Edmonton FinTech plans to integrate Toronto company’s solution into its decision-management infrastructure.
Toronto-based fraud prevention platform Lenders API has been acquired by Edmonton’s Trust Science, which helps lenders vet prospective borrowers with limited credit histories.
The Canadian FinTech companies claim that this deal, which closed last week and was announced Tuesday, “creates Canada’s first industry-wide defence system against coordinated lending fraud.” Neither firm disclosed the financial terms of the transaction, which saw Trust Science acquire Lenders API’s technology, customers, and data.
“Lenders API was built with the industry, for the industry.”
Evan Chrapko,
Trust Science
Lenders API was founded in 2023 by Tal Schwartz, who worked as the company’s CEO, and his father, Gary Schwartz, Lenders’ former chair. Tal is the mind behind Canadian Fintech newsletter, while Gary is the founder of Canadian Lenders Association (CLA) and the former leader of FinTech-focused venture capital fund North Exit Ventures (formerly Exit North Ventures).
The father-son Schwartz duo launched Lenders API in collaboration with CLA’s small and medium-sized business (SMB), consumer, and automotive finance members, raising an undisclosed amount of angel capital from industry to support its growth.
The four-person FinTech firm works directly with institutions in non-prime consumer credit, small business lending, and auto finance, helping participants detect coordinated lending fraud while keeping their proprietary customer data private through its consortium-based solution.
“The consortium allows lenders to share credit and fraud data with each other, in real time,” Tal told BetaKit. “Borrower data comes in; we anonymize it at source; we notify other lenders in the consortium if we see a match; flags are passed between lenders anonymously.”
Lenders paid to participate and were charged based on the volume of queries they submitted. Tal said Lenders API’s clients included several of Canada’s largest FinTech lenders.
Coordinated lending fraud can include loan stacking, bust-out fraud, and synthetic identity schemes. Loan stacking entails securing multiple loans from different lenders simultaneously, often using the same collateral, with no intention of repayment.
Bust-out fraud involves groups that have established normal borrowing histories obtaining loans across institutions, immediately defaulting on them, and disappearing, whereas synthetic identity fraud refers to the use of fabricated or manipulated identities to fraudulently open accounts and secure loans.
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“We knew that access to real-time credit and fraud data in Canada was limited, and that in order to solve that, you would need the buy-in of a substantial chunk of the industry—which we were able to do given our leadership in the Canadian market,” Tal said.
Founded in 2014, Trust Science offers AI-powered risk and decisioning tech to financial institutions designed to help them make lending decisions with the help of alternative data and cashflow analytics. The company, which works with prime and subprime lenders across North America, focuses on auto finance and consumer loans with plans to move into mortgages soon.
Gary and Tal got to know Trust Science founder and CEO Evan Chrapko via his involvement with the CLA, and Tal said they were impressed by his product innovation and vision. In a statement, Gary said, “Trust Science brings the scale, governance, and bank-grade compliance capabilities required to take [Lenders API] to the next level.”
Trust Science intends to integrate Lenders API into its AI-driven risk and decisioning infrastructure to help it prevent fraud, spot identity risks, and make credit decisions. Going forward, Lenders API’s platform will continue to help SMB, consumer, and auto lenders collaboratively spot fraud, with Tal and Gary Schwartz staying on as advisors.
“Trust Scientists pride ourselves on the mission of allowing deserving people to get what they deserve,” Chrapko told BetaKit. When it comes to good people getting loans despite the failings of the conventional “credit-scoring industrial complex” there is another side of that coin: preventing con artists and fraudsters from getting limited loan funds from lenders.”
With the help of Lenders API’s system, Chrapko said that Trust Science can help banks, credit unions, and consumer finance companies stop more of those bad actors in real time.
BetaKit’s Prairies reporting is funded in part by YEGAF, a not-for-profit dedicated to amplifying business stories in Alberta.
Feature image courtesy Lenders API.
