A new startup is launching out of stealth today with $5 million in seed funding as it looks to bring its flavor of open source to high-risk decision-making software in the financial industry.
Ballerine, as the startup is known, helps banks and other financial organizations automate key decisions around their KYC (know your customer) and KYB (know your company) obligations, including verifying identity and the associated risks of doing business with a particular person or company. The platform ingests data from websites, social networks, corporate registries (e.g., the SEC), sanctions credit bureaus, PEP databases, and other global sources, and integrates various tools to support customer onboarding, underwriting, and transaction monitoring.
For example, an online bank will no doubt want to onboard new business customers with minimal friction, but they need to balance this “need for speed” with their obligations to comply with relevant regulations, to ensure they don’t take on a business that are susceptible to fraudulent activity. When a business customer tries to open an account, they usually have to provide information such as addresses, legal names, registration numbers, and so on. The bank can then connect Ballerine’s API to its internal systems, after which Ballerine runs the bank’s customer data through all of its own databases to verify the company.
“The goal here is to verify that the company is legit and that the people opening the account or applying for the loan are authorized to do so,” Ballerine co-founder and CEO Noam Izhaki explained to MinRegion. “The bank doesn’t have to integrate or commercialize directly into any of these databases, it’s all going through one integration with Ballerine.”
However, Ballerine goes beyond verification to also assess the specific risks.
“This may include checking whether the company or its owners appear on government watchlists, or whether their behavior patterns match those of known fraudulent actors,” continued Izhaki.
Other use cases include underwriting, where a company applies for a loan from a bank. Ballerine analyzes the company’s financial records, including credit history, to determine what risks there may be in borrowing money, and can assist the bank in determining the terms of the loan based on associated risk factors. This monitoring is also continuous even after a company has been hired or obtained a loan, as the risk landscape can change over time.
Founded in 2022, Ballerine raised a small venture round last year thanks to its participation in Y Combinator’s (YC) summer program. Today, it is announcing a $5 million seed investment led by Israel’s Team8, with participation from YC, Vera Equity and a slew of angel backers.
Ballerine can be fully deployed as a back-end product that integrates with a company’s existing systems and data sources, including CRM platforms, fraud detection systems and compliance tools to power their identity decision services.
However, Ballerine also offers a hosted version packed with a front end for companies that want more of a ready-made product.
Financial institutions currently have several alternative options for achieving what Ballerine promises, including running manual risk verification processes, which is a lengthy, resource-intensive endeavor. Or they can develop their own semi-automated toolset by linking different products together, such as Onfido for identity verification and Seon for fraud, something that says Isaac is quite common among some large fintech companies.
“This approach is very complex, requires a lot of R&D resources and runs the risk of getting ‘trapped’ in a point solution,” he said. “It also makes it very difficult to optimize these processes, which are critical and expensive.”
Elsewhere, companies can opt for proprietary SaaS orchestration tools such as Persona or Alloy.
However, as an open source project, Ballerine gives businesses more options as they scale, as it gives them more control over feature deployment and availability – they can extend the functionality themselves if they wish.
“As companies expand into new industries and geographies, they often require new features and integrations that may not be supported by the vendor,” said Izhaki. “With Ballerine, companies can contribute and adapt the infrastructure to their specific needs, giving them control over business-critical processes.”
The business of open source
It’s worth noting that while Ballerine’s core platform is open source, available on GitHub under an Apache 2.0 license, the commercial entity behind the project has developed proprietary features, integrations, and tools as part of its monetization strategy. This includes enterprise-grade hosting, data backup and disaster recovery services, audit logs, personally identifiable information (PII) vaulting, and more, although not all of these are currently available.
Indeed, Ballerine recently launched a hosted SaaS incarnation of its product for companies wanting more of an oven-baked product with minimal configuration requirements, though it’s not yet publicly available.
“We are currently serving customers ‘under the radar’ to ensure the reliability and readiness of our platform for production, before onboarding larger customers and showcasing it on our site,” said Izhaki.