in the marketplace and some of the things that we're seeing f in the broader landscape.
Timothy Li: Yes. Right. Yes. I I love stories. And I was prepping for the show and went into your profile, went onto the website as well. you work with a lot of people, John. My God. I mean I it's endless logo scrolls on your website. Tell us tell us about some of the new ones that you've been working with.
John Gordon: Well, I sure appreciate that. So we have been really fortunate in that we are working
Timothy Li: Yeah.
John Gordon: Across credit and risk, fraud, and account validation. And the account validation side is where we've really encountered some different logos. So we're working with Audin, which has been a wonderful opportunity for us. And we're working across a lot of different verticals that in our credit and risk business, which is predominantly focused on non-prime consumers, we're encountering folks that we haven't in the past.
Timothy Li: Mm-hmm.
John Gordon: And it's driven by the need for them to comply with Notcha's web debit rule, but there's so much opportunity above and beyond just compliance that our solutions are helping our clients realize.
Timothy Li: Right. Right. Yes. Yeah. I I've detect some acronyms, notcha. We're gonna get to that in a second. But when we say accounts, what do we mean? credit card accounts, debit card accounts, check-in accounts? What are we talking about here? Yes.
John Gordon: Yes, sir. So great great question and I should have clarified. Notcha is the National Automated Clearing House Association. It is the governing board for account to account transactions that are not card-based. And so They passed a rule and it went into effect in 2020, and we all realize that 2020, for all practical purposes, was a lost year because of the COVID pandemic. And then they punted compliance to 2021 that said, anytime you take a payment direct from a consumer or business via ACH, automated clearinghouse, account to account payments.
Timothy Li: Right.
John Gordon: You were required to validate that that account was open, valid, and facilitated that type of transaction. They have updated that rule in 2026 to include all transactions, not just those initiated over the internet, and added to that a fraud component that required ongoing fraud checks. And the idea here is that we're going to link the consumer to the account, we're going to do some adjustment.
Timothy Li: Right. Right.
John Gordon: additional checks around those consumers to protect that transaction type and eliminate fraud as best we're as best we're able.
Timothy Li: Right. we know each other for twelve years. We probably work in the industry for 20 plus. Before Nacha handed out this rule in 2021-2020, what what tell us Uncle Gordon, what was the old Wild Wild West felt like? tell us some stories, Mike.
John Gordon: Well, I I'll tell you the the wild wild west continues to exist today. And I'm gonna go even more near term history. So when we look at the or encounter different types of fraud, the reality is that it's the repurposing of accounts. These fraudsters act in mass. It's almost like a they build up
Timothy Li: Yeah. Organized
John Gordon: Little bit of a track record, then it's a large-scale attack of fraud. And we worked with a client whose primary issue was email addresses created in the most recent 30 days was the common thread that we could link across these accounts. When we identify those, we can point that out.
Timothy Li: Sure. Yep. Wow. Right.
John Gordon: I'll share another one with you. For guys yours of my age, landlines are among the riskiest inputs for telephone data that we see from consumers today. It's it's voiceover IP and landlines are the two riskiest types of phone numbers. Outpacing burner phones and all of the different connotations of that that you can arrive at. So
Timothy Li: Mm-hmm. Mm-hmm. Wow. Sure. Okay, so it's not just taking the routing account number. Tell kids, tell us about it. You guys are triangulating all sorts of device location, maybe geolocation for what it's worth, and email, some pseudo PIs really put it to g a story together of why this account exists, how it came to be.
John Gordon: That's right. Well, that's exactly right. You know, and as you know based on your risk background It's never just one thing. It's the compilation of things. So an account, I'm I'm constantly asking our data science team, if an account comes back valid and I can name match the consumer, why would you still not do business with that consumer? And the answer they give me is if I can connect that consumer to greater than four bank accounts, if that consumer's last transaction in a 30-day window was insufficient funds, and as There's a 71% likelihood the next transaction will be NSF. So there are reasons above and beyond that. So you know better than I do that frequency of change, or what we often term velocity, uncovers a huge, huge output of.
Timothy Li: Right. Wow. Right. Right.
John Gordon: That consumer's applying with their fourth phone number, their fourth email address. All of these things are factors that will lead you to making different decisions. And those different decisions might be step-up authentication, where you say, I'm gonna ask that consumer to log into their bank account because there is enough concern here that I want to inject some friction into the process. And the inverse is true as well.
Timothy Li: Yep. Yep. Right. Right. Could be false positive, but you know, prove it out. Yeah.
John Gordon: Yeah, Timothy Lee's clean. That's his account. Everything's good. I want to put him on the fast track. Because a recent study said that consumers, sixty eight percent of consumers will abandon an online transactional process if they encounter friction.
Timothy Li: Right. Right.
John Gordon: And we are living in the world where it's the consumer first environment. Loyalty is largely a thing of the past, and consumers want that opportunity to transact at their own pace without too much encumbrance. And ultimately, they will go elsewhere if they feel like they're up against it or they're being asked, I'm not gonna log into my bank account for a loyalty card program. That's me. Some folks will.
Timothy Li: Yeah. Right. Right. Yeah.
John Gordon: I'm not going to.
Timothy Li: Right. Yeah. Okay. There's a couple of things I I want to touch upon, right? That sequence of events people will use validify as pr product process to kind of just interrogate everything behind the scenes. And you brought up lock into account, right? So that now there's like two camps out there, The open banking folks, hey, you know what? The first thing you gotta do is log in the account and we we can talk about how much drop off there is. And then there's the other camp that are I think is more intelligent, say, hey, do as much background checking without a customer ever noticing what's happening and to bifurcate that experience. Tell us about that philosophy there.
John Gordon: So it is controlled largely by demographics. Younger people live online. Oftentimes they basically tell you everything that's happening on their life online anyway. Our answer largely is why not both?
Timothy Li: Right.
John Gordon: And I think the reality of open banking in the US is it doesn't exist. So if you log in and you credential into a bank account, which that's a solution we support. And there's a lot of people who do it well, and there's a lot of value within that. But not everybody's gonna do it. And there are certain scenarios where I'm not go I'm happy to do it for a mortgage. For
Timothy Li: Mm-hmm. Right. Right. Of course. Boat. Car, whatever, right, yeah. Yeah.
John Gordon: Loyalty card yeah, exactly. Right? Depending on the size of the transaction, I'm more inclined. If you're asking me for that level of access, when I'm signing up for a circle K loyalty card, I'm not going to do it. So I think that's the first thing. The second thing is
Timothy Li: Right. Right.
John Gordon: When consum when you are collecting data from consumers, an accountant routing number is part of that payload, they have to do nothing. The third thing is, we because of the fact that open banking doesn't truly exist today, meaning I can see all your accounts, I think that service providers and financial institutions should be asking themselves,
Timothy Li: Mm-hmm. Yeah. Mm-hmm.
John Gordon: What more is there to know about this consumer's bank behavior? So you just gave me your account. It's clean, looks great, but do you have another account? Do you have other accounts where you're transacting with your gaming, with your buy now, pay later, with other forms of debt that are going to radically change how I view you from a credit risk standpoint? So
Timothy Li: Right.
John Gordon: the answer is Both. The answer is offer both so that you get the highest interaction take rate that you can achieve. And then when it comes down to high-value interactions, there should be step-up authentication where you have an opportunity to say, Hey Tim, looks great, I'm good, or hey Tim. I can give you a better rate or there are a lot of ways to portray this if you're willing to log into your account. I think sometimes using the carrot and not the stick is going to lead you to getting valuable information.
Timothy Li: Right. Sure. Right. You can get your money in three days, or if you just lot one last step, log in, we can instantly wire you the funds, right? In the process, do a little bit more replication. Yeah. You know, one of the things you mentioned earlier about fraud detection, I love the space, is that I just remember, you know, if there's multiple phone multiple SSMs attached to one routing account number, more than you, you and your spouse, right? Five or six.
John Gordon: A hundred percent. Right.
Timothy Li: Yeah, some that's that's that's a bad story, you know. I just reminded me of his attributes.
John Gordon: The magic number we have deduced is four. If you are greater than four, your risk profile goes up seventy percent.
Timothy Li: Right, right. There's no reason why they should have four authorized account you know authorized account holders. Abnormal.
John Gordon: Four people accessing the same account, if it gets to five, and you know, anecdotally we saw a single account that we could connect greater than two hundred Social Security numbers to that one it's fraud. Yeah, it's fraud, a hundred percent it is.
Timothy Li: No other reason why why that account should exist like that. Right. Wow, that's that's insane. Right. So let's talk about this. I can only imagine how how massive this this information set, this database it you know, lies behind below the five. How many accounts, how many transactions, how many of these profiles do you guys see on a hour, daily, monthly basis? It's gotta be humongous to be able to, you know, authenticate or validate, you know I can only imagine f probably a billion check in accounts. You know, I don't know. You give me some data data. Yeah.
John Gordon: Well, I'm I'm glad you said that. From a total inquiry standpoint, we are at 1.75 billion inquiries in our system. So that's a lot of routing number and account number combinations. Now, of course, as with any data set, we have depth of file on a lot of those folks that we work with. So let me give you a use case example. PDI is a company that does convenience store loyalty cards for Circle K.
Timothy Li: Thank you. Okay.
John Gordon: Other folks that operate in that medium. And what they do is they attach the accountant routing number to that loyalty card. And then they are able, their clients are able to incentivize you to buy your gas at their station. So turn left instead of turning right, you're saving money, you're earning loyalty points within the convenience store. So we offer their consumers the ability to log in to their bank account or to provide.
Timothy Li: Yeah. Okay.
John Gordon: Their bank account routing number, and we validate those accounts. We run a fraud check, we run compliance checks.
Timothy Li: Yep. Yeah.
John Gordon: And identity checks, and then from that point forward, that consumer, if they pass those checks, is able to transact on that card. The benefit to the end user, the gas station, if you will, is that they get the loyalty and they get the transactions at lower costs without the discount rates that are associated with credit card transactions.
Timothy Li: Right. It's a debit rail kind of a debit card kind of a process, right? A card associated with the routing account number. you know, like the interchange or like whatever fee savings versus a credit card they can push back to the consumers and say, hey, here's a beefier loyalty program.
John Gordon: Exactly. That's exactly right. That's right. You're increasing profitability. And frankly, I think offering
Timothy Li: Right.
John Gordon: There's benefits to all types of payments. There are some dra drawbacks to many of those types of payments. Offering your consumer the widest available set of options is obviously in the consumer first era the best way to do it. Back to the dreaded acronyms, A2A is account to account payments, where you're simply withdrawing funds from your account and depositing them in mine.
Timothy Li: Right. Right. Yep. Yep. what what about that space? I think I feel like a lot of people are using like, you know, maybe a z Zell or maybe I could just put on my phone and and look at some of the apps. So in that case you gotta verify on both ends, obviously, right? I mean Wow.
John Gordon: Hundred percent. That's exactly right. You you've gotta you've gotta operate on both ends. And there's a myriad of ways that you can do that. The emergence of Fed now. And real-time payments networks that allow for same-day ACH are modernizing some of the opportunities that financial service providers have to utilize legacy things they've done. So if you've you've heard of penny drops or micro deposits where I'm gonna validate your account, I'm gonna deposit three cents in that account, but oftentimes that would take three days.
Timothy Li: Yep. Yeah. yeah.
John Gordon: Well, now what we're helping our clients do is they will ping us and say, Is this financial institution real-time payments enabled or FedNow enabled? Those are the two networks that support these types of payments. And if we say yes, we're able to drop a penny in that account and attach to that account an alphanumeric code.
Timothy Li: It's just Right.
John Gordon: Simultaneously, they will send their consumer utilizing their trusted contact information, a text or an email that says if you will put that information back in the text or email, in this four-digit alphanumeric place that we've marked, then you're validated to use that account. Because the source of fraud has been the consumers will change bank accounts.
Timothy Li: Uh-huh. Right. Right. Right.
John Gordon: So It's and sometimes people change bank accounts because they got a better offer or they want to go somewhere else, convenience, whatever the reason, but it gives you the ability to utilize that. So we have an insurance company that we work with that has utilized microdeposits for decades, and they said we want to keep that, it's ingrained in our business, but we want to take advantage of the modernization, do it the same day. And if the bank account is not RTP or Fed now, that's
Timothy Li: Yeah. Yeah. Yep.
John Gordon: real-time payments are fed now, then
Timothy Li: Right. Yep.
John Gordon: we're going to defer to you, get the account and routing number, you utilize the validified data network to tell us if that account is open, valid, belongs to that consumer, and will facilitate this type of transaction.
Timothy Li: Right. I'm trying to wrap this my head around this whole process. you get the rowdy and count number is passed through Validify. Validify will drop a penny or whatever it might be, micro deposit. How does the consumer get that four-digit code? Are you sending that to them somehow?
John Gordon: Mm-hmm. It's attached to the deposit line. So when they log into the account, it'll say you've received a deposit from ACME Insurance and it's gotten the alphanumeric code. We'll direct them on where to find it. They in it a hundred percent.
Timothy Li: when you log in Right. In the description. In the description of that transaction. Got it. Got it. And then you get a text message saying from I guess the bank or whatever it might be. You look at a transaction and punt pump pump it right back to the to your phone. That demonstrates va verification, authentication, control of the account. That basically is a full circle. That's so really clever, John. Wow.
John Gordon: Exactly. So we believe that can be used step up authentication. It can be a starting place. There's there's any way so we were
Timothy Li: 'Cause I don't have to log into my bank account. I don't have to go through like a open banking process. Yeah.
John Gordon: Well, y that's so ingrained. You think about how many times or how easy it is, me personally, my bank account, if I hit the app on my phone and face facial recognition, I'm there. And
Timothy Li: That's right, yeah, yeah. I don't have to log in in the foreign object. Yeah. Yeah. I log in with a with the app that I'm comfortable with to to read that number of the transaction description. Yeah.
John Gordon: That's right. And studies indicate that ninety percent of people are doing that daily, if not multiple times daily anyway.
Timothy Li: Yeah. Yes. It is that out of body experience. A new box. Put your route put your user user password into some kind of a box they didn't recognize. That's the that's the the allergic reaction to a lot of people. But if you log into my Walt Fargo Chase app anyway, just raise some number, I do that multiple times a day. Sending money out, whatever, right? Wow.
John Gordon: Well I Exactly. And and I was talking to a gentleman who's a noteworthy person in the fraud space last week and he said his sister reached out to him and said, Hey, they're asking me for my bank account or username and password. You told me not to do that. And he said, Yes, I told you that for a reason.
Timothy Li: Right.
John Gordon: Find out if there's an alternative way for you to interact. Some people are comfortable with it and some aren't.
Timothy Li: Right. Yes. And also the friction ha is with respect to where you are in the product process, what kind of product you're doing. You know, you know, I also talked to somebody, super sophisticated person in this industry. If I mention name, you will know. Got got all of Their account wiped out clean. Investment account, bank account, and it's it it is a little bit of social engineering involved, everything's gone.
John Gordon: It's it is scary to think about how I I think that's the reality of it. These fraud changes every day. The goalposts move every day, and these fraudsters are working hard at not working, at not having real jobs, and they find weaknesses in processes and people's behaviors.
Timothy Li: Yeah. Yep.
John Gordon: And frankly, they're good at what they do. So it requires somebody really be locked in on defenses and making sure those defenses are enabled and enacted. So we we do it not.
Timothy Li: You're protecting the lender, the bank, and you're protecting the consumer. That is safe.
John Gordon: it's the cost of credit, right? We're driving up the cost of credit for everyone every time one of these fraudsters wins. So and and say you're saying that I and you said lender, and I think that's a if I may, that's a great segue for us to talk about. The other thing that we utilize this bank and payment intelligence that we have is on the
Timothy Li: Wow. Yes, and they're it
John Gordon: risk assessment side of our business. Where we are helping lenders make better decisions. So boring trivia question. Do you know what year the FICO score as it emerged?
Timothy Li: Right. Uh-huh. You know, I threw right here in San Diego, Far Isaac used to be known as a S3 acronym company. I I feel like maybe in the 30s or 40s it was invented to detect submarines or something like that in World War I or two. Correct me, John. Okay.
John Gordon: Well, that might be right, but the consumer credit score came out in nineteen eighty nine. So I would pose and I often ask people, how different is the process or the ev the ways in which we can acquire credit in twenty twenty six than it was in nineteen eighty nine?
Timothy Li: Well, you know, I I think back in the days you have to like fax somebody, you're quite a report. Today it's like you get it on your any self respecting, you know, Rocket Money app or whatever it might be. It's like right there in front of you. Yeah.
John Gordon: Exactly. Exactly. That's exactly right. It's exactly right. And back in the day, the first house I ever bought, I had to bring two years of bank statements and two years of pay stubs to the mortgage lender. And they took whatever time they wanted to take and you were on pens and needles. Yeah.
Timothy Li: Yeah. If they had to call somebody to pull pull credit, I think it's somebody in some warehouse and literally go and get the binders out.
John Gordon: That's exactly right. And now, today, to your point, you go on rocket mortgage, you've got an answer in minutes. So the reality that is, the ways in which we acquire credit both opens opportunities for consumers and fraudsters, and it changes the way that we evaluate risk. And I think on top of that, when you look at
Timothy Li: Yeah.
John Gordon: Buy Now Pay Later, which issued a billion dollars in originations between Black Friday and Cyber Monday, and the fact that that data is nowhere visible at the credit bureaus. Last year the decision was made to eliminate, maybe it was the year before, eliminate medical debt from your credit report. And now gaming, fan duel, polymarkets.
Timothy Li: Mm-hmm. Chaoshi.
John Gordon: Yes, all of the stuff that's going on, you can't find it.
Timothy Li: Sure. Yes.
John Gordon: But if you don't believe that dramatically impacts how you're gonna view somebody from a credit stand, a risk standpoint, you're kidding yourself.
Timothy Li: Yeah. Yes, that's right. Gaming as well, right? Not just gaming, casino gaming, but online gaming. Billions are transacted on these micro microtran transactions and that's a completely different behavior. You know.
John Gordon: A hundred percent. It's it's Hundred percent. Not not to mention the fact, you know, you used to pay two hundred bucks for cable every month. Now you're paying twenty, thirty bucks to fifteen different companies. And at the end of the day, it impacts what you can afford as a consumer. And that is the bar that, you know, pour one out for the sea. Right.
Timothy Li: Mm-hmm. Right. Yeah. Yeah. I mean the fact that there is a whole industry to help you cancel subscriptions, that's a pro that's a societal problem evolution.
John Gordon: Well, think about it. Right right back to Rocket Money, they've got an app that says, How many subscriptions do you think you have? You know, you've seen the commercials, you actually have fifteen. But all of that now
Timothy Li: Right. Right. Yep. Yep. That's yeah, that's a third of a paycheck for somebody right there, you know? Yeah.
John Gordon: Right. you know, pour one out for the CFPB at present, although it could vary depending on who wins which election, it will likely be back. But at the end of the day, the bar they had set was did you make a consumer a financial offer that they couldn't afford, ability to repay?
Timothy Li: Mm-hmm. Yeah. Right. Right.
John Gordon: And how in the world are financial service providers and lenders supposed to be held to that standard when you can't see how much medical debt, how much buy now pay later, how much gaming this person's involved in? It it's almost like a trap.
Timothy Li: That's right. That's right. That's right. That's right. That's right. Exactly. And the regulators, CIPB, love to use the word, you shouldn't harm the consumer. You know, if you don't have the data, how do we know? Right. We just for the you know, basically their word, we can verify their maybe their income, we can verify their balance, but we don't know their behavior. historical behavior.
John Gordon: That's exactly right. And I'm not suggesting we have all the answers, but I am absolutely certain that we have ingredients that help our clients make better decisions. By looking at the bank behavior of that consumer, the frequency of change, you can begin to see where consumers are stretched.
Timothy Li: Right. Yeah. Yes. We may not know all the cause, but we see symptoms. And you should you should look at it and say, hey, well let's not continue this symptomatic issue, right? There's there's a real cause, maybe instability in their in their home or a job or whatever it might be. Let's not perpetuate the symptom at least. Because we can see it. I get it. I get you know, back in the old days, John, I remember early warning services. I think all the banks were trying to rely on those that service. I think it still exists.
John Gordon: Exactly. Hundred percent. That's exactly right.
Timothy Li: Yeah, what happened to that? Okay.
John Gordon: It does. It is a consortium of banks where th that that business, as I understand it, was originally designed for the banks to pool their data to identify account opening fraud. And it's the largest banks in the country, right? So it's still in operation. That data is immensely valuable. We
Timothy Li: Right. It's like a club, right?
John Gordon: also have a collaboration with JP Morgan Payments where we access data from their payments to further quantify consumers so that we're able to increase the coverage of accounts w that are inquired that our clients inquire about. So that's part of our data network. So I think all of those things are frankly requirements if you're going to
Timothy Li: Yep. Got it. Yep.
John Gordon: Quantify a consumer's bank relationship, the availability of the transaction types that you want to conduct.
Timothy Li: I I I you know earlier in my career I I worked at JP Morgan Chase in their consumer side of the business on the risk side and we did this analysis to see how many relationships, checking account to checking out relationships, does all of our consumers that Chase had. On average, there's four and a half to five relationships. So people writing checks to another bank or taking checks from another bank. So I I felt like at that time we could see everything 'cause we see the checks from Waltz Fargo. We know their route account number at that correspondent bank. We know whether to check, balance and all that stuff, right? I can only imagine how much information that you guys have now and how what kind of derivation you get, you know, write off of that data, with seeing just about everybody.
John Gordon: It's it's amazing and it's meaningful. And so, you know, it's not just that data, it's our own data, and we're delivering it from from simple solutions to high risk bank accounts. You know, that's an example of something where we see massive
Timothy Li: Yes. Okay.
John Gordon: predictive nature is you can simply provide us the ABA number, not the account number, and we can tell you, well, that's a high risk bank account and you should be concerned.
Timothy Li: right. okay, so usually I would I I was seeing that services would would take a routing number. Maybe that is the yeah, that is ABA number. What am I what I'm saying? I remember back in the days, Walmart had a bank, Wolf Forest Bank, I think it still exists. And for what it's worth, right, I don't think they did, you know, KYC correctly. There was lot of people churning through that bank. And every time we see a routing number from
John Gordon: Mm-hmm. Exactly. It does,
Timothy Li: you know, there's like twenty of these wo Forest Bank routing numbers. It's like, we gotta we gotta do a little bit more validation with folks coming through that channel.
John Gordon: Well, with the emergence of branchless banks that were largely pushed forward by the pandemic and the ability for consumers to open accounts without ever being face to face, which is standard practice these days, some of these banks are clearly associated with people who are perpetuating fraud.
Timothy Li: Okay. Yeah. Right.
John Gordon: People who are high risk. And we recently did a study for an auto lender, an indirect auto lender, meaning it it wasn't one of the automakers, right? It was an independent auto lender. And what we found was if their applicant
Timothy Li: Mm. Manufacturers. Yep.
John Gordon: Or the co-borrower listed on the applicant, we could connect to a high-risk bank account, the default rates doubled.
Timothy Li: Mm-hmm.
John Gordon: Not that they applied with it, merely that they have that account that we were seeing in other places.
Timothy Li: Association. Right, my God. ye I mean I've been to these car rental places and right up on the counter there's like a whole printout. We don't accept cars from you know all the all the names of these like headless banks or mobile mobile only banks. And 'cause it's easy to get through and you know, I I don't I don't know what kind of KYC, KYB process. I mean they should I think they should use your process when they onboard a client there to see if they
John Gordon: Yeah. A hundred percent. Well
Timothy Li: If this person dorked up another account somewhere else.
John Gordon: A hundred percent. I I'll tell you a interesting story. I was at with a large rent to own lender. You know But we were talking and they said, John, there is a TikTok that educates our customers on how to defraud us.
Timothy Li: Yeah. Yeah. Mm. Yep.
John Gordon: utilizing certain bank account types and then putting stop payments. And the TikTok ends with how to hide from our repossession personnel. And they said I don't know what's scarier. That they're using TikTok to figure out how to defraud us or they have to be coached on how to hide from the people who are coming to collect our stuff.
Timothy Li: God, right. Yeah, yeah. Yep. Yep. And that's probably listed on Facebook marketplace to be sold, right? It's an industry. my God. Well, I see you at the shows all the time, John. If today, right after af right after the show, you encounter a lender that doesn't use some ri ABA routing count some bank ver bank account rout verification, what would you say to that person today?
John Gordon: Yeah, that's exactly right. I would say you're missing opportunities. There are opportunities and signals in this data that is gonna help you make better decisions. And I would say test with us. Send us a data file. We are fully able to retro. And what we find is that not only do we score non-prime consumers more effectively than traditional scores, but we are able to identify pockets when you matrix our scores with the traditional scores that are going to help you tune in on where your best opportunities are.
Timothy Li: Mm. Right. So reduce fraud, you know, fraud losses, credit losses one one side, but you may this lender may may have this kind of open banking, really frictional process, right? Because they're scared. With this, they can maybe increase conversion because they can, you know, sort of take that off the table from page one to page three, maybe, right, and use your process.
John Gordon: Yep. Absolutely. So we call it manage friction. So don't start with maximum friction. Inject friction in the process where it's warranted based on the risk profile of the consumer.
Timothy Li: A lot of people Yep. 'Cause you you you end up you you're still gonna end up with all the frosters in if you don't have right protection and you're only pissing off good customers. Okay.
John Gordon: That's right. So put those guys on in the express lane to funding them if they're clean accounts. And then only take the risk of abandonment where it's associated with the risk of non payment. And then when those consumers abandon the process, you can you can t feel
Timothy Li: Yep. Right. Right.
John Gordon: The fact that it's, well, I might have just as I put that friction there, maybe I threw out some good with the bad, but I probably captured a lot of the bad. Whereas when that process is at the front, you really don't know because you haven't weeded out the low risk consumers and put them on the fast path to conversion.
Timothy Li: That's right. That's right. That's right. That's right. And the pissed off good customers, they know they have choice. As soon as they see something like this, they'll go somewhere else. And then if Yeah.
John Gordon: That's right. You know, I ask I ask people, Tim, a lot of times. Ten years ago, I had a phone company that I was kind of married to, right? So it was like, I I use Verizon, ATT, T Mobile, whatever. That's who we use. Nowadays, it's who's got the best offer, who's got the cheapest phone, who's got whatever the best deal is. The loyalty scenarios are at a low point.
Timothy Li: Yeah. Right. Right. Right. Right. f fascinating and I wanna I wanna come back to that retroactive testing. you know, surprisingly a lot of people don't know what don't don't actually want know what that is. So the way I understand it is that I can probably take, you know, the last six months, nine months, a year worth of just routing count numbers, maybe some other elements you need. Don't even have to tell John.
John Gordon: Yeah.
Timothy Li: Which one was good, which one's bad? And you will scored it and I'll bring it back and say, you know what? Had I used this score, had I used something analytics from Validify, I would have prevented at least ten percent, twenty percent, thirty percent of the defaults. Is that how it wor kinda kinda works? Okay.
John Gordon: That's right. That's exactly how it works. So you send us, and I would encourage you, you're right, you can send us minimal data. I would encourage you to send us six PII elements. So name, property address, phone number, email address, if you've got social, that's helpful, bank account or routing number.
Timothy Li: Yep. Of course, right.
John Gordon: If you send me those six elements and the time the of the day that you saw that consumer, I'm only going to use the benefit of information I had prior to that moment and I will generate scores.
Timothy Li: Frior. Yes.
John Gordon: If you want us to do it in the blind, meaning we have no idea of who did what, we're happy to do it. We would suggest that once we return that data to you, that you then provide us performance metrics and we will do the analysis that says to you, this is what we would have recommended based on our score sets, our fraud rules, our account validation metrics that would have happened at that time. And we're able in every
Timothy Li: Right. Yep.
John Gordon: Every case to come back and say you would have lost X percent of the funded accounts that you did in this scenario, but the impact to your default rate would have been Y. And it's always That's exactly right. And you will be able to easily connect the dots. And then the other thing about us is if you want to get into an arrangement with us where you say, I don't want to lock in for
Timothy Li: Right. Exactly. It's gotta have a one to three, one to four trade off, whatever the trade off is, right? And then
John Gordon: Three years. I I want the right to terminate based on my unhappiness with whatever happens or change in my business. We're fine with that.
Timothy Li: Right. Wow. is the retroactive anal retro analysis free, John? Is it is it something you guys just do to kind of win the trust of the customer? Wow.
John Gordon: We do. Yeah, we do. I would I would say the caveats to that are are two. First is, you've gotta have enough business to warrant us spending the time and effort. If you send me a hundred records, it's it's not gonna be worth your time or mine. That's one. And then as a quasi
Timothy Li: of course. Right.
John Gordon: Ladies, gentlemen's agreement, we ask that you get back on the phone with us and tell us what you found. Because we're spending the time and the effort and the man people hours to do this. There has been times in the past where people never look at it. And frankly, that's a little out of balance and not something we can support longer term.
Timothy Li: Of course. That's right. Right, yeah, exactly. No, that makes sense as well. I I I can't imagine why anybody wouldn't do this. Any soft respecting lender, financial services companies, or anybody that touches writing account number that has any value transacting through that needs this.
John Gordon: I first of all, it's compliance if you're taking ACH payments. Right? But I'll tell you that's right. But I'll tell you that's the least of the the value-based reasons upon which you would make that decision, because there is so much opportunity. As an example, we recently
Timothy Li: Right, going back to the naughty rule and that's and and that is a rule that you gotta follow. There's no way around that. Yeah. Yeah.
John Gordon: Went live with a company that came back to us and told us: since we have enabled your service, we have a 50% increase in our first-time automated payment acceptance, and we are at an all-time low point of consumer interactions where we're having to help them.
Timothy Li: I feel like John, you should increase your price. I mean, I feel like that one month, I don't know how how big this client is, but one month of savings and improvement pays for the whole years of of cost.
John Gordon: Well They reached out to us and essentially their posture was, What more can we do together? Yeah.
Timothy Li: What else do you have? Right. Yeah. Wow. Are you is are you guys able to validate debit card numbers at some time in the future? I I love that, yeah.
John Gordon: We are working on that. That so the the the the sort of the holy grail is could I take a debit card number and marry it back to the consumer owner of the bank account and get the bank account and routing number? 76% of debit cards are Visa branded, 20% are MasterCard.
Timothy Li: Right. Okay.
John Gordon: They kinda hold the keys and the power in that scenario to make the marriage between those things happen. And there's been some positive movement behind the scenes, but we haven't seen and we're plugged into it, but we haven't seen the ideal answer in a way that it operates with the right coverage and the right timing. You know, you need this stuff in two hundred milliseconds, right?
Timothy Li: Right. That's right. Yep. yeah. Well, I I feel like if anybody validified would be the trusted party to house some of this information because people know their their relationship. The banks know their relationship. The car processors knows their relationship. Right? It just needs to be housed somewhere.
John Gordon: I I appreciate that. We're certainly working to be that and we wanna work with our customers. We believe there's so much opportunity to eliminate fraud, to make better decisions, put consumers, to marry consumers into products that are beneficial for the consumer and the business, so that you start a profitable, beneficial relationship and it grows from there.
Timothy Li: Yeah. Exactly. That's right. That's right. And also it could be tokenized. So if you have more information, it'll make the onboarding process of any kind even smoother. Whatever instruments that I got as my first impression, you can validate the whole thing. Whether it's a debit card number, whatever it might be, or a routing count number, whatever that's out of wallet, I can verify myself. Yeah. Wow. This is what I wanted to talk to you about, man. This is like, you know, we can sit here and talk about it for for for ages. I feel like this finally crunched my thirst.
John Gordon: That's right. That's right. Well, listen, firstly, I'd be remiss if I didn't say congrats to you on all the success. And I mean you are you are n I don't know when you rest, but
Timothy Li: No. thank you, appreciate ya. well.
John Gordon: Not not much because I know you're you're on the wester western side of the US and it doesn't matter what time I email you, I get a response pretty quickly. So I really appreciate you having me here. excited for you, excited for the partnership we have with you guys and and our data being available via your world is helpful to all of those clients and we're looking forward to doing more great stuff together.
Timothy Li: Yes. Yeah. I appreciate you. Yeah. Yeah. Yeah. Yeah, people come in and name it. It's like, do you have a Lidify plug in? I'm like, Yep, yes, here it is. So it it's you made you made my job easier. Yeah. We'll do more. John, thank you so much. We'll see you at length three sixty, money twenty all these shows later this year. I really appreciate you giving me the time to come on and really demystify some of this stuff and and and I think people just need to know
John Gordon: Well, that's that's n music to my ears. You got it.
Timothy Li: That is not just the simple fraud detection. It it'll help their entire business knowing this information. Yeah.
John Gordon: It it really has ramifications across the credit application onboarding life cycle.
Timothy Li: Right. Amen. Well, John, thank you so much for giving us the time on this podcast. We'll give this thing processed and and pushed out there right away. Thank you, John.
John Gordon: Look forward to seeing you soon.
