Block's massive duplicate and inter-linked customer account problem uncovered by Hindenburg Research


Block is the company, formerly called Square and founded by Twitter founder Jack Dorsey, which is known for its Point of Sale (PoS) technology, and more recently its “Cash App”, which allows users to send money directly to each other via their smartphones. 

Yesterday (23rd March), Hindenburg research published a devastating analysis of Block, which suggested that the company has massively inflated its user numbers and is used extensively in criminal and fraudulent transactions. Hindenburg has publicly announced that they have “shorted” the company’s shares as a result of this analysis(1).

Let’s quickly dive into some of the problems Hindenburg has uncovered. At its heart lies a problem that is close to our own hearts at Tilores - duplicate customer data.  

"Cash App Claims To Have 80 Million Annual Transacting Active Users, A Highly Inflated Number Given Evidence Of Massive User Duplication On The Platform"

"Cash App’s User Tracking Software Shows That Many Users Have Dozens Or Even Hundreds Of Accounts, Suggesting Reported User Metrics Are Vastly Inflated"

"Former Employees Estimated That 40%-75% of Accounts Were Fake, Involved In Fraud, Or Were Additional Accounts Tied To A Single Actual Individual"

It is pretty simple. Block does not have as many customers as it claims. What perhaps makes this seem a bit unusual is that the company seems to already know that many of its users are duplicates or linked to other accounts. 

Knowing your customers (KYC) is one of the most fundamental requirements of a financial services company. In the past companies would perform KYC checks on customers as they joined a platform, but nowadays the expectation is that they perform “perpetual KYC” - that is they constantly monitor whether accounts are somehow directly related (i.e. the same person). It is a critical part of Anti Money Laundering (AML) requirements. 

This is an issue that “identity resolution” technology can solve. The technology uses attributes of a customer account, such as name, address, date of birth, social security number etc., and uses it to link it to other related accounts. It doesn’t sound difficult, but the difficulty lies in the fact that the data is messy and inconsistent, meaning you are having to do “fuzzy matching”. Doing that in real-time, and at scale, is technically very challenging.

What makes the Block case particularly odd, is that they seem to already do some degree of identity resolution. The Hindenburg report shows a screenshot of an entity that looks similar to the sort of identity graph diagrams we use for visualisation inside Tilores. 

I guess Block just…. doesn’t care?

"Cash App’s “Web of Lies” Starts With A User’s Ability To Create An Account With Just An Email Address Or A Phone Number"

The Hindenburg report quite rightly highlights that part of the problem is how easy it is to create a Block account. You just need to add your email address, OR a phone number and also your Zip code. 

Any fraudster knows that they can easily create a new email address or phone number. What is again very strange, is that Block seems to have been able to make the connections between black listed accounts and new users. It just hasn’t done anything about it.

What responsible financial services companies do is use these inter-linked identity graphs to automatically flag the entire network of connected accounts as suspicious - so that it is either automatically blocked, or at least manually investigated by a fraud analyst. With Tilores we make it possible to do this in real-time as soon as a new account is created.

The craziness in the report continues, with reports of dozens of fake “Jack Dorsey”, “Elon Musk” and “Donald J Trump” accounts that were used to defraud people.  

Normally at this point I would make some kind of suggestion that Block should try out Tilores to enable fast, scalable real-time identity resolution on its userbase without requiring any engineering input… but I don’t think they would care. Elon didn't either. Maybe the SEC will force them?

(1) Shorting shares means when you borrow the shares, rather than buy them, and sell them on the market, so you make money if the share price decreases. 



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