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Separating Signal from Noise in BSA/AML: Why We Invested in RiskScout

Updated: Apr 24, 2023

In today's rapidly evolving banking landscape, it's crucial for financial institutions to find new sources of deposits and serve a wider range of customers, including small businesses beyond the core segments. Expanding into new markets full of unknowns is not a strong suit for most financial institutions. New customers represent new risks and bring new costs to serve. In times of uncertainty, banks experience their own flight to quality and double down on their core customers.

By avoiding progressive growth, financial institutions become more susceptible to the overlooked risks that we frequently discuss at Alloy Labs. Are we increasing our risk profile by increasing our concentration risk? If a downturn hits those markets, will we be disproportionately impacted? If disruptors come for this customer segment, will we be overly exposed?

Customer growth is critical to maintaining a diversified portfolio, but high-quality, low-risk growth is hard to come by. We need to widen our net and figure out how to serve the high-quality companies that may appear to have higher risk profiles.

That is why we were so excited to have found RiskScout, and today we announce our investment in the company.

RiskScout is a modern BSA/AML compliance solution focused on helping financial institutions expand their customer base. RiskScout goes beyond traditional risk management by providing banks with actionable insights and data-driven recommendations to make informed decisions on customer onboarding, risk assessment, and compliance. By leveraging advanced analytics and machine learning, RiskScout enables banks to identify and mitigate risks effectively, while also uncovering growth opportunities within their existing customer base and beyond.

At the Alloy Alchemist Fund, we seek solutions that help redefine the banking operating model, particularly companies that rearchitect banks for growth. RiskScout's innovative solution empowers banks to do just that - quickly and profitably serve additional small business customers, in harder to serve segments, unlocking new growth opportunities. As RiskScout continues to help banks grow, Alloy Labs will be focused on helping RiskScout grow across our community and beyond.

How we came to invest in RiskScout

The Alloy Labs community was one of three key validation points that led to our RiskScout investment. These data points demonstrated the breadth and applicability of the RiskScout solution that supported our thesis that banks would be able to pursue growth across the different high-risk sectors.

The first time we encountered RiskScout was during research related to cannabis banking solutions. RiskScout (formerly known as Verileaf) was the prominent compliance solution in that space.

The second time we encountered RiskScout was when we were researching a startup that was enabling banks to quickly and easily onboard new fintech clients. RiskScout was the partner technology at the core that handled the key compliance questions.

The third time we encountered RiskScout was when we finally met Justin Fischer, CEO & Co-Founder, to discuss an investment opportunity. As we always do, we leveraged the power of our Alloy Labs community to understand the problem this startup was addressing and the viability of their solution. We learned that not only are several members (including some of our investors) already customers of RiskScout, but they’re using the solution for entirely different customer types, including money services businesses (MSBs).

We also discovered the depth of experience on the RiskScout team was bolstered by ex-examiners, regulators, BSA professionals and bank software experts.

The strong validation from our community solidified our confidence in RiskScout’s potential to accelerate moving the banking industry forward. Even with well-regarded incumbents in the BSA/AML category, banks are still choosing to deploy RiskScout in parallel. RiskScout has even been able to secure partnerships with some of those incumbents to accelerate their own growth. This is a testament to the quality and depth of expertise on the RiskScout team.

As we look ahead, we are confident that RiskScout's innovative solution will continue to create value for banks, small businesses, and the broader financial ecosystem. We are thrilled to be a part of RiskScout's journey and look forward to being a part of its continued success.


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