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Hi all, Julie here.

If you’re like me and pay attention to current events, cybersecurity and hacking seem to occupy more and more air time than ever. From massive cyber breaches like the Colonial Pipeline being held hostage, to the Metropolitan Transportation Authority’s computer systems getting hacked, or even a meat plant being shut down and crypto exchanges having tons of customer money stolen (before it’s returned after asking very nicely), I fear that we’re going to continue hearing more and more about online vulnerabilities.

This all has made me question (from a personal and professional level) the underlying vulnerabilities of the fintech ecosystem and the ways in which cyber criminals might try to exploit it. With the industry booming and apps now transacting hundreds of millions of dollars every single day, one has to imagine that these bad players and entities are looking for ways to exploit infrastructure weaknesses.

All of this is why I’m excited for my latest deep dive, Unit21. This no-code toolset helps protect businesses against adversaries through a simple API and dashboard for detecting and managing money laundering, fraud, and other risks across multiple industries. It counts companies like Gusto, Chime, Coinbase, and Mercury as customers, and it’s attracted funding from folks like Chris Britt (Chime), William Hockey (Plaid) ICONIQ, Tiger, and Google’s AI venture fund.

Needless to say, they really sparked my interest, so I decided to take a deeper look into the world of anti-money laundering and what Unit21 is doing to mitigate the risks.

Reminder: I get paid to do these, but I say no to working with companies that I don’t believe are worthy of your time.

The issue

Financial institutions carry a lot of inherent risks, and money laundering is arguably the most underreported, time consuming and costly of them all. Whether you are a drug cartel, a terrorist cell, or a highly sophisticated band of global cyber-enabled criminals, you need a way to both access and “clean your money.”

​For example, as of October 2020, global authorities issued $13.74B in anti-money laundering (AML) fines, according to the Finbold’s Bank Fines 2020 report. The three large US banks, Goldman Sachs, Wells Fargo, and JP Morgan Chase accounted for more than half of that.

In order to combat these efforts, financial institutions traditionally employ a large team of compliance specialists to mitigate the ongoing threats. In a fast paced world, where criminals are constantly innovating and looking for weaknesses in infrastructure, so too must these compliance teams. The problem is that it’s basically impossible for these teams to keep up with the development and implementation of various cyber attacks, especially in an era where it feels like everything is getting done online.

Additionally, as new threats persist, governments are forced to enact new regulation for financial institutions. In order to keep up with and manage the regulation frameworks and the reporting that must occur, even large in-house compliance and risk teams would be forced to work around the clock.

All of this gave Unit21 founders an idea.

Working Smarter, Not Harder:

Revolutionary new technologies are constantly emerging, just as the threats associated with them are. And unsurprisingly, many of the people working on compliance teams, for instance, don’t have engineering degrees. Not to mention, they tend to spend the bulk of their day working on manual and repetitive tasks, leaving no room for the fun stuff. This leaves a big hole in their ability to quickly respond to new regulations and threats.

Enter Unit21. Founded in December 2018 by Trisha Kothari and Clarence Chio, who have previously led Identity and Risk Product at Affirm and teaches machine learning at UC Berkeley, respectively, Unit21 transforms risk and compliance into a competitive advantage. In the early days, they started doing user research by messaging a bunch of people on LinkedIn. In total, they say they reached out to more than 1,000 people and had hundreds of calls, coffee meetups, and demo sessions.

Through this process, Trisha and Clarence were able to identify some big pain points, immediately seeing an opportunity to make a variety of teams work much more efficiently by leveraging no-code technology (aka: even I could figure it out 😬). This basically means that the team has created a fully customizable system to easily create sophisticated bespoke solutions for transaction monitoring, case management and KYC.

That brings us to our first example and one of Unit21’s first customers: Coinbase. As Clarence tells it:

“Coinbase was looking for something that allowed them to supercharge their investigations effort. This was a global investigations team, a fairly small team within Coinbase at the time. All they were looking to do was to organize all their investigation efforts so that they could quickly make sense of what's going on without having to pluck all these numbers and transactions into Excel and figure out if there are any patterns.

This team was not really the typical compliance team in companies. They were responding exclusively to law enforcement inquiries, grand jury inquiries and subpoenas and things like that. And Coinbase at the time had a full-time team of six or seven people just doing this. Through working with this team, we found out how big of a problem this is. Previously they were using Excel spreadsheets, meaning they were using literally Google Docs and making sense of all these investigations, which meant a lot of time taken away from the actual investigation.”

This all led Trisha and Clarence to see a lot of opportunity in the investigation space in general. The person that’s typically involved here isn't the typical type of person that's familiar with data science tools. It was a perfect example of something that needed to be simplified and streamlined.

What is Unit21’s Secret Sauce?

Ok, so Unit21 isn’t the only company trying to do this. As we’ve talked about, most historical approaches to compliance and AML are super inefficient, require a high degree of customizability, and are generally very expensive. By bringing this no-code solution to a highly fragmented marketplace, Unit21 is highly extensible. As Clarence tells it:

“I've used Splunk before and thought it was a really interesting kind of tool. But it's still something that only engineers could use, just because you had to write queries in a language that Splunk designed. And even though their goal was to make data processing available to everyone, eventually because they were trying to tackle the general log processing, information processing markets, it became much too broad an interface to try to approach business analysts with or operations teams with.

Our approach to this is that we're doing something that's not too dissimilar from what Splunk is trying to do, but we want to make this as easy as possible. Not by any kind of magic, but by narrowing the interface of problems that we're trying to solve so that we weren't trying to tackle all kinds of information and processing problems and all kinds of anomaly detection problems, but just a simple flag, review and remediate workflow.”

Source: Unit21

It is this extensibility that makes it enticing to a slew of companies in our space. As I mentioned in the intro, Unit21 has a lot of big name fintech customers, which gives it “street cred,” and shows that it can handle scale since many of these customers are massive at this point. The team told me that on a monthly basis, it consumes over 1 billion events. That’s a big number for a company that’s only a few years old. Most importantly, perhaps, I spoke to a few people at companies that use Unit21, and all of them highly recommended it based on their experience thus far.

Future of the space

Unit21 recently raised a large funding round from Tiger Global and has fresh capital to do more. A big focus will be on R&D to continue making its fraud and AML products the best in the industry, along with loads of hiring for those teams. The team tells me I should expect more products and partnerships in the coming months as well.

The team definitely faces competition, but I’m not worried about that being an issue. Like many pieces of fintech (challenger banks, crypto, lending), there’s loads of room for multiple winners. They could easily go well beyond fintech too. Think healthcare, for instance. Towards the end of my call with the team, Clarence said any operations that are being bottlenecked by waiting for engineering resources are areas he wants to help fix. From customer support to trust and safety (think 2016 election and Russian bots on Facebook), the bigger problem might simply be prioritizing where to go first.

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Julie VerHage-Greenberg is the co-founder of Fintech Today, where she focuses on editorial content and brand. Prior to joining, she was Bloomberg’s first fintech reporter, covering Robinhood from before it was a billion dollar company, breaking the news that Plaid was acquiring Quovo, and interviewing executives on Bloomberg TV and at several large conferences.