The coronavirus pandemic has led to a sharp rise in cybercrime, fraud and money laundering.
That’s bad news for most people but an opportunity for Vishal Marria, founder of Quantexa, a scaleup company using machine learning to fight financial crime which on Thursday announced a $65m Series C.
“You always see increased fraud during downturns,” says Marria. “We’re seeing cases where companies that have been dormant for years are suddenly being used by fraudsters to apply for Covid-19 relief loans — you wouldn’t believe what we have found.”
Founded in 2016, London-based Quantexa has grown quickly, raising more than $20m in earlier funding rounds. It has offices around the world and has partnered with big corporates and banks, using its technology to interpret big data sets to root out financial crimes.
Quantexa has been benefiting from another trend which investors are betting on — the move by governments around the world to crack down on money laundering, which picked up in the wake of the Panama Papers offshore tax revelations in 2016.
Today the onus is very much on banks to actively make sure that clients are legitimate, rather than the “see no evil, hear no evil” approach of the past where banks could get away with hiding illicit money more easily.
Regulators around the world are also getting ever happier to hand out big fines to banks for not monitoring money laundering properly. Last year banks faced more than $8bn in anti-money laundering fines, and that number could well be surpassed in 2020.
New York State regulators fined Deutsche Bank $150m in July for failing to properly monitor its relationship with the convicted sex offender Jeffrey Epstein. Germany’s Commerzbank was fined $47m by UK regulators for anti-money-laundering lapses.
All that has also helped business at Quantexa, which works with big banks like HSBC (the startup got its first big break after winning an HSBC tech evaluation “beauty contest”) and Standard Chartered.
“It’s not just the fines and the losses, it is the reputational damage that can take even longer to recover from. Fighting fraud is a board-level conversation these days,” says Marria.
The company is now increasingly expanding beyond banks to work with public sector bodies like government tax offices to spot fraud and plans to use the $65m cash injection to double the size of the business.
“We’re looking to expand in the sectors we cover, and in geographical areas,” says Marria. “We will double the company in the next two years.”
Quantexa currently has some 250 staff and offices in London, Toronto, New York, Brussels and Sydney.
The company uses machine learning to spot anomalies in people’s banking transactions — when people make or receive payments that don’t fit their normal profile. Marria says the banks using the software can see a 60% increase in the number of suspicious activity reports they make to the authorities.
Any increase would be a good thing. The United Nations estimates that $2trn is laundered every year but banks catch less than 1% of that.
Anti-money laundering software has been a hot area for investment recently, but Quantexa’s fundraising is the largest of the recent crop. This is a list of some of the recent funding rounds and acquisitions in the space:
- Hummingbird (US) raised $8.2m series A round in July 2020
- NICE Actimize (Israel) acquired Guardian Analytics (US) in June 2020
- Tookitaki (Singapore) raised $11.7m in November 2019
- Salv (Estonia) raised $2m in December 2020
- Elliptic (UK) raised $23m in September 2020
- BMO Financial Group is reported to be spending $1m developing an anti-money laundering system internally.
