Phone fraud detection service Next Caller raises $5 million

Fraud detection is a huge problem for retailers and the banking industry. But as companies fortify their defenses against fraudsters, the criminal element finds new weaknesses to exploit.

The latest tactic has been phone spoofing, and fraud at the call center itself. Helping to ward off the  latest wave of fake accounts is Next Caller, a Y Combinator-backed startup based in New York.

Next Caller, which launched at Disrupt SF in 2013, raised $5 million in a recent round of funding led by the secretive Crystal Towers fund, an investment put together by YC alumni to back promising companies coming out of the group.

Tikhon Bernstam, one of the fund’s founders, discovered Next Caller during some consulting work he was doing for a well-known social network, says Ian Roncoroni, the company’s co-founder and chief executive.

Next Caller’s unique approach to protecting highly sensitive information has made it the chosen solution for large financial institutions authenticating inbound calls,” said Bernstam in a statement. “As a result, fraudsters that continue to move their attention to the call center after being stymied by EMV technology and other security advances are finding it harder to penetrate what’s traditionally been fertile ground for fraud.”

Using the technology, companies no longer need to ask callers to verify their identity. Next Caller has already identified the caller as the legitimate account holder, allowing the customer service rep to offer assistance sooner.

Typically, fraud detection has relied heavily on biometrics and phone number “reputation scores,” according to a statement from the company. Those methods, Next Caller says, are extremely vulnerable to spoofing.

Next Caller’s technology combats the spoofing menace in part by analyzing carrier-level metadata to determine whether a call is legitimate or not.

The three-year-old company actually owes much of its success to its appearance in TechCrunch’s Battlefield competition, according to Roncoroni.

One of the judges for that year’s competition was Jessica Livingston, who encouraged the company to apply to Y Combinator. Its acceptance to YC led it to be part of the internal network at the accelerator, where it was discovered by Bernstam, which led to the latest round of funding.

The moral of the story? Apply to pitch in the Disrupt Battlefield. Membership has its privileges.