As CEO of Distilled Identity (formerly Distilled Analytics), David Shrier is using machine learning, biometrics, and AI technology to solve some of the biggest problems in the financial services industry. It’s what brought him to the Institute, and it’s what led him to found Distilled Identity in 2017. Specifically, he started the MIT spinout to address the fact that 3.5 billion people around the world currently have limited or no access to the financial system.
Financial inclusion is a key enabler for many of the United Nations Sustainable Development goals and is essential in supporting overall economic growth. In fact, a report by the McKinsey Global Institute suggests adoption of digital finance could promote financial inclusion, benefiting billions of people, and adding $3.7 trillion to emerging economies alone.
But how do you include someone, if you don’t know who they are? Having pinpointed digital identity as essential to unlocking financial inclusion, Shrier and Distilled Identity are using an AI-driven data science called Social Physics to solve structural problems around identity in financial services.
Invented and developed at MIT by Shrier’s co-founder at Distilled Identity, Professor Alex Pentland, Social Physics is a new way of understanding human behavior based on the analysis of big data. It forms the basis for everything Distilled Identity does, including their core technology, Predictive Identity, which is delivered in a software as a service model. Shrier says, “We’re now able to identify people to create better identity profiles and credit models, help governments identify citizens properly to better deliver services to them, as well as predict what people are going to do with their money, and help financial institutions lend to them with confidence.”
For example, Distilled Identity is looking to use better identity profiles to solve the $330 billion dollar per year false-decline problem that plagues the financial services industry. Here in the US, your credit card works approximately 99 percent of the time. However, once you leave the country, the approval rates for a valid transaction decrease drastically. Shrier cites a country like South Africa, where the approval rate for legitimate customer transactions hovers around 27 percent. Why? Because of an inability to verify identity.
“We want to be the operating system of identity, credit, fraud and financial services globally,” says Shrier. “That is what success looks like for us.”
“We’ve had conversations with the leading credit card networks in the world and they, like we, think false decline is a major problem. It’s important for driving payments and inclusion, and it’s important for helping prosperity in emerging economies as well as helping the economy in developed markets.” Distilled Identity believe they can take card-not-present false declines from 12 percent to near zero percent in developed markets and from as much as 73 percent to near zero percent in emerging markets. And major credit card companies agree. In fact, some of the largest credit card companies and financial institutions around the world are turning to Shrier and his team for solutions to their structural financial services problems around identity.
At present they are in final negotiations with a top-two credit card network, with a $120 billion insurance company, and are looking to partner with governments interested in incorporating their analytics into their electronic identity systems and financial institutions with $5 million to $50 million assets under management.
Shrier refers to what they do as Biometrics 3.0. If Biometrics 1.0 is a fingerprint or facial scan, and Biometrics 2.0 is basic behavioral recognition, Biometrics 3.0 is a much more complex system. “Biometrics 3.0 is a combination of techniques that includes behavioral, physiological, geospatial temporal analysis, and other biometrics in an adaptive Bayesnet. It’s a very complex artificial intelligence system where the different models of behavior talk to each other.”
With a more robust, stronger identity, Distilled Identity builds apps on their platform, including a predictive credit app that is 30 percent to 50 percent more accurate than existing credit scores obtained from traditional consumer credit reporting agencies. They’ve also built fraud prediction apps that identify where fraud is happening today as well as predicting where fraud might happen three months into the future.
A glance at the Distilled Identity founding team bio page reads like a who’s who of heavy hitters specializing in FinTech, big data, and quantitative analytics. The experience housed under one roof is formidable.
Aside from developing a new social science and being a serial entrepreneur, co-founder Alex Pentland is the founding faculty director of the MIT Connection Science Research Initiative. He is also a global thought leader on big data, AI, and digital privacy who currently advises AT&T and the UN Secretary General. Forbes has called him one of the “seven most powerful data scientists in the world.”
Co-founder Alex Lipton was Managing Director of Bank of America Merrill Lynch for 10 years, and is widely regarded as the foremost authority on quantitative analytics. He is a Connection Science Fellow at MIT Media Lab and Visiting Professor of Financial Engineering at EPFL.
For his part, Shrier has developed $8.5 billion of growth opportunities with C-suite executives for Dun & Bradstreet, Wolters Kluwer, Ernst & Young, GE, The Walt Disney Company, AOL Verizon, and Starwood, as well as private equity and VC funds. He councils the government of Dubai on blockchain activity and established the world’s first FinTech and blockchain programs at MIT and Oxford.
Now that Distilled Identity has been named a STEX25 industry-ready startup, Shrier takes a moment to reflect on the importance of a program like ILP: “As a lecturing and Managing Director at MIT, ILP was a tremendous collaborator, getting some of our best ideas into the hands of member companies. And It’s a fantastic resource for global 1,000 companies looking for the great innovation of the future. Now, as the CEO of a STEX25 company, I’m thrilled to have ILP as a partner to help navigate the dialogue with those large, complex organizations.”