Credit card fraud accounts for billions of dollars of lost money to consumers every year. BillGuard wants to return that cash to its customers, and it's doing it for free. The second place startup at TechCrunch's 2010 Disrupt event, BillGuard describes itself as “Anti-Virus for bills.” Employing a combination of software and crowd-sourced review, the startup has been able to detect thousands of cases of fraud on credit and debit card bills. The first day it was online, BillGuard registered 10,000 users and found bad charges on 20% of their accounts. In its first six months of Beta testing BillGuard claims it saved its clients $600,000! No wonder then that Khosla Ventures, Founders Fund, Joe Lonsdale and others recently contributed $10 million to BillGuard's series B round (bringing the total up to $13M). Completely free for consumers, and growing in intelligence with every new user added, BillGuard is a great deal, and perhaps part of an eventual solution to making digital transactions amazingly safe.
The following ad summarizes BillGuard's basic approach to keeping customers safe from card fraud:
Currently only available in the US, BillGuard employs a powerful hybrid of software and human review to find bad charges on credit card statements. Users register their cards, and automatically send their bill information (but not their logins, or other credentials) to BillGuard, who then puts the statements through more than 100 automated tests. BillGuard has a large (and growing) database of known scams to use as a reference. When a questionable item is found, users review it and either clear it as okay or flag it as a fraudulent or misleading charge. As more people flag an item, BillGuard will alert everyone in their user base who has the same charge. In this way, BillGuard grows smarter with every new user, and their entire clientele is really working together to eliminate fraud.
All communication is handled through email, with regular alerts as credit card statements are updated. Part of the truly brilliant part of this system is that with just a few clicks, BillGuard will also direct users to how to recover their money for a particular bad charge (this knowledge is built up over time with help from users and the internet). The system also provides a score for merchant transaction reliability, so customers can avoid stores that regularly have complaints. Not only that, but BillGuard's algorithms also troll through the internet looking for complaints to link to merchants, further increasing the caution they provide. To date, BillGuard has reviewed millions of transactions, and saved more than $600,000. That averages to about $300 per customer per year, with about 20% of cards having a fraudulent charge on their bill.
As it was originally conceived, BillGuard was going to be a “freemium” service with the first card registered for free and a premium service available for $4 per month that would allow for unlimited card review. During Disrupt last year, however, founders Yaron Samid and Raphael Ouzan were convinced otherwise. Now, BillGuard is completely free to users no matter how many cards they want to register. Indeed, the more cards registered, the better BillGuard will be as its crowd-sourced based review system improves with scale. Without charging its users, BillGuard is likely to make its money in two ways. First, it already licenses its platform to banks, providing their account holders with the same protection and employing the system on a massive scale. Second, BillGuard is collecting an impressive amount of data on transactions, properly anonymized of course, along with information on fraud, hidden fees, etc. That data is going to be very valuable, either to banks (as is currently seen), or with credit card companies, online merchants, etc. In other words, BillGuard's users are both receiving a great free service, and paying for it by their own use. I love that business model.
Samid and Ouzan describe their recent success at the recent FinovateFall in New York in September of 2011. BillGuard was named Best of Show at the event.
Others love BillGuard's potential too. Series B funders include Khosla Ventures (leading), Founders Fund, Eric Schmidt, Innovation Endeavors, Bessemer, IA Ventures. Saul Klein, and Joe Lonsdale. The team for BillGuard has the typically impressive bios one would expect for a startup of this caliber, as does the board and the advisers (who include Dave Fuller, former CEO of McAfee). Now with $13 million raised in total (Series A in Feburary 2011 was $3M, and launch was May 2011), BillGuard seems ready to flourish in 2012. It can handle 5000+ different types of cards and billing statements, it has tens of thousands of users, and a growing team in New York and Israel. They've extended their service into a browser extension so that customers can review their online bank and credit card statements without registering! (See 6:00 in the video above for a demonstration.) Hopefully the company will continue to rack up users, expand its database, and become an established part of the credit card ecosystem.
With that success could come some important changes, most of which should be very positive ones for consumers. As the opening video suggests, it's not simply outright fraud that BillGuard hopes to end. There's also millions of dollars in “gray fees” - those charges that consumers aren't aware they have to continue to pay, or that were acquired under misleading or hidden circumstances. Merchants, banks, and credit card companies make a lot of money through such nefarious means, but it's unclear how culpable they are. After all, shouldn't consumers take the time to read the fine print and know what they are buying? Well, now individuals won't have to stay vigilant alone, BillGuard will help, and that means that consumers are likely to start challenging a host of charges that otherwise would have gone unchecked. The company is already starting a petition to improve consumer rights.
In the near term, BillGuard looks like a fantastic way to improve the safety and honesty of your credit card transactions. Eventually, however, a consumer powered fraud protection service like this one may reshape the financial landscape. Not a moment too soon.
[image credits: BillGuard]