FEBRUARY 22 2022

Published in the Australian Financial Review

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Three PwC directors have left the professional services giant to spin out and run a document fraud detection software company called Fortiro, scoring funding from Our Innovation Fund to launch the start-up.

The trio – Sean Quagliani, David Weber and Amir Vahid – only publicly launched Fortiro a few weeks ago, but have spent the better part of the last three years working on the so-called Protect product.

The tool helps organisations including banks, government departments and property managers to verify if a person’s proof-of-income documents such as payslips are legitimate or fraudulent.

Until now, the process of checking such documents has largely been manual.

“It’s a massive pain point for lenders. There’s lots of generic document processing tools that you can try and use, but these documents are complex, and it’s hard to do any meaningful automation or validation,” Mr Quagliani said.

“We’ve focused on key documents and built tailored models specific to these use cases.

“The fraud detection capability performs very well compared to any other tools out there, and compared to checking them manually, it smashes it.”

The former PwC directors had been part of its consulting division and developed the tool within the firm, after a request from one of the big banks to find a solution to proof-of-income document fraud.

‘Liar loans’

A study by Experian published in June last year found one in five Australians had lied to their bank when applying for a loan to avoid being knocked back by the lender.

Dubbed “liar loans”, they most commonly involved applicants understating their living costs. Overestimating income made up 21 per cent of untruths and almost one in five lies involved hiding a pregnancy.

After searching worldwide for a digital solution to detect banking document fraud, Mr Quagliani said they came up empty-handed and decided to build it themselves.

The entrepreneurs built and ran the software from within PwC, creating a tool that combines document forensics, data extraction and machine learning.

However, they soon became restricted in whom they could sell their software to, because of conflict of interest rules that prohibited them selling to PwC’s audit clients, which include many financial services players.

When PwC Australia chief executive Tom Seymour took on the role in March 2020, the co-founders reassessed the strategic fit of Protect within the company, and mutually agreed it should be spun out.

Spin-out process

Following negotiations, PwC transferred all the IP to Fortiro, the founders bought out its shares, and OIF provided $3.5 million in equity funding to support the early growth of the business.

Mr Quagliani also contacted the existing Protect clients and all agreed to transfer their contracts to Fortiro. They also convinced the other three people from PwC who were working on Protect to leave and join Fortiro.

“It’s a hard decision to leave somewhere you’ve been for so long – I was there 12 years – but we saw the impact this had, we were all passionate about it. [At PwC] I was also still delivering and selling consulting jobs, as well as looking after Protect,” he said.

“We consulted the team, they were all on board, and once we made sure everyone was happy we moved forward and executed.

“Now, we have more time to focus on Protect and its customers.”

Under the terms of the spin out PwC relinquished all ownership, so there are no restrictions stopping Fortiro working with PwC audit clients.

The company has already scored a range of customers, including Athena Home Loans and Latitude, and it is in discussions with two of the big four banks, poised to kick off a pilot with one of them.

“While there are products to automate document processing, we haven’t seen a tool like Protect which combines this with an ability to test document integrity or risk,” Athena chief risk officer Joseph Seychell said.

OIF partner Jerry Stesel said the fund had helped the company through the spin-out process.

“We worked closely with them, engaged lawyers and helped them think through how to spin out the technology,” he said.

“It’s globally applicable, and they’ve already had approaches from offshore clients.

“The interesting thing that no bank could do on its own is the network effect – if they see a fraudulent document submitted to a major bank, for example, it’s then in their database and if they see the same document submitted at another bank, they automatically know it’s fraudulent.”