April 2, 2025 • 46 mins
Watch on YouTube
Tedd Huff & John Gordon, CEO of ValidiFI, explore key shifts in Fintech and focus on Account Validation Technology. The focus is on account validation, fraud detection, and customer risk. With over 25 years in financial services, Gordon shares insights from his work at TransUnion and ValidiFI.
He explains how behavioral signals like multiple emails, landlines, or shared accounts—can trigger higher risk. Gordon also breaks down why ACH transactions remain dominant, and how high-risk accounts show 11.5x more return failures. The episode covers challenges with virtual bank accounts, especially from neo banks, and how lenders can better identify stable users.
John highlights how linking emails, phone types, and account behavior to reduce fraud and improve onboarding. He shares how AI and alternative data fill gaps left by outdated credit models, especially for BNPL users or consumers without full credit files.
He predicts a rise in consumer control over financial data and warns that limited access may hurt repayment assessments. For fintech founders, his advice is clear: look at the full data picture account history, contact info, and usage to make better, faster decisions.
Key Highlights
🔹 Email Addresses Could Be Warning Signs
🔹 Landlines Are Worse Than You Think
🔹 Your Phone Type Says More
🔹 Fake-Looking Behavior That’s Actually Fraud
🔹 One Account, Too Many Users
🔹 Why Some Banks Get You Declined
🔹 ACH Still Beating Flashy Options
🔹 Manual Processes Are Still Everywhere
🔹 Stopping Fraud Without Losing Good Users
🔹 The Risk Hiding in Screen Scraping
Takeaways
1️⃣ This One Banking Habit Is Costing You
2️⃣ What ACH Return Rates Are Hiding
3️⃣ Why Neo Bank Users Are Getting Watched
4️⃣ Most Used Accounts Still Miss the Full Picture
5️⃣ The $100 Pizza You Didn’t Know About
Links:
John Gordon
https://www.linkedin.com/in/johnfgordon/
ValidiFI
Website: https://validifi.com/
LinkedIn: https://www.linkedin.com/company/validifi/
Fintech Confidential
Podcast: https://fintechconfidential.com/listen
Notifications: https://fintechconfidential.com/access
LinkedIn: https://www.linkedin.com/company/fintechconfidential
X: https://x.com/FTconfidential
Instagram: https://www.instagram.com/fintechconfidential
Facebook: https://www.facebook.com/fintechconfidential
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Tedd Huff (00:01):
Welcome to FinTech Confidential, bringing you the
people, tech and companies thatchange how you pay and get paid.
John Gordon (00:11):
We are living today in a historical time in that 96% of US
households have access to a bank account.
Well, I can tell you withoutquestion, consumers use more than
two email addresses in 30 days.
Their risk profile goes up exponentially.
(00:31):
A landline is the riskiest phone typethat any consumer can currently apply.
With the emergence of the neobanks and the digital banks
further complicates the matter.
To overlook ACH would be tobe overlooking the dominant.
Payment type in the marketplacetoday, the way that traditional credit
(00:53):
scores are delivered is virtually theexact same as it was 40 years ago.
What we are finding is mostconsumers aren't comfortable
providing that level of access.
I believe over the course of thenext five years, we are going to
see a consumer empowerment era.
Consumers are going to haveincreased control over what they
(01:16):
share and with whom they share.
It, and as a result of that, therewill be a leveling of the playing field
in terms of financial institutions.
Open banking isn't necessarily the panaceathat some people perceive it to be.
We took two payments companiesand put them together.
Which gave us a lot of experiencewith a broad set of banks.
(01:41):
71% of consumers want to be active inthe process for a fairer credit scenario.
We want to be part of that process.
Tedd Huff (01:50):
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Welcome to FinTech ConfidentialsLeaders one-on-one series where we
(02:57):
bring you face-to-face with peopleshaping the future of FinTech.
I'm your host, Ted Huff, and togetherwe'll explore the latest trends,
challenges, and success stories InFinTech each episode, we feature
in-depth conversations with industryleaders who share their experiences,
insights, and strategies fornavigating the ever evolving landscape.
(03:18):
FinTech, whether you're a seasonedprofessional or just starting out,
you'll find valuable takeaways to helpyou stay ahead of this dynamic field.
So let's go ahead.
Get started.
I'm super thrilled to introduce youto John Gordon, the CEO of Validify.
Now, John has one heck of animpressive background in FinTech,
(03:41):
and honestly, he and I both started.
Before it was even called FinTech,and it's been over 25 years that
we've both been doing this, andhe's held positions at companies
like TransUnion, online Resources,premier Global Services, and Rivian.
MedAvante at Validify, which hejoined as president in February, 2022.
(04:05):
He's been focused on providing predictivebank account and payment intelligence.
Now this company is dedicated to helpingorganizations validate bank accounts,
detect fraud, and assess credit risk.
Through unique applications of data,and in this episode, we're going
to cover the current challenges inFinTech, including fraud prevention
(04:26):
and compliance with regulations.
How Validify addresses these challengeswith our advanced solutions, the
role of alternative data in enhancingcredit risk assessment and improving
financial inclusion insights.
On open banking and its impact oncustomer choice and emerging trends
in FinTech that are shaping how wewill be moving forward in the future.
(04:48):
So I hope you'll join us as weexplore these topics with John Gordon
from validify and gain valuableinsights into evolving landscape.
FinTech.
John, welcome to FinTech Confidential.
John Gordon (05:00):
Thanks, Ted.
I appreciate you letting me be
Tedd Huff (05:02):
here.
There are some exciting connectionsas we were talking about while
we were preparing between FinTechConfidential and some of the partners
you have over there at Validify.
Companies such as Best Eggs, COO, AlexRhodes has been on, and Tim Lee, the
founder of Lend API, has also been on.
It has been extremely fascinating tome how Validify has supported these
(05:25):
organizations, and I'm really excitedto dive deeper into these stories
as we talk about 'em more today.
John Gordon (05:31):
Yeah, I appreciate that.
I saw both of those gentlemen on herein the not too distant past, and it
was great to see both a partner and aclient spend some time with you, and
I'm glad to be able to do that today.
Tedd Huff (05:43):
I would be remiss if I didn't.
Start off with aleadership question first.
You've been in financial services forover two and a half decades, just like
me, and even before it was called FinTech.
What would you say is the biggest lesson.
You have learned and how,
John Gordon (06:05):
boy, I tell you, you know, I think part of this, Ted, is you're, you're
pointing out that we're both seasoned.
I liked that choice of words that you had.
I think the thing that Ihave is that things change.
Beyond and outside of your control.
And the critical aspect of it isto stay true to your purpose and
(06:27):
the team that you have around you.
And as I think back to Operationchoke point, when we were at
Factor Trust where we lost morethan 50% of our revenue in a week.
Oh my goodness.
Or back to your point.
Back to Dion in the late ninetieswhen the dotcom bubble burst and
the impact that it had to all of us.
(06:48):
We had to realize that we justhad to stay the course and stay
true to what we were doing.
To have the chance to continue on andto take a breath, survey the landscape,
and not react in a reflexive action, butto take the time to really assess what
happens and see where you go from there.
Tedd Huff (07:08):
Let's fast forward a little bit, right?
You've seen a lot, you'vebeen part of this a while.
How have you seen ACH transaction evolve,and how are you seeing companies manage
the risks that are associated with that?
Evolution.
John Gordon (07:23):
So ACH transactions, it's almost like they are the
constant, the standard and theycontinue to grow above and beyond
what I think most people realize.
And now with the emergenceof realtime payments.
And pay by bank.
There are opportunities within this legacypayment type that are emerging, that are
(07:46):
offering people new and expanded benefitsin utilizing this trusted ACH solution.
An example of that for us is ourpartnership with PDI and they
support the attachment of paymentcapabilities and loyalty cards
for convenience stores, the importantaspect of that is the validation
(08:09):
of those accounts and the abilityto attach consumer to the account.
That is an exciting opportunityfor consumers to have more payment
options for service providers.
Like the convenience stores to supportmore payment types that potentially
offer an opportunity for them to lowertheir transaction processing costs.
Tedd Huff (08:32):
I was looking at the recent report on ACH transaction,
risks that Validify put out, and oneof the things that caught my eye is
that high risk accounts experience.
11 and a half times more ACH returns to alower risk account and only 14% of those
payments really ever become successful.
Can you help us understand the challengesthat you've seen in spotting those
(08:58):
high risk indicators, whether it be.
Ahead of time or during the transaction.
John Gordon (09:03):
We are living today in a historical time in that 96% of US
households have access to a bank account.
And according to the FDIC, that is thehighest rate we've ever experienced,
and we would attribute a lot of that.
To Covid and the wise move bybanks to make online account
(09:27):
opening easier for consumers.
But there's offshoot of that too, and itcreated a lot of velocity, a lot of change
in those consumer account connections.
And what we found, to your point, is thatoftentimes when a consumer struggles.
With their bank account or a bankaccount is a legacy account, or
(09:49):
in the instance that it's fraud.
It's the same accounts again and againwho are having these return challenges.
But not all aach H returnsare created equally.
Mm-hmm.
Some of these returns arewhat we call fatal returns.
In which scenario, the personwho is trying to collect
the funds has no recourse.
(10:10):
NSF is a reality for all.
Payments via ACH andthey kind come and go.
But what we find is a consumer who hasan Aach H account, if it's an NSF in the
first scenario, it's oftentimes gonna bean NSF in the second scenario as well.
Tedd Huff (10:28):
One of the things that I'd love to get your perspective on, I was
wondering how do these virtual DDAs.
Impact.
Impact the risk profiles.
I remember back in the days when Iwould work with prepaid companies on
the credit card side of the house,and we did a virtual DDA on those
(10:48):
accounts, and then I've worked with alot of banking as a service providers
and helping them get through the nextstage for themselves, and they're using.
Virtual DDAs, and then I have softwarecompanies that I'm helping that
are building out an entire suite ofservices, and they're using virtual DDAs.
I would love to understandhow the use of these.
(11:09):
Virtual DDAs, I lemme see if Ican ask, say it one more time.
Uh, how that's impacting theway that Validify is managing
scores and determining the risks.
John Gordon (11:22):
A lot of this, any sort of DA and, and I'm not sure you're
directly referring to, but the emergenceof the neo banks and the digital
banks further complicates the matter.
I think at the outset of any accountwhere it's difficult to attribute a
connection between the consumer andthe account, whether it be payment
(11:43):
history or any sort of time continuumwhere you can connect that consumer
with that account over the courseof time creates uncertainty and the.
Positive payments to that account, theless risk there is in the payment process.
So what we have seen specificallyin the case of the neo banks, is
(12:08):
that oftentimes service providersare staying away from the neo banks
because they don't have maturityor experience with those accounts.
And frankly, they have become, in somecases difficult as consumers are using
them in, in somewhat transient fashion.
We see oftentimes that some of ourlending clients are telling us we
(12:31):
have an applicant apply with a moretraditional account only to want to change
that account into a Neobank account.
Mm-hmm.
Later in the process.
And they're guarding against those thingsor trying to guard against those things.
But now we're having people tell uswe want to be able to differentiate.
Between, between a virtual DDA user, aneo bank account user, so that we can
(12:55):
assign some sort of performance aspect,because as they grow in popularity, so
too does the opportunity for someoneto do business with those folks who are
utilizing those accounts in the right way.
Tedd Huff (13:08):
One of the really cool things about Validify is the
whole value proposition behind itis really to mitigate the fraud.
Like you were talking about fromlenders, from service providers, from
these types of risks, how does fraudimpact the customer acquisition?
And the risk mitigation tacticsthat your clients are using today.
John Gordon (13:33):
In today's day and age, there are a lot of folks, whether it's
buy now, pay later, or lenders who arefunding the entire principal at the point
of acquisition who are frontloading.
A lot of the risk when we have accountswhether it's first party fraud which is
a prevalent scenario in any transactionwhere you have the merchandise as
(13:58):
the consumer, or you have the fullprinciple amount as the consumer where
the inability to debit that accountlater or some change in that account
later materially harms the product andit ends up resulting in an increase in
the cost of credit across the board.
Tedd Huff (14:17):
Can you give us an example of one of those scenarios that.
Most people would understand.
John Gordon (14:23):
Sure.
So we work with a personal loan lender.
They fund you the entireprinciple via ACH.
So if you, at the time of applicationas a consumer list, a bank account.
That you can access for the purposeof getting those funds, but then
you terminate that relationshipthrough a stop payment or any
(14:46):
sort of termination via the bank.
You have created this scenariowhere you now have the funds and
the lender has no recourse togo back against those accounts.
It's a.
That it's oftentimes the samecombinations of routing numbers and
direct deposit accounts where thesethings are happening in a lot of
(15:09):
velocity in a short period of time.
These fraudsters will set these things up.
They sort of interact with them oftentimesthrough lead aggregation partners where
they go and apply with someone other thanthe lender and those leads are shopped.
They fund the loans andthe consumers go on.
That looks an awful lot like afirst party fraud scenario where the
(15:33):
consumer opts not to repay, but we havefound that a consumer who utilizes.
A direct deposit account inconcert with an identity.
Oftentimes they will make a number ofpayments and then they start enacting stop
payment scenarios and rapid succession,or they're changing things that are
(15:56):
ancillary to the PII, ancillary isn't.
The other contact elements.
So I can tell you withoutquestion, consumers use more than
two email addresses in 30 days.
Their risk profile goes up exponentially.
If we have a direct deposit account thatwe've seen greater than five consumers
(16:18):
with, it's going to be problematic.
Tedd Huff (16:20):
I wouldn't have thought of the same DDA.
For multiple consumers likethat is not something that just
sits at top of mind for me.
John Gordon (16:31):
It seems obvious, Ted, but we did a recent study for a
lender where greater than 10% of theirpopulation, the consumers we could
connect to greater than 20 accounts.
And then we like to look at it bothfrom the consumer to the account
and then the account to the all ofthe disparate number of consumers
we've seen with those accounts.
(16:53):
And then we're validating the phonenumber, the email address, not just
from the standpoint of have we seenit with that consumer, but who's
the carrier of the phone number?
What type of phone is it?
For you and I, again, back to the factthat we're dating ourselves a landline
is the riskiest phone type that anyconsumer can currently apply with
Tedd Huff (17:19):
the most common cause of bad customer experience.
Isn't that high tech?
It's embarrassingly simple.
Yep.
It's answering questions.
In e-commerce, it's really easy toget bogged down with common questions,
whether that's Where's my package,how do I return or exchange this item?
Or just to cancel a subscription.
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(18:08):
That sounds so counterintuitive.
It does to me.
You think landline wouldestablish security?
A mobile phone would be theleast secure and somewhere in the
middle a voiceover IP might land.
John Gordon (18:23):
I agree with you, but that's not the case.
And if you had told me that.
Five years ago, I would'vethought you were insane.
But the reality today is you'd ratherdo business with a prepaid cell phone
than you would somebody applyingwith a landline statistically crazy.
That is so crazy.
Tedd Huff (18:39):
Help us understand, like, what are the reasons you're
finding that's causing that?
John Gordon (18:43):
We have the benefit of a billion inquiries that we've seen.
So across that our data science teamwill look at the frequency of change
with all of those different pieces.
Specifically, why a landline?
I would describe a lot of that tothe fact that there just aren't
many landlines still in service.
(19:06):
And the ability to quantify; Icangive you more data on a cell
phone because that data's becomemore normalized and available
than what I can give on landline.
Potentially I can utilize a landlinewithout the ability to validate.
Beyond the fact that itis indeed a landline.
I can't tell you as many recent metricsabout the attachment to the consumer, the
(19:32):
frequency of payments that are being made.
Tedd Huff (19:35):
Oh, it's riskier because you have less information about it.
A hundred
John Gordon (19:39):
percent.
The ability quantify and the more
Tedd Huff (19:41):
information you have about that identifier, that phone number.
Gives you the ability to, to feelmore confident and comfortable with
the person requesting the informationor the person being validated so that
that actually does make a lot of sense.
I remember whenever a mobile numberwould come through on an application,
(20:04):
whether it be for merchant services,a loan, an account opening.
It having to be manually reviewed?
John Gordon (20:11):
A hundred percent.
I think back to the fact thateverybody I knew who had a landline
was my parents or the people thatI went to high school with, and
you kept them forever, seemingly.
Yeah.
The frequency of change with cellphones these days, they're almost
disposable in some scenarios.
Tedd Huff (20:30):
I want you to walk us through a specific client outcome.
That was achieved with Validifies tools.
Alright.
And I would love, you could share theirname, but if you can, I understand.
Well, I can,
John Gordon (20:44):
and it's the, I'm it's, it's my personal favorite at the moment.
It's PDI Technologies.
I mentioned them a little bit ago.
They attach pay by bankcapabilities onto loyalty cards.
So think about if you're at yourlocal convenience store and they're
gonna give you certain incentives.
Tedd Huff (21:03):
I'm starting to wonder.
I've in Phoenix, Arizona,circle K. There you go.
Is based here.
And I'm wondering.
There might be a connectionwith their EasyPay.
John Gordon (21:14):
There just might be.
So what we do in that scenario, and it'sone of my favorite applications for this
Ex Express reason, if you were a consumerwho wants to enroll in that convenience
store's pay by bank capability.
When you go to enroll in thatprocess, the consumer has the option
(21:37):
of selecting whether or not they'dlike to log into their bank account.
There are so many advantages to serviceproviders, lenders, for consumers
who log into their bank account.
You get.
Account ownership.
You get 90 days worth of transactions.
In some scenarios.
You get a verifiable account,routing number, combination.
(22:00):
All of those things are verybeneficial, but what we are finding
is most consumers aren't comfortableproviding that level of access.
So we offer them an option.
where they can list theiraccount and routing number
from that standpoint or from that pointin time, validify will then, based on
the risk profile of that consumer inthe account and the depth of information
(22:23):
that we have, offer the opportunity toeither validate that account from a fraud
perspective to conduct an OFAC check.
Whatever it is that PDI.
For each individual consumer to get themenrolled, increase their acceptance in
the program, and enable that paymentinstrument, we're able to help them
(22:46):
to maximize the opportunity to getthose consumers enrolled in the process
and having the option to pay by bank.
Tedd Huff (22:53):
I can only imagine that this has a much broader impact on
reducing the financial risks as well as.
The ongoing customer relationships,what have you seen from your clients
that have done these sorts of thingsto verify and validate ahead of time?
(23:14):
Using your technology.
John Gordon (23:16):
We have seen clients in general, they struggle with the amount
of friction that they wanna inject in anyonboarding or payment edition process.
They want to ensure as much.
Safety in the process and securityin the processes, they are able
while limiting the friction of whatthey're asking their consumers to do.
(23:40):
We call that manage friction.
So there's some scenarios whereyou absolutely wanna inject some
friction in the process beforeyou make a $10,000 payment to Ted
Huff to ensure that he is in fact.
Ted Huff.
There's other instances where youwanna make the process as simple as
possible to keep going so that youdon't have an abandonment scenario
(24:02):
and people ultimately don't walk away.
Tedd Huff (24:05):
Well, I'll take that $10,000 deposit without any issues.
Just let me know how I get it all set up.
You talked about looking at risk scoresand looking at all this information.
I'd love to understand how you areseeing the impact of AI machine learning.
Mm-hmm.
When it's used in data analytics,and most importantly, on how it's
(24:30):
helping provide actionable insights.
I. For those, well, your clients.
John Gordon (24:35):
At the risk of, uh, being controversial with my former industry
mates in the traditional creditscoring world, I'll say it this way.
The way that traditional credit scoresare delivered is virtually these
exact same as it was 40 years ago.
The way that consumers acquire credit.
(24:57):
Ally different than it was 40 years ago.
The amount and availability of data andthe willingness of the consumers share
information for what they consider abetter experience is vastly different.
And when you compound that by the factthat we're now in a world where buy
now pay later transactions, althoughhugely adopted, doesn't reside in
(25:22):
traditional credit scoring or does indiffering degrees medical debt, the
medical debt still exists, but you can'tsee it in a traditional credit file is
making it really difficult for serviceproviders and lenders to navigate.
So, The emergence of ai alternativecredit, data's availability, and
(25:43):
the ability to use it in generatinganalytical models that predict things
and the consumer coming alongsidethat, and to an extent, being willing
to participate in that process.
Is a seACHange as people tryand put consumers in the best
product for their situation.
(26:04):
Minimizing risk against all of that inthe background is savvy fraudsters who are
relentless in their ability to find ways.
Loop holes different ways to Impactall of these things and find ways
to skirt the systems so that evenyour best laid plans, oftentimes
(26:28):
there are holes in your defenses.
Tedd Huff (26:30):
I've recently had a lot of conversations with companies
that are looking to solve theauthentication of individuals,
especially with all the new technologythat's come out and looking beyond.
Pictures, video, photo, voice, like,there's so many different things, but
I, I wanna understand what you're seeingwith all of the behavioral analytics
(26:55):
and all the different things that, thatyou all are doing over at Validify.
You mentioned the underwriting, but whatabout the operational side of the house?
How is it helping there?
John Gordon (27:04):
We are squarely focused on account validation.
And the ability to coveras many accounts as we can.
We recently announced acollaboration with JP Morgan Chase.
Mm-hmm.
That will give us the ability toutilize their data in concert with
our own data to help people on thefinancial operations side make.
(27:29):
Better decisions based on a consumer,the account that they're providing
in an onboarding phase, about howdo we drive the treatment strategy?
Are we gonna be ableto trust this payment?
Can we extend service to this consumer?
Can we extend credit or make accessto credit easier for that consumer?
(27:50):
So, all of those things work together.
Part of what you're talking about isfraud, and for us, we don't consider
ourselves a provider because is so big.
We do identify where we see potentialfraud in concert with the consumer and
(28:11):
their bank account and the PII thatthey're utilizing in a transactional basis
to say, lot of frequency of change here.
We've seen that account and allowfor our clients to determine.
Based on, am I justonboarding this consumer?
Am I taking a payment from this consumer?
(28:31):
I'm, am I extending credit howthey wanna adjust accordingly?
Tedd Huff (28:36):
You're getting additional data sets from JPM and it is super
important to leverage the most robustdata sets you possibly can so you
can provide those action law outcomesbased upon the rules that are set.
I'm starting to think.
It's less about finding the fraud andmore about finding the good stuff.
(29:04):
How much more good stuff canyou find even when it looks bad?
What do you think about that?
John Gordon (29:11):
I think that is well said.
I might take it one step furtherand say how, when I recognize.
That something is good.
Do I fast track that consumer or thatrelationship into being a valuable client
so that I'm not injecting universalfriction that is offputting to someone
(29:34):
who's potentially shopping for services?
So how am I. Based on the inputsthat I have making the best decision
I can make, and then treating eachof those consumers independently.
Said the JP Morgan Chaseright on the money.
Coverage Wins!
The ability to have material coverage,not just of the top 25 banks, but
(29:59):
across the board so that you're coveringthe long tail of credit unions and
independent community banks and thepeople who elect to bank in those
types of scenarios aren't paying apenalty based on a service provider's
inability to quantify those accounts.
Tedd Huff (30:17):
Well, you and I talked about this.
Previous to us recording service providersthat are out there today, a lot of
them, unbeknownst to a lot of people,really are, the way they're covering the
long tail is, is through lower level.
Partnerships, not like a JP Morgan,but lower level partnerships, or
(30:38):
they're doing screen scraped stylethings to get the information.
They're impersonating users.
Like all of these things thatI. Should to a consumer if they
knew, be a very risky propositionfor them to work with that group.
What that also makes me think of isif I'm one of those organizations
(31:02):
that's leveraging that tool, ithas to cause additional challenges.
In integrations and my operationalworkflows and all these different things,
and I can say firsthand, I've had thebenefit, I don't know if I would call
it benefit, but the opportunity tolearn how each one of these solutions
doesn't fit the bill a lot of times.
(31:25):
Can you help us understand,obviously JP Morgan, but what
are some of the other ways.
You're helping remove thechallenges of integrating.
External technologies to makethese workflows so that my dev
team doesn't have to create a wholestack for each separate integration.
(31:48):
Now let's quickly shine a spotlight ona game changer in the financial world.
Clearing works.
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John Gordon (32:08):
I think the example you just gave, if I were to group them, I
would say that's exception handling.
And I think that people in essencewould be shocked at how many bank
statements, paycheck statements,are still being faxed or scanned
in an application process simply.
(32:32):
We are unable to quantify the consumerbank relationship, and so the way that
Validify helps with that is we took twopayments companies and put them together,
which gave us a lot of experience witha broad set of banks and even larger set
of consumers where we've been able to.
(32:54):
Watch those consumer relationships, seehow they change over the course of time,
see what the trusted payment accountsare, and be able to help our clients say
that's a stable account with a personthat we've seen over the course of time.
The total number of peopleaccessing that account.
(33:15):
Within the bounds of what you wouldexpect go forward with that consumer.
And so from a dev standpoint, anythingI can automate improves the experience
of the consumer, so simply bydecreasing the total number of people
that belong in that exception queue.
I'm driving down the cost of doingbusiness and improving the likelihood that
(33:38):
the consumer's ultimately gonna take theservice that I provide and utilize it.
Tedd Huff (33:43):
You've got someone like myself who has multiple bank accounts,
John Gordon (33:48):
okay,
Tedd Huff (33:48):
at multiple financial institutions, but none of
them see the full picture.
Of Ted Huff.
The closest thing to anybodythat has a full picture of Ted
Huff is probably American Express
John Gordon (34:02):
Fair.
I was gonna say Mrs. Huff, but
Tedd Huff (34:05):
we'll leave her out of it for today.
John Gordon (34:07):
But that's a great point.
So I was doing some reading ona recent study that said 77% of
Americans have access to a credit card.
23% of Americans completely do nothow those consumers manage their
(34:28):
credit card debt obligationsis very different.
Some people use it like arevolving line of credit that
they max up, sometimes pay down.
Some people are operating atfully leveraged capacities a
hundred percent of the time.
So I agree with you from a spendingand a recurring standpoint, it's huge.
(34:51):
But I think part of that has beenbased upon the fact paying in a
card not present scenario viaACH hasn't been as available as
it has, it'll be going forward.
I had somebody tell me not long ago thatthere was an analysis done that the cost
of a pizza paid for with a credit cardvia a consumer who doesn't fully pay off
(35:16):
their debt on a. Cyclical basis can end upaveraging a hundred dollars for the pizza.
So if I'm a consumer, if I have theability to pay by bank and it's as I
intend one pizza one time, I enjoy it.
I've paid for it, it's over.
(35:36):
Does that potentially change my behavior?
Tedd Huff (35:38):
That is a discussion that I've had with many of my friends.
That are on the board ofthe Faster Payments Council.
We talk about this a lot.
Ease of use, right?
Currently isn't there for your daily spendcategories like pizza would fall into,
coffee, would fall into heck, even payingyour accountant for the quarterlies.
(36:00):
He said, Hey, the fastest way to pay me.
He's using Venmo.
John Gordon (36:05):
Interesting.
Tedd Huff (36:06):
And I was like, all right, well that's really cool, but it
doesn't integrate into the accountingsoftware you asked me to use.
So we're gonna use ACH betweenhe and I going back and forth to
get everything lined up properly.
It took us about a week to makesure that everything was right.
I
John Gordon (36:22):
totally agree with you.
That the diversity of paymentinstruments, payment avenues that
is currently in the market todayis greater than it's ever been.
But I would say this to you, at theend of the day, when you look year over
year, ACH payments continues to grow.
(36:43):
They grow in volume regardlessof sector, whether it's person
to person, bill, pay, any.
Category that you wanna select ACHpayments grow in number and value.
And I think that in and of itselfsays that while Venmo, Zelle, all of
(37:04):
these different payments scenarioswill continue to grow and thrive.
And I think that they will.
To overlook ACH would be to beoverlooking the dominant payment
type in the marketplace today,
Tedd Huff (37:19):
my friend Kevin Olson, the payments professor calls ACH, the Royal
King and Emperor of Payments here in theUS and a lot of people don't realize it.
Venmo Cash app.
PayPal Zelle, a lot of timesuse ACH in the background.
John Gordon (37:40):
That's right.
Tedd Huff (37:41):
When the ledger gets transferred outside of their walls, you'd
be amazed at how often they use ACH.
Now that we've decided to jump intothe app store, what I want to do is,
you know, there's one thing I needto get before I ask this question.
I want you to look intothe fun crystal ball.
Alright?
Let's look ahead about five years.
(38:03):
And help us understand what do yousee happening for fintechs financial
institutions when it comes to digitalpayments, fraud prevention and validation?
John Gordon (38:18):
I believe over the course of the next five years, we are
going see a consumer empowerment era.
Come to pass in the United States.
That may not look like what a lot ofthe open banking proponent think it'll
look like, but consumers are going tohave increased control over what they
(38:40):
share and with whom they share it.
And a result of that, there willbe a leveling of the playing field.
In terms of financial institutions,that isn't to say that the big banks
won't continue to be the big banks,but I think this era of consumer choice
is going to give those consumers anormalization of their ability to
(39:04):
share their data where they want it togo for the purpose they wanted to go.
The flip side of that coin, if I'm aservice provider or a lender or a biller,
is that open banking isn't necessarilythe panacea that some people perceive it
to be, because now each consumer's goingto have some ability to show you the
(39:26):
account that they want you to see versusgiving you the comprehensive picture that
will allow you to make a better decision.
So the CFPB had set out this line ofdemarcation that is ability to repay.
I'm afraid.
In the near term, we're makingit harder to determine outside
(39:50):
looking into a consumer's.
Presented information whatthey can truly afford.
And so sometimes we have this consumerempowerment before it has to balance back
out so that the service providers have theability to ask for enough information to
truly deduce what consumers can't afford.
(40:12):
And so product selection is goingbe critically important, but there
again, more and more difficult to.
Tedd Huff (40:20):
What is Validify doing to prepare for that?
John Gordon (40:24):
At Validify we view ourselves as being in the facts business.
we are all for consumer inclusion, andwe want to make consumer choice the
driving factor in these things, but atthe end of the day, we're also gonna
provide our clients with the facts abouteach consumer and their volatility.
(40:50):
Sometimes when we hearfinancial inclusion, it's.
A different way of saying that we're goingto overlook certain scenarios about a
consumer to include them in the process.
There was a study done, it was a HarrisCenter active poll that said 71% of
consumers want to be active in theprocess for a fairer credit scenario.
(41:15):
We want to be part of that process.
More consumers in the UnitedStates today have a bank account
than have an active credit file.
We're not suggesting we would replacetraditional credit, but we do think
we can augment it, but we will tellthe truth about consumers, about
how frequently they change aboutscenarios wherein they've instructed
(41:37):
their banks not to pay off paymentsthat they dutifully signed up for.
Tedd Huff (41:42):
All of this has been really, really good.
Like, I love the fact that we doveinto the different scenarios, why
it's important to verify how theverifications are happening, how
it's going to impact the way thatthe parties outside that are either
giving these forms of authenticationor being able to offer loans or access
(42:04):
to additional Novo payment rails.
That are able to really figureout what their risk level is.
But before we go, I do wantto ask you one last question.
If I am a FinTech founder and I'mlooking to solve a problem that requires
(42:24):
me to verify and validate the bankaccount and the consumer, and you could
only give me one piece of advice touse going forward, what would it be?
Why?
And in only one sentence,
John Gordon (42:40):
connections matter.
Assess that consumer based on all ofthe information that they give you.
And the stability of each ofthose elements working together.
Tedd Huff (42:54):
Why is that important?
I mean, it, it goes without saying,but I would love for you to share
why, why you feel that's so important.
John Gordon (43:00):
Frequency of change, access based on how many different
people are accessing an account.
And none of these things canbe looked at individually, so.
10 years ago when we talked aboutidentity verification, we were
trying to confirm that a consumerwas in fact, who they said they were.
I think over the course of the lastdecade, we've realized that consumer
(43:24):
identity has a lot of different parts.
It has the email address, the propertyaddress, the bank account, all of the
different pieces that they utilize, andthe frequency with which they change.
Assessing all of them holistically.
will give you insights and Theability to determine, who that
(43:45):
consumer is more accurately thanlooking at any of them independently.
You have to look at the big picture.
Tedd Huff (43:54):
Uh, you do not disappoint.
John, I do wanna say thank youagain for hopping on today.
This discussion has been insightful.
It's really helped us to understandhow organizations are looking at these.
Data points why it's so important toget it right, how Validify is helping
(44:14):
solve the issues of identifying theaccounts and verifying the transactions
and making sure that everybodygets paid what they're supposed to.
At least that's how I'm looking at it.
I really appreciate you goingthrough that, and I love how you're
looking forward to the future.
With all the new regulatoryenvironment that's coming up, as
(44:37):
well as the technology, you'renot leaving any stone unturned.
So I really appreciateyou doing that today,
John Gordon (44:44):
Ted.
Thanks for having me.
It's been a lot of fun.
Tedd Huff (44:46):
Well, folks that does it for another episode of FinTech
Confidentials Leaders one-on-one series.
If you've made it thisfar, go ahead, share, like,
subscribe, all that fun stuff.
And if you wanna find out when the nextepisode gets released, go ahead and
head over to FinTech confidential.comand sign up to be notified.
And as always, keep moving forward
(45:09):
as we wrap up today's episode.
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Lily Eleven (45:55):
This has been a production of DV three Media with all Rights reserved.
This is provided forinformational purposes only.
It is not offered or intended tobe used as legal, tax, investment,
financial, or other advice.
We strive to provide accurate andup-to-date information, but will
not be responsible for any missingfacts or inaccurate information.
You comply and understand thatyou should use any of this
(46:17):
information at your own risk.
Cryptocurrencies are highly volatilefinancial assets, so research and
make your own financial decisions.
Welcome to FinTech Confidential, bringing you the
people, tech and companies thatchange how you pay and get paid.
John Gordon (00:11):
We are living today in a historical time in that 96% of US
households have access to a bank account.
Well, I can tell you withoutquestion, consumers use more than
two email addresses in 30 days.
Their risk profile goes up exponentially.
(00:31):
A landline is the riskiest phone typethat any consumer can currently apply.
With the emergence of the neobanks and the digital banks
further complicates the matter.
To overlook ACH would be tobe overlooking the dominant.
Payment type in the marketplacetoday, the way that traditional credit
(00:53):
scores are delivered is virtually theexact same as it was 40 years ago.
What we are finding is mostconsumers aren't comfortable
providing that level of access.
I believe over the course of thenext five years, we are going to
see a consumer empowerment era.
Consumers are going to haveincreased control over what they
(01:16):
share and with whom they share.
It, and as a result of that, therewill be a leveling of the playing field
in terms of financial institutions.
Open banking isn't necessarily the panaceathat some people perceive it to be.
We took two payments companiesand put them together.
Which gave us a lot of experiencewith a broad set of banks.
(01:41):
71% of consumers want to be active inthe process for a fairer credit scenario.
We want to be part of that process.
Tedd Huff (01:50):
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Welcome to FinTech ConfidentialsLeaders one-on-one series where we
(02:57):
bring you face-to-face with peopleshaping the future of FinTech.
I'm your host, Ted Huff, and togetherwe'll explore the latest trends,
challenges, and success stories InFinTech each episode, we feature
in-depth conversations with industryleaders who share their experiences,
insights, and strategies fornavigating the ever evolving landscape.
(03:18):
FinTech, whether you're a seasonedprofessional or just starting out,
you'll find valuable takeaways to helpyou stay ahead of this dynamic field.
So let's go ahead.
Get started.
I'm super thrilled to introduce youto John Gordon, the CEO of Validify.
Now, John has one heck of animpressive background in FinTech,
(03:41):
and honestly, he and I both started.
Before it was even called FinTech,and it's been over 25 years that
we've both been doing this, andhe's held positions at companies
like TransUnion, online Resources,premier Global Services, and Rivian.
MedAvante at Validify, which hejoined as president in February, 2022.
(04:05):
He's been focused on providing predictivebank account and payment intelligence.
Now this company is dedicated to helpingorganizations validate bank accounts,
detect fraud, and assess credit risk.
Through unique applications of data,and in this episode, we're going
to cover the current challenges inFinTech, including fraud prevention
(04:26):
and compliance with regulations.
How Validify addresses these challengeswith our advanced solutions, the
role of alternative data in enhancingcredit risk assessment and improving
financial inclusion insights.
On open banking and its impact oncustomer choice and emerging trends
in FinTech that are shaping how wewill be moving forward in the future.
(04:48):
So I hope you'll join us as weexplore these topics with John Gordon
from validify and gain valuableinsights into evolving landscape.
FinTech.
John, welcome to FinTech Confidential.
John Gordon (05:00):
Thanks, Ted.
I appreciate you letting me be
Tedd Huff (05:02):
here.
There are some exciting connectionsas we were talking about while
we were preparing between FinTechConfidential and some of the partners
you have over there at Validify.
Companies such as Best Eggs, COO, AlexRhodes has been on, and Tim Lee, the
founder of Lend API, has also been on.
It has been extremely fascinating tome how Validify has supported these
(05:25):
organizations, and I'm really excitedto dive deeper into these stories
as we talk about 'em more today.
John Gordon (05:31):
Yeah, I appreciate that.
I saw both of those gentlemen on herein the not too distant past, and it
was great to see both a partner and aclient spend some time with you, and
I'm glad to be able to do that today.
Tedd Huff (05:43):
I would be remiss if I didn't.
Start off with aleadership question first.
You've been in financial services forover two and a half decades, just like
me, and even before it was called FinTech.
What would you say is the biggest lesson.
You have learned and how,
John Gordon (06:05):
boy, I tell you, you know, I think part of this, Ted, is you're, you're
pointing out that we're both seasoned.
I liked that choice of words that you had.
I think the thing that Ihave is that things change.
Beyond and outside of your control.
And the critical aspect of it isto stay true to your purpose and
(06:27):
the team that you have around you.
And as I think back to Operationchoke point, when we were at
Factor Trust where we lost morethan 50% of our revenue in a week.
Oh my goodness.
Or back to your point.
Back to Dion in the late ninetieswhen the dotcom bubble burst and
the impact that it had to all of us.
(06:48):
We had to realize that we justhad to stay the course and stay
true to what we were doing.
To have the chance to continue on andto take a breath, survey the landscape,
and not react in a reflexive action, butto take the time to really assess what
happens and see where you go from there.
Tedd Huff (07:08):
Let's fast forward a little bit, right?
You've seen a lot, you'vebeen part of this a while.
How have you seen ACH transaction evolve,and how are you seeing companies manage
the risks that are associated with that?
Evolution.
John Gordon (07:23):
So ACH transactions, it's almost like they are the
constant, the standard and theycontinue to grow above and beyond
what I think most people realize.
And now with the emergenceof realtime payments.
And pay by bank.
There are opportunities within this legacypayment type that are emerging, that are
(07:46):
offering people new and expanded benefitsin utilizing this trusted ACH solution.
An example of that for us is ourpartnership with PDI and they
support the attachment of paymentcapabilities and loyalty cards
for convenience stores, the importantaspect of that is the validation
(08:09):
of those accounts and the abilityto attach consumer to the account.
That is an exciting opportunityfor consumers to have more payment
options for service providers.
Like the convenience stores to supportmore payment types that potentially
offer an opportunity for them to lowertheir transaction processing costs.
Tedd Huff (08:32):
I was looking at the recent report on ACH transaction,
risks that Validify put out, and oneof the things that caught my eye is
that high risk accounts experience.
11 and a half times more ACH returns to alower risk account and only 14% of those
payments really ever become successful.
Can you help us understand the challengesthat you've seen in spotting those
(08:58):
high risk indicators, whether it be.
Ahead of time or during the transaction.
John Gordon (09:03):
We are living today in a historical time in that 96% of US
households have access to a bank account.
And according to the FDIC, that is thehighest rate we've ever experienced,
and we would attribute a lot of that.
To Covid and the wise move bybanks to make online account
(09:27):
opening easier for consumers.
But there's offshoot of that too, and itcreated a lot of velocity, a lot of change
in those consumer account connections.
And what we found, to your point, is thatoftentimes when a consumer struggles.
With their bank account or a bankaccount is a legacy account, or
(09:49):
in the instance that it's fraud.
It's the same accounts again and againwho are having these return challenges.
But not all aach H returnsare created equally.
Mm-hmm.
Some of these returns arewhat we call fatal returns.
In which scenario, the personwho is trying to collect
the funds has no recourse.
(10:10):
NSF is a reality for all.
Payments via ACH andthey kind come and go.
But what we find is a consumer who hasan Aach H account, if it's an NSF in the
first scenario, it's oftentimes gonna bean NSF in the second scenario as well.
Tedd Huff (10:28):
One of the things that I'd love to get your perspective on, I was
wondering how do these virtual DDAs.
Impact.
Impact the risk profiles.
I remember back in the days when Iwould work with prepaid companies on
the credit card side of the house,and we did a virtual DDA on those
(10:48):
accounts, and then I've worked with alot of banking as a service providers
and helping them get through the nextstage for themselves, and they're using.
Virtual DDAs, and then I have softwarecompanies that I'm helping that
are building out an entire suite ofservices, and they're using virtual DDAs.
I would love to understandhow the use of these.
(11:09):
Virtual DDAs, I lemme see if Ican ask, say it one more time.
Uh, how that's impacting theway that Validify is managing
scores and determining the risks.
John Gordon (11:22):
A lot of this, any sort of DA and, and I'm not sure you're
directly referring to, but the emergenceof the neo banks and the digital
banks further complicates the matter.
I think at the outset of any accountwhere it's difficult to attribute a
connection between the consumer andthe account, whether it be payment
(11:43):
history or any sort of time continuumwhere you can connect that consumer
with that account over the courseof time creates uncertainty and the.
Positive payments to that account, theless risk there is in the payment process.
So what we have seen specificallyin the case of the neo banks, is
(12:08):
that oftentimes service providersare staying away from the neo banks
because they don't have maturityor experience with those accounts.
And frankly, they have become, in somecases difficult as consumers are using
them in, in somewhat transient fashion.
We see oftentimes that some of ourlending clients are telling us we
(12:31):
have an applicant apply with a moretraditional account only to want to change
that account into a Neobank account.
Mm-hmm.
Later in the process.
And they're guarding against those thingsor trying to guard against those things.
But now we're having people tell uswe want to be able to differentiate.
Between, between a virtual DDA user, aneo bank account user, so that we can
(12:55):
assign some sort of performance aspect,because as they grow in popularity, so
too does the opportunity for someoneto do business with those folks who are
utilizing those accounts in the right way.
Tedd Huff (13:08):
One of the really cool things about Validify is the
whole value proposition behind itis really to mitigate the fraud.
Like you were talking about fromlenders, from service providers, from
these types of risks, how does fraudimpact the customer acquisition?
And the risk mitigation tacticsthat your clients are using today.
John Gordon (13:33):
In today's day and age, there are a lot of folks, whether it's
buy now, pay later, or lenders who arefunding the entire principal at the point
of acquisition who are frontloading.
A lot of the risk when we have accountswhether it's first party fraud which is
a prevalent scenario in any transactionwhere you have the merchandise as
(13:58):
the consumer, or you have the fullprinciple amount as the consumer where
the inability to debit that accountlater or some change in that account
later materially harms the product andit ends up resulting in an increase in
the cost of credit across the board.
Tedd Huff (14:17):
Can you give us an example of one of those scenarios that.
Most people would understand.
John Gordon (14:23):
Sure.
So we work with a personal loan lender.
They fund you the entireprinciple via ACH.
So if you, at the time of applicationas a consumer list, a bank account.
That you can access for the purposeof getting those funds, but then
you terminate that relationshipthrough a stop payment or any
(14:46):
sort of termination via the bank.
You have created this scenariowhere you now have the funds and
the lender has no recourse togo back against those accounts.
It's a.
That it's oftentimes the samecombinations of routing numbers and
direct deposit accounts where thesethings are happening in a lot of
(15:09):
velocity in a short period of time.
These fraudsters will set these things up.
They sort of interact with them oftentimesthrough lead aggregation partners where
they go and apply with someone other thanthe lender and those leads are shopped.
They fund the loans andthe consumers go on.
That looks an awful lot like afirst party fraud scenario where the
(15:33):
consumer opts not to repay, but we havefound that a consumer who utilizes.
A direct deposit account inconcert with an identity.
Oftentimes they will make a number ofpayments and then they start enacting stop
payment scenarios and rapid succession,or they're changing things that are
(15:56):
ancillary to the PII, ancillary isn't.
The other contact elements.
So I can tell you withoutquestion, consumers use more than
two email addresses in 30 days.
Their risk profile goes up exponentially.
If we have a direct deposit account thatwe've seen greater than five consumers
(16:18):
with, it's going to be problematic.
Tedd Huff (16:20):
I wouldn't have thought of the same DDA.
For multiple consumers likethat is not something that just
sits at top of mind for me.
John Gordon (16:31):
It seems obvious, Ted, but we did a recent study for a
lender where greater than 10% of theirpopulation, the consumers we could
connect to greater than 20 accounts.
And then we like to look at it bothfrom the consumer to the account
and then the account to the all ofthe disparate number of consumers
we've seen with those accounts.
(16:53):
And then we're validating the phonenumber, the email address, not just
from the standpoint of have we seenit with that consumer, but who's
the carrier of the phone number?
What type of phone is it?
For you and I, again, back to the factthat we're dating ourselves a landline
is the riskiest phone type that anyconsumer can currently apply with
Tedd Huff (17:19):
the most common cause of bad customer experience.
Isn't that high tech?
It's embarrassingly simple.
Yep.
It's answering questions.
In e-commerce, it's really easy toget bogged down with common questions,
whether that's Where's my package,how do I return or exchange this item?
Or just to cancel a subscription.
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(18:08):
That sounds so counterintuitive.
It does to me.
You think landline wouldestablish security?
A mobile phone would be theleast secure and somewhere in the
middle a voiceover IP might land.
John Gordon (18:23):
I agree with you, but that's not the case.
And if you had told me that.
Five years ago, I would'vethought you were insane.
But the reality today is you'd ratherdo business with a prepaid cell phone
than you would somebody applyingwith a landline statistically crazy.
That is so crazy.
Tedd Huff (18:39):
Help us understand, like, what are the reasons you're
finding that's causing that?
John Gordon (18:43):
We have the benefit of a billion inquiries that we've seen.
So across that our data science teamwill look at the frequency of change
with all of those different pieces.
Specifically, why a landline?
I would describe a lot of that tothe fact that there just aren't
many landlines still in service.
(19:06):
And the ability to quantify; Icangive you more data on a cell
phone because that data's becomemore normalized and available
than what I can give on landline.
Potentially I can utilize a landlinewithout the ability to validate.
Beyond the fact that itis indeed a landline.
I can't tell you as many recent metricsabout the attachment to the consumer, the
(19:32):
frequency of payments that are being made.
Tedd Huff (19:35):
Oh, it's riskier because you have less information about it.
A hundred
John Gordon (19:39):
percent.
The ability quantify and the more
Tedd Huff (19:41):
information you have about that identifier, that phone number.
Gives you the ability to, to feelmore confident and comfortable with
the person requesting the informationor the person being validated so that
that actually does make a lot of sense.
I remember whenever a mobile numberwould come through on an application,
(20:04):
whether it be for merchant services,a loan, an account opening.
It having to be manually reviewed?
John Gordon (20:11):
A hundred percent.
I think back to the fact thateverybody I knew who had a landline
was my parents or the people thatI went to high school with, and
you kept them forever, seemingly.
Yeah.
The frequency of change with cellphones these days, they're almost
disposable in some scenarios.
Tedd Huff (20:30):
I want you to walk us through a specific client outcome.
That was achieved with Validifies tools.
Alright.
And I would love, you could share theirname, but if you can, I understand.
Well, I can,
John Gordon (20:44):
and it's the, I'm it's, it's my personal favorite at the moment.
It's PDI Technologies.
I mentioned them a little bit ago.
They attach pay by bankcapabilities onto loyalty cards.
So think about if you're at yourlocal convenience store and they're
gonna give you certain incentives.
Tedd Huff (21:03):
I'm starting to wonder.
I've in Phoenix, Arizona,circle K. There you go.
Is based here.
And I'm wondering.
There might be a connectionwith their EasyPay.
John Gordon (21:14):
There just might be.
So what we do in that scenario, and it'sone of my favorite applications for this
Ex Express reason, if you were a consumerwho wants to enroll in that convenience
store's pay by bank capability.
When you go to enroll in thatprocess, the consumer has the option
(21:37):
of selecting whether or not they'dlike to log into their bank account.
There are so many advantages to serviceproviders, lenders, for consumers
who log into their bank account.
You get.
Account ownership.
You get 90 days worth of transactions.
In some scenarios.
You get a verifiable account,routing number, combination.
(22:00):
All of those things are verybeneficial, but what we are finding
is most consumers aren't comfortableproviding that level of access.
So we offer them an option.
where they can list theiraccount and routing number
from that standpoint or from that pointin time, validify will then, based on
the risk profile of that consumer inthe account and the depth of information
(22:23):
that we have, offer the opportunity toeither validate that account from a fraud
perspective to conduct an OFAC check.
Whatever it is that PDI.
For each individual consumer to get themenrolled, increase their acceptance in
the program, and enable that paymentinstrument, we're able to help them
(22:46):
to maximize the opportunity to getthose consumers enrolled in the process
and having the option to pay by bank.
Tedd Huff (22:53):
I can only imagine that this has a much broader impact on
reducing the financial risks as well as.
The ongoing customer relationships,what have you seen from your clients
that have done these sorts of thingsto verify and validate ahead of time?
(23:14):
Using your technology.
John Gordon (23:16):
We have seen clients in general, they struggle with the amount
of friction that they wanna inject in anyonboarding or payment edition process.
They want to ensure as much.
Safety in the process and securityin the processes, they are able
while limiting the friction of whatthey're asking their consumers to do.
(23:40):
We call that manage friction.
So there's some scenarios whereyou absolutely wanna inject some
friction in the process beforeyou make a $10,000 payment to Ted
Huff to ensure that he is in fact.
Ted Huff.
There's other instances where youwanna make the process as simple as
possible to keep going so that youdon't have an abandonment scenario
(24:02):
and people ultimately don't walk away.
Tedd Huff (24:05):
Well, I'll take that $10,000 deposit without any issues.
Just let me know how I get it all set up.
You talked about looking at risk scoresand looking at all this information.
I'd love to understand how you areseeing the impact of AI machine learning.
Mm-hmm.
When it's used in data analytics,and most importantly, on how it's
(24:30):
helping provide actionable insights.
I. For those, well, your clients.
John Gordon (24:35):
At the risk of, uh, being controversial with my former industry
mates in the traditional creditscoring world, I'll say it this way.
The way that traditional credit scoresare delivered is virtually these
exact same as it was 40 years ago.
The way that consumers acquire credit.
(24:57):
Ally different than it was 40 years ago.
The amount and availability of data andthe willingness of the consumers share
information for what they consider abetter experience is vastly different.
And when you compound that by the factthat we're now in a world where buy
now pay later transactions, althoughhugely adopted, doesn't reside in
(25:22):
traditional credit scoring or does indiffering degrees medical debt, the
medical debt still exists, but you can'tsee it in a traditional credit file is
making it really difficult for serviceproviders and lenders to navigate.
So, The emergence of ai alternativecredit, data's availability, and
(25:43):
the ability to use it in generatinganalytical models that predict things
and the consumer coming alongsidethat, and to an extent, being willing
to participate in that process.
Is a seACHange as people tryand put consumers in the best
product for their situation.
(26:04):
Minimizing risk against all of that inthe background is savvy fraudsters who are
relentless in their ability to find ways.
Loop holes different ways to Impactall of these things and find ways
to skirt the systems so that evenyour best laid plans, oftentimes
(26:28):
there are holes in your defenses.
Tedd Huff (26:30):
I've recently had a lot of conversations with companies
that are looking to solve theauthentication of individuals,
especially with all the new technologythat's come out and looking beyond.
Pictures, video, photo, voice, like,there's so many different things, but
I, I wanna understand what you're seeingwith all of the behavioral analytics
(26:55):
and all the different things that, thatyou all are doing over at Validify.
You mentioned the underwriting, but whatabout the operational side of the house?
How is it helping there?
John Gordon (27:04):
We are squarely focused on account validation.
And the ability to coveras many accounts as we can.
We recently announced acollaboration with JP Morgan Chase.
Mm-hmm.
That will give us the ability toutilize their data in concert with
our own data to help people on thefinancial operations side make.
(27:29):
Better decisions based on a consumer,the account that they're providing
in an onboarding phase, about howdo we drive the treatment strategy?
Are we gonna be ableto trust this payment?
Can we extend service to this consumer?
Can we extend credit or make accessto credit easier for that consumer?
(27:50):
So, all of those things work together.
Part of what you're talking about isfraud, and for us, we don't consider
ourselves a provider because is so big.
We do identify where we see potentialfraud in concert with the consumer and
(28:11):
their bank account and the PII thatthey're utilizing in a transactional basis
to say, lot of frequency of change here.
We've seen that account and allowfor our clients to determine.
Based on, am I justonboarding this consumer?
Am I taking a payment from this consumer?
(28:31):
I'm, am I extending credit howthey wanna adjust accordingly?
Tedd Huff (28:36):
You're getting additional data sets from JPM and it is super
important to leverage the most robustdata sets you possibly can so you
can provide those action law outcomesbased upon the rules that are set.
I'm starting to think.
It's less about finding the fraud andmore about finding the good stuff.
(29:04):
How much more good stuff canyou find even when it looks bad?
What do you think about that?
John Gordon (29:11):
I think that is well said.
I might take it one step furtherand say how, when I recognize.
That something is good.
Do I fast track that consumer or thatrelationship into being a valuable client
so that I'm not injecting universalfriction that is offputting to someone
(29:34):
who's potentially shopping for services?
So how am I. Based on the inputsthat I have making the best decision
I can make, and then treating eachof those consumers independently.
Said the JP Morgan Chaseright on the money.
Coverage Wins!
The ability to have material coverage,not just of the top 25 banks, but
(29:59):
across the board so that you're coveringthe long tail of credit unions and
independent community banks and thepeople who elect to bank in those
types of scenarios aren't paying apenalty based on a service provider's
inability to quantify those accounts.
Tedd Huff (30:17):
Well, you and I talked about this.
Previous to us recording service providersthat are out there today, a lot of
them, unbeknownst to a lot of people,really are, the way they're covering the
long tail is, is through lower level.
Partnerships, not like a JP Morgan,but lower level partnerships, or
(30:38):
they're doing screen scraped stylethings to get the information.
They're impersonating users.
Like all of these things thatI. Should to a consumer if they
knew, be a very risky propositionfor them to work with that group.
What that also makes me think of isif I'm one of those organizations
(31:02):
that's leveraging that tool, ithas to cause additional challenges.
In integrations and my operationalworkflows and all these different things,
and I can say firsthand, I've had thebenefit, I don't know if I would call
it benefit, but the opportunity tolearn how each one of these solutions
doesn't fit the bill a lot of times.
(31:25):
Can you help us understand,obviously JP Morgan, but what
are some of the other ways.
You're helping remove thechallenges of integrating.
External technologies to makethese workflows so that my dev
team doesn't have to create a wholestack for each separate integration.
(31:48):
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John Gordon (32:08):
I think the example you just gave, if I were to group them, I
would say that's exception handling.
And I think that people in essencewould be shocked at how many bank
statements, paycheck statements,are still being faxed or scanned
in an application process simply.
(32:32):
We are unable to quantify the consumerbank relationship, and so the way that
Validify helps with that is we took twopayments companies and put them together,
which gave us a lot of experience witha broad set of banks and even larger set
of consumers where we've been able to.
(32:54):
Watch those consumer relationships, seehow they change over the course of time,
see what the trusted payment accountsare, and be able to help our clients say
that's a stable account with a personthat we've seen over the course of time.
The total number of peopleaccessing that account.
(33:15):
Within the bounds of what you wouldexpect go forward with that consumer.
And so from a dev standpoint, anythingI can automate improves the experience
of the consumer, so simply bydecreasing the total number of people
that belong in that exception queue.
I'm driving down the cost of doingbusiness and improving the likelihood that
(33:38):
the consumer's ultimately gonna take theservice that I provide and utilize it.
Tedd Huff (33:43):
You've got someone like myself who has multiple bank accounts,
John Gordon (33:48):
okay,
Tedd Huff (33:48):
at multiple financial institutions, but none of
them see the full picture.
Of Ted Huff.
The closest thing to anybodythat has a full picture of Ted
Huff is probably American Express
John Gordon (34:02):
Fair.
I was gonna say Mrs. Huff, but
Tedd Huff (34:05):
we'll leave her out of it for today.
John Gordon (34:07):
But that's a great point.
So I was doing some reading ona recent study that said 77% of
Americans have access to a credit card.
23% of Americans completely do nothow those consumers manage their
(34:28):
credit card debt obligationsis very different.
Some people use it like arevolving line of credit that
they max up, sometimes pay down.
Some people are operating atfully leveraged capacities a
hundred percent of the time.
So I agree with you from a spendingand a recurring standpoint, it's huge.
(34:51):
But I think part of that has beenbased upon the fact paying in a
card not present scenario viaACH hasn't been as available as
it has, it'll be going forward.
I had somebody tell me not long ago thatthere was an analysis done that the cost
of a pizza paid for with a credit cardvia a consumer who doesn't fully pay off
(35:16):
their debt on a. Cyclical basis can end upaveraging a hundred dollars for the pizza.
So if I'm a consumer, if I have theability to pay by bank and it's as I
intend one pizza one time, I enjoy it.
I've paid for it, it's over.
(35:36):
Does that potentially change my behavior?
Tedd Huff (35:38):
That is a discussion that I've had with many of my friends.
That are on the board ofthe Faster Payments Council.
We talk about this a lot.
Ease of use, right?
Currently isn't there for your daily spendcategories like pizza would fall into,
coffee, would fall into heck, even payingyour accountant for the quarterlies.
(36:00):
He said, Hey, the fastest way to pay me.
He's using Venmo.
John Gordon (36:05):
Interesting.
Tedd Huff (36:06):
And I was like, all right, well that's really cool, but it
doesn't integrate into the accountingsoftware you asked me to use.
So we're gonna use ACH betweenhe and I going back and forth to
get everything lined up properly.
It took us about a week to makesure that everything was right.
I
John Gordon (36:22):
totally agree with you.
That the diversity of paymentinstruments, payment avenues that
is currently in the market todayis greater than it's ever been.
But I would say this to you, at theend of the day, when you look year over
year, ACH payments continues to grow.
(36:43):
They grow in volume regardlessof sector, whether it's person
to person, bill, pay, any.
Category that you wanna select ACHpayments grow in number and value.
And I think that in and of itselfsays that while Venmo, Zelle, all of
(37:04):
these different payments scenarioswill continue to grow and thrive.
And I think that they will.
To overlook ACH would be to beoverlooking the dominant payment
type in the marketplace today,
Tedd Huff (37:19):
my friend Kevin Olson, the payments professor calls ACH, the Royal
King and Emperor of Payments here in theUS and a lot of people don't realize it.
Venmo Cash app.
PayPal Zelle, a lot of timesuse ACH in the background.
John Gordon (37:40):
That's right.
Tedd Huff (37:41):
When the ledger gets transferred outside of their walls, you'd
be amazed at how often they use ACH.
Now that we've decided to jump intothe app store, what I want to do is,
you know, there's one thing I needto get before I ask this question.
I want you to look intothe fun crystal ball.
Alright?
Let's look ahead about five years.
(38:03):
And help us understand what do yousee happening for fintechs financial
institutions when it comes to digitalpayments, fraud prevention and validation?
John Gordon (38:18):
I believe over the course of the next five years, we are
going see a consumer empowerment era.
Come to pass in the United States.
That may not look like what a lot ofthe open banking proponent think it'll
look like, but consumers are going tohave increased control over what they
(38:40):
share and with whom they share it.
And a result of that, there willbe a leveling of the playing field.
In terms of financial institutions,that isn't to say that the big banks
won't continue to be the big banks,but I think this era of consumer choice
is going to give those consumers anormalization of their ability to
(39:04):
share their data where they want it togo for the purpose they wanted to go.
The flip side of that coin, if I'm aservice provider or a lender or a biller,
is that open banking isn't necessarilythe panacea that some people perceive it
to be, because now each consumer's goingto have some ability to show you the
(39:26):
account that they want you to see versusgiving you the comprehensive picture that
will allow you to make a better decision.
So the CFPB had set out this line ofdemarcation that is ability to repay.
I'm afraid.
In the near term, we're makingit harder to determine outside
(39:50):
looking into a consumer's.
Presented information whatthey can truly afford.
And so sometimes we have this consumerempowerment before it has to balance back
out so that the service providers have theability to ask for enough information to
truly deduce what consumers can't afford.
(40:12):
And so product selection is goingbe critically important, but there
again, more and more difficult to.
Tedd Huff (40:20):
What is Validify doing to prepare for that?
John Gordon (40:24):
At Validify we view ourselves as being in the facts business.
we are all for consumer inclusion, andwe want to make consumer choice the
driving factor in these things, but atthe end of the day, we're also gonna
provide our clients with the facts abouteach consumer and their volatility.
(40:50):
Sometimes when we hearfinancial inclusion, it's.
A different way of saying that we're goingto overlook certain scenarios about a
consumer to include them in the process.
There was a study done, it was a HarrisCenter active poll that said 71% of
consumers want to be active in theprocess for a fairer credit scenario.
(41:15):
We want to be part of that process.
More consumers in the UnitedStates today have a bank account
than have an active credit file.
We're not suggesting we would replacetraditional credit, but we do think
we can augment it, but we will tellthe truth about consumers, about
how frequently they change aboutscenarios wherein they've instructed
(41:37):
their banks not to pay off paymentsthat they dutifully signed up for.
Tedd Huff (41:42):
All of this has been really, really good.
Like, I love the fact that we doveinto the different scenarios, why
it's important to verify how theverifications are happening, how
it's going to impact the way thatthe parties outside that are either
giving these forms of authenticationor being able to offer loans or access
(42:04):
to additional Novo payment rails.
That are able to really figureout what their risk level is.
But before we go, I do wantto ask you one last question.
If I am a FinTech founder and I'mlooking to solve a problem that requires
(42:24):
me to verify and validate the bankaccount and the consumer, and you could
only give me one piece of advice touse going forward, what would it be?
Why?
And in only one sentence,
John Gordon (42:40):
connections matter.
Assess that consumer based on all ofthe information that they give you.
And the stability of each ofthose elements working together.
Tedd Huff (42:54):
Why is that important?
I mean, it, it goes without saying,but I would love for you to share
why, why you feel that's so important.
John Gordon (43:00):
Frequency of change, access based on how many different
people are accessing an account.
And none of these things canbe looked at individually, so.
10 years ago when we talked aboutidentity verification, we were
trying to confirm that a consumerwas in fact, who they said they were.
I think over the course of the lastdecade, we've realized that consumer
(43:24):
identity has a lot of different parts.
It has the email address, the propertyaddress, the bank account, all of the
different pieces that they utilize, andthe frequency with which they change.
Assessing all of them holistically.
will give you insights and Theability to determine, who that
(43:45):
consumer is more accurately thanlooking at any of them independently.
You have to look at the big picture.
Tedd Huff (43:54):
Uh, you do not disappoint.
John, I do wanna say thank youagain for hopping on today.
This discussion has been insightful.
It's really helped us to understandhow organizations are looking at these.
Data points why it's so important toget it right, how Validify is helping
(44:14):
solve the issues of identifying theaccounts and verifying the transactions
and making sure that everybodygets paid what they're supposed to.
At least that's how I'm looking at it.
I really appreciate you goingthrough that, and I love how you're
looking forward to the future.
With all the new regulatoryenvironment that's coming up, as
(44:37):
well as the technology, you'renot leaving any stone unturned.
So I really appreciateyou doing that today,
John Gordon (44:44):
Ted.
Thanks for having me.
It's been a lot of fun.
Tedd Huff (44:46):
Well, folks that does it for another episode of FinTech
Confidentials Leaders one-on-one series.
If you've made it thisfar, go ahead, share, like,
subscribe, all that fun stuff.
And if you wanna find out when the nextepisode gets released, go ahead and
head over to FinTech confidential.comand sign up to be notified.
And as always, keep moving forward
(45:09):
as we wrap up today's episode.
I've got one last thing for you.
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Lily Eleven (45:55):
This has been a production of DV three Media with all Rights reserved.
This is provided forinformational purposes only.
It is not offered or intended tobe used as legal, tax, investment,
financial, or other advice.
We strive to provide accurate andup-to-date information, but will
not be responsible for any missingfacts or inaccurate information.
You comply and understand thatyou should use any of this
(46:17):
information at your own risk.
Cryptocurrencies are highly volatilefinancial assets, so research and
make your own financial decisions.
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