Balancing Citi Ventures’ biometrics investments between internal innovation, returns

An interview with Managing Director Matt Carbonara
Balancing Citi Ventures’ biometrics investments between internal innovation, returns

One of the ways large financial institutions keep up with the need for innovative technologies to drive their digital processes is by investing in the companies that are developing them. With high fraud rates and unprecedented digital engagement, banks are looking for biometrics and related technologies that can not only solve the problems they have now, but might be able to help in the future, Citi Ventures Managing Director Matt Carbonara tells Biometric Update in an interview.

His job, as he describes it, is in part to achieve returns, but largely it is to help drive innovation at Citi through investment.

“We spend a lot of time with the leadership inside of Citi trying to understand the gaps that they have from a product and technology perspective in those different areas,” he explains.

His team works with people at Citi who are working on its cybersecurity roadmap, fraud technologies, and related areas, and then looks at the market, meeting with upwards of 1,500 startups a year, to see if they can fill any gaps on the horizon.

“We’re often investing ahead of when Citi is adopting any of this technology,” Carbonara says.

Citi Ventures engages with companies from their Series A to pre-IPO funding rounds, and works to “get them in front of the right people, get back-channel feedback, help position them appropriately. If there are RFPs making sure they’re aware of it, trying to improve the key stakeholders.”

The companies that will be the best and offer the best return will often also be the best ones for Citi to partner with, taking a ten-year view. Citi has made around 15 investments a year for last ten or eleven years, and has feet on the street in Silicon Valley, NYC, London and Israel. Out of a portfolio of around 100 investments, 70 of which are active, Citi has a relationship with roughly two-thirds, whether in the form of a pilot, proof-of-concept, or operational deployment.

Carbonara says he wants to keep that batting average around two-thirds, because if it reaches 100 percent, it would mean they are not driving enough innovation and change, but if it reaches 0 percent, it means they are not funding innovations relevant to Citi.

Roughly four of the companies funded by Citi reach the commercialization phase each year, according to Carbonara.

“Luckily we have a portfolio of companies because if you were to ask which four in any particular year, I couldn’t tell you.”

Sometimes the group hears about a certain business need and seeks out all the companies that address that need. Sometimes they hear about a business from others within Citi. If the business is doing something relevant to Citi, that addresses a need the bank has, and also seems like it can be a big business, they invest.

“Do we think there’s a big market? Do we think the team has the domain to execute against it; where do they sit in the competitive landscape? How competitive a landscape is it; and do we think what they have is unique and stands out and is defensible and they can out-execute everyone else in the space?” he asks, “because it’s more about execution than it is about IP in some cases.”

While in the early stages, Carbonara says evaluations are more about the quality of the team, its insight into the problem, way they think about the solution, and their vision. “In later stages you can rely a little more on financial metrics.”

The potential of behavioral biometrics

BioCatch is a Citi-backed company. Carbonara lauds its behavioral biometric technology, based on natural interactions with the user’s keyboard or app.

That makes it effective without adding friction, and can even reduce it, such as by getting rid of a captcha, Carbonara says. Even better, it can not only differentiate bots, but also authenticate individuals, and even tell if an individual is under duress.

BioCatch Vice President of Market Strategy Ayelet Biger-Levin wrote recently about spotting coercion in financial transactions with behavioral biometrics for The Paypers.

The possibility of reducing friction to no active authentication for low-risk activities, such as seeing balance, is intriguing to Carbonara.

“You can actually reduce the friction to some set of services, and I think those kinds of things are very interesting,” he says.

Reducing friction can also drive higher conversation rates, according to a recent PYMNTS report. Security friction is associated with the top reasons behind a 69 percent abandonment rate at ecommerce checkouts.

Adding layers to the cake

Sometimes, Carbonara says, Citi sees the technology it comes across as an unlikely fit, but he always likes to know about companies early to help teams think about what will be available three years in the future.

Engaging at an early stage also allows them to give feedback on what Citi’s requirements would be.

Those requirements can change with the market but many of those changes can be anticipated, according to Carbonara.

Citi is invested in Trulioo, for example, which deals with massive volumes of information which could potentially carry regulatory risk, but Carbonara says the way the company handles that data, “we got comfortable that they’re doing it in a GDPR-compliant fashion.”

In the future, Carbonara seems to be thinking more about how to utilize biometrics and other authentication technologies than those authentication methods themselves.

“The tying of the individual to the device and the biometric seems to be somewhat solved,” he assesses. “And then the question is how do you leverage that ecosystem, and pull that ecosystem together in a way that you can leverage that for your own purposes. So there’s some interesting companies in that space, like Transmit Security out of Israel that does some interesting authentication orchestration of customer journeys. That’s an interesting company that leverages that ecosystem in a thoughtful way, and allow companies to orchestrate authentication across devices in a neat way.”

Shortly after our conversation, Transmit Security raised $543 million in one of the largest funding rounds ever for a company working with biometric authentication.

Carbonara is interesting in companies working on an ephemeral way to generate keys using biometrics, and technologies like “real-time matching without having to store the biometric anywhere,” giving Badge as an example.

Like avoiding honeypots of stored biometric data, each new advance provides a new target for attackers, and leads to the next layer of defense.

Or as Carbonara puts it: “The bad guys will eat away at the bottom layer and we’ll keep adding layers on top.”

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