The Webcam Reads Credit Cards!

“Necessity, who is the mother of invention”
—Plato, The Republic

As we evaluate investment opportunities, we like to dive deep into an entrepreneur’s background and story… What did he study in school? What were his important life choices or challenges? When did he demonstrate courage? How did he come up with the need for creating the company? We typically spend the first 20 minutes of a one-hour pitch meeting asking questions that draw out personalities and motivations.

Some of the most compelling company formation stories stem from a quest to solve an intractable problem that the entrepreneur has encountered personally. Like finding a place to sleep when all the hotels were booked (Airbnb), stopping fraud at eBay (Silver Tail Systems), or the frustrations associated with transferring files (Box).

Daniel Mattes has one of these compelling stories. Daniel was formerly the CEO and founder of Jajah, the main competitor to Skype in the Voice over IP (VoIP) market. Of all the challenges Daniel faced when building Jajah, the one that stood out as the most vexing was combating online fraud. As it turns out, VoIP services, online travel sites, online gambling and virtual goods economies—primarily games—have incredibly high fraud rates. Since hotel vouchers, VoIP minutes and gaming credits require no physical shipment or delivery address, they can be easily transferred around the world as currency. Unfortunately, the situation has gotten so bad that many of these companies will decline credit card numbers from an entire country. Let’s take Afghanistan as an example: Fraudsters use stolen credit cards to create thousands of Skype accounts with $100 credits and then have street teams that sell them for $20 apiece at coffee shops and airports.

The credit card companies are well aware of this problem and end up charging these digital goods companies higher rates and make them liable for all chargebacks. As Daniel recounted the battle to me, you could feel his desperation: “Everything I did to combat fraud resulted in significantly lower revenue. I knew every additional verification, screen and decline path was frustrating and trapping millions of legitimate customers.” Couldn’t there be an easier way to tell apart the people who were holding real cards from the fraudsters? The credit card companies know a really simple way: seeing the actual card. So-called “card present” rates are five times cheaper than typing in a credit card on a website for the reason that if someone steals your credit card number, they can use it for years, but if they steal your actual card, then you usually cancel it immediately.

What if there was a technology that could eliminate the fraud AND increase these companies’ revenue? That’s exactly what Daniel’s new company, Jumio, has solved.  Here’s how it works: Jumio’s flagship product, Netswipe, uses a PC webcam or a smartphone video camera to identify, read and process the actual credit card.  Instead of typing in your card details, you hold the card in front of the camera and the software analyzes the encrypted video stream to read the numbers and identify the logos. It can also tell the difference between a plastic card and a paper copy. All of Jumio’s customers have experienced nearly zero fraud and have actually increased their total revenues after implementation.

We are announcing today that Andreessen Horowitz has completed Jumio’s Series B financing totaling $25.5 million. Here’s why we invested:

• Daniel Mattes is an impressive and determined serial entrepreneur with a track record of attracting top talent and making great products.
• The company secured strong patents and intellectual property protection up front.
• During our reference calls, we heard sentiments along the lines of, “This is wonderfully elegant and Apple-esque. You just hold up the card and the transaction is done!”
• The customer uptake has been spectacular: The company is on track to exceed a $100 million run rate this year.
• One of my partners, Jeff Jordan (formerly the president of Paypal), exclaimed after meeting with Jumio, “I’m pounding the table on this one—I think it will be as revolutionary to online payments as PayPal!”
• In addition to the Netswipe product line, Jumio is launching NetVerify, a solution that uses the same video streaming technology to verify IDs such as passports and driver’s licenses.

As part of the financing, I am thrilled to be joining Jumio’s board of directors and our entire team is looking forward to helping Jumio and Daniel win the market!