By Sanford Bragg April 23, 2021
As privacy regulations increasingly challenge the collection of consumer card purchases and other forms of transaction data, alternative data provider Facteus sees opportunities for what it views as a more compliant approach. Initially, the company sourced transaction data complementary to that of existing players such as Yodlee or Consumer Edge. However, as the buy-side has become its primary focus, Facteus is bringing to market data products which will compete more directly with leading transaction data providers.
From payment processors to buy-side
Founded in 2010 as ARM Insight, the company initially focused on helping debit, credit and prepaid card processors analyze their internal data for fraud detection and other applications. Hedge funds approached the firm beginning about six years ago, and Facteus began helping clients to commercialize the data. The company says it monetizes data for more than 1,000 financial institutions. As of last year, the company rebranded and changed CEOs as it prioritized expansion of its buy-side footprint.
The current core data offering consists of two card transaction datasets, derived from a panel of over 27 million debit cards including traditional debit, alternative debit, and payroll cards. One card panel has 9 years of daily transaction history and the other panel has 5 years of history. Facteus sources data from payment processors, fintechs and payment card programs to incorporate cohorts typically underrepresented in other transaction data sets, such as Millennials, Generation X and Gen Z. The data also includes transactions from lower- and middle-income card holders.
The data is generally available with a four-day lag, but the firm has launched an Express product that reduces latency to one day from the transaction date. Some clients are reportedly using the low-latency data to trade ahead of the release of widely used credit card transaction data that is reported with a longer delay.
Its initial buy-side customers were quantitative hedge funds looking for new row-level transaction data detail, but last year Facteus launched an application designed to facilitate analysis of its data by fundamental and quantamental asset managers. Enlightmint, a Tableau-based user interface, displays weekly KPI data for 600 merchants and 300 stock tickers. Metrics include pricing trends, average ticket/basket size, transaction velocity, and customer cohort trends. Data is updated weekly on Thursdays for data ending the previous Sunday, and can be segmented by cardholder age group, region, and card type.
Besides its Enlightmint offering, Facteus offers sector-level insights through the Bloomberg terminal. An evaluation dataset with daily transaction data for 1,600 merchants and 430 tickers is marketed through AWS Data Exchange and Knoema’s data marketplace. New York University’s Courant Institute of Mathematical Sciences incorporates Facteus data in its Mathematics in Finance program.
Facteus recently announced a partnership with National Retail Solutions (NRS), which operates a point-of-sale network for convenience stores and bodegas, largely located in urban areas. Transaction volume in the network of 12,000 retailers in 45 states and 152 DMAs totals around $5 billion in annual sales. NRS will use Facteus’s Mimic application to anonymize the underlying transactions in the dataset. The new dataset provides basket-level SKU data that is generally not available in credit and debit transactions data and will augment the low- and middle-income cohorts in Facteus’ existing debit card panels.
Anonymization versus pseudonymization
A key selling point to both suppliers and its buy-side users is the process Facteus uses to thoroughly anonymize its data. Because of its origins in servicing payment processors, the company has access to the raw transaction data behind the firewall of the financial institutions that source the data. “We perturb the data in a random fashion that won’t change the aggregate statistics of the dataset but makes it impossible to match transactions with individuals,” said Lorn Davis, the company’s Vice President of Corporate & Product Strategy in an interview.
Installed behind a payment processor’s firewall, Facteus Mimic uses SHA2 one-way hashing to remove all personally identifiable information. The application injects mathematical noise into the data using one of three randomly selected different noise algorithms to create a synthetic or ‘fake’ version of the data. Facteus says that its synthetic data process was certified to make it impossible to reverse engineer the transaction data even with supplemental information about the transacting individuals.
Most transaction data is not so thoroughly anonymized, using methods to obscure sensitive information but not entirely alter it, a process termed ‘pseudonymization’ by European privacy regulation. Privacy researchers have documented how personally identifiable information can be extracted from credit card transaction data using non-sensitive and easily available personal data like age, gender and marital status. Leading transaction data provider Yodlee has been investigated by the FTC among allegations that the firm uses unique identifiers for each consumer, which privacy experts claim could be de-anonymized if linked with other external data.
The company was co-founded by Chris Marsh, an entrepreneur who, among other roles, had been CFO and COO for Card Capture Services, an ATM processing company acquired by E*Trade in 2001, and Dan Afrasiabi, an entrepreneur and executive at Tickets.com and Geneva Woods Pharmacy, which was acquired by CVS Health. Marsh was named the CEO of Facteus in 2020, after previously serving as executive chairman.
The company employs 35 full time staff. The firm has so far bootstrapped its financing, relying on angel investors rather than venture capital firms.
State-level privacy regulation continues to grow, and it is just a matter of time before federal-level privacy regulation is enacted, further complicating the collection of transaction data. The techniques used to harvest transaction data will be increasingly scrutinized – Yodlee is already under the microscope. Escalating compliance concerns bode well for Facteus. Its ability to transform raw data behind the firewall of its sources represents a major differential advantage.
So far Facteus has been content to be a niche player in the transactions space, but it appears that its ambitions are expanding. Although still relatively small and perhaps not fully capitalized, we suspect the firm will make an outsized impact on the transaction data space.
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