By Russ Banham
Does a person’s online social networking reputation affect whether or not the individual can be trusted? Juan Cartagena is betting his company’s future on it.
Cartagena is the founder and CEO of Traity, a technology startup that has patented a predictive data analytics solution to score people’s reputations based on their online behaviors or traits—hence its name. The reputation score informs the risk of doing business with that person.
“Everything you do online—in social media or on Internet sites—produces evidence of your behaviors, which become part of your reputation,” said Cartagena. “How funny or friendly you are, how responsible you appear in your social media interactions, the reviews you provide and the ratings you receive in your transactions can be analyzed to determine your level of trustworthiness.”
Cartagena has developed a series of algorithms that sift through everyone’s online data sets to rank us in terms of how much we can be trusted. In today’s sharing economy, where we automatically trust the skills and sobriety of Uber drivers, the cleanliness of the homes and apartments we rent on Airbnb, and the quality of goods we purchase on eBay, trust is crucial. Traity builds on this premise by effectively guaranteeing trust, turning it into a currency.
Truth Is Trust
The Madrid, Spain-based insurance startup, formed in 2012, is just now getting its sea legs. Traity has amassed a war chest of funding from multiple venture capital firms and has signed a deal with Munich Re in Germany to leverage its technology in the underwriting of insurance. At present, Traity is focused on landlord income protection insurance, but other products using its solution are in the works.
Cartagena, a native of Spain, is a devotee of the ancient African martial art called capoeira, which combines elements of dance and acrobatics with fighting. When Africans were imported as slaves in Brazil, capoeira was a means of survival, a way for escaped slaves to survive in a hostile, unknown land where armed and mounted colonial agents hunted them down for recapture or to punish them by death.
Cartagena’s practice of capoeira is not surprising. He dislikes inequality in all its permutations and is deeply affected by human travails. In his blogs, he is fervent about reducing global unemployment; inspiring people to become better human beings; and helping immigrants, students and freelance workers be treated with the same respect accorded highly educated full-time employees who enjoy “a blue chip pay slip.”
“Juan is passionate about improving the world by making it possible to trust each other,” said Marta Figueras, chief of digital transformation at DAS, Ergo Group, the Spanish subsidiary of Munich Re. “There is coherence between what he says and what he does, which ensures credibility. He is 100 percent focused on meeting the needs of people by offering really useful solutions.” DAS recently signed a deal with Traity to use the latter’s reputation-scoring technology platform in underwriting landlord protection insurance.
Writ large across the insurance landscape, Cartagena is convinced that Traity will assist more people across the world to find better housing. “We have three million empty houses in Spain because landlords often don’t trust the tenants they might get,” he said. “In India, landlords often require new tenants to hand over seven to nine months of rent as the deposit. This limits the ability for young, rural Indian people to move to the city and find a job. It also leads to segregation. By reducing the need for deposits, you reduce the fear of landlords, with vast implications for society.”
Traity is his way to equalize the business treatment of individuals who didn’t go to the best universities or have stellar careers—by showing they can be trusted. “Transactions are fundamentally based on trust,” he said. “When a business isn’t sure it can trust someone, the social and economic dislocations are huge.”
The Resilient Network
These repercussions are not confined to less advantaged individuals. To illustrate the impact of distrust on society as a whole, Cartagena provided his own experiences. “When we opened an office in California, I had to rent an apartment in San Francisco to live,” he said. “Because I was a foreigner and didn’t have a credit score, the landlord wanted a security deposit of $14,000. Either that or I had to provide a $40,000 bank guarantee, which is insane. I have an MBA (from Chicago Booth), am a highly trained electrical engineer and have money in the bank from all these investors. None of it mattered. Obviously, this was a problem of trust.”
What if a landlord could buy an inexpensive income-protection insurance policy that would replace the need for a security deposit? A great idea, but the insurer would have to be able to evaluate the risks of a tenant not paying the rent or damaging the apartment. That’s where Traity comes in, scoring the rental applicant’s reputation, which is drawn from the person’s online behaviors. “The better the reputation, the lower the risk,” Cartagena said.
At present, the price of landlord income protection insurance is primarily based on the amount of rent a tenant pays. Cartagena said this is a highly inefficient way to price the premium, as it has nothing to do with the actual risk—the tenant’s ability or desire to pay the rent. Since landlords know little to nothing about the rental applicant, they have difficulty trusting the person. This distrust is alleviated by the insistence upon a large deposit or bank guarantee. “A deposit is a form of insurance; it’s just a very inefficient form,” said Cartagena.
It’s also hurtful. “It’s like saying you don’t trust me so you’re going to charge me thousands of dollars in advance for the things I might damage,” he explained.
Cartagena’s visionary thinking has attracted funding from an array of multinational venture capital firms, including Li Ka-Shing’s Horizons Ventures, Active Venture Partners, Schindler&Schindler, BDMI, Lanta, Seedcamp and 500Startups. It has also led insurers like Munich Re to deploy Traity’s technology.
Figueras fully believes in Cartagena’s concept of a better future through insurance. “We live in a society where we’re being bombarded with media reports about the negative actions of human beings,” she explained. Traity “is a revolution, where you can show who you are through your attitude, your hobbies and what other people say about you. Good people must be able to access the best [insurance] opportunities.”
By discerning wide-ranging human behavioral characteristics, DAS is better able to separate such good people from bad people, good risks from bad ones. “We are giving priority to business models where we trust each other, creating networks based on trust that are similar to primitive communities,” Figueras said.
Her point about primitive communities is something Cartagena frequently touches upon in his blog and in numerous public presentations (he’s spoken at the Skoll World Forum, GE Global Insights Network, OuiShare Fest, EY Foundation, TechCracker and many other conferences). “Look at the Amish,” he said. “They don’t buy insurance, which isn’t allowed. But they have a form of post-insurance, where if one of them is ill, everyone chips in financially to help that person. This is the definition of a very resilient network.”
In such closed networks of people, each person knows all others. This creates a form of peer pressure to keep everyone in line. “In the past, in a small village of a hundred or so people, most buyers and sellers knew each other,” said Cartagena. “They either knew each other’s histories or were provided these narratives by others in the village. The chance that a seller would provide an inferior product or service was much less because it would damage the person’s reputation, with devastating economic consequences. The incentive to maintain superior quality or service was high.”
In today’s more open networks where people don’t know each other, it is difficult to determine if someone is selling a pig in lipstick. Social media narrows this possibility. Sites like Facebook create closed networks, a community of friends akin to a small village. Members of this community are expected to be honest in their comments and interactions. Traity assesses these traits in developing the individuals’ reputation scores. Since reputation is defined as “what other people think of you,” unknown buyers and sellers become better known.
All well and good, but one must trust in the accuracy of Traity’s algorithms. Is it possible to determine someone’s trustworthiness based on the person’s online behaviors? And which behaviors in particular add up to paint a picture of a trustworthy individual?
In response to the questions, Cartagena’s admin sent a link to the company’s 17,000-word patent application for its predictive data analytics software invention. It states that the innovation generates a reputation score based on a person’s “identity verification,” “online activity” and “online transaction history.” The devil is in the details, of course. But the dense technical language of the patent application defies easy interpretation.
Asked to boil down the data into more easily understandable language, Cartagena provided an anecdotal example of the correlative relationship between behavior and trustworthiness. “If someone rents a home on Airbnb and the owner comments on how clean the person left the place and how friendly the person was, from a semantic analysis standpoint one would get a strong sense that this person would make a great tenant,” he said. “Maybe the same person is on LinkedIn, Twitter and Facebook and has provided comments on Yelp, Lyft and Uber. Each of these interactions gives you other aspects of their behavior.”
Since these interactions are public, the person’s comments are considered to be truthful. That’s because anything but the truth would harm the individual’s online social status. Again, Cartagena provided another example. “In Bangladesh, a micro-credit system was developed for poor women who had no access to credit,” he said. “The caveat was that each woman would be provided credit, but if they failed to pay back the money, the interest rate would increase for all the other women in their community. The incentive to pay back the money creates a network of trust based on altruism—you don’t want your friends to suffer because of your negligent behavior.”
For the time being, Traity is focused on landlord income protection insurance. But Cartagena envisions several future insurance applications for the platform, each with a distinct societal value. Among them is a way to better distinguish teenage drivers for automobile insurance rating purposes.
Right now, insurers rate teenagers based primarily on their age and gender, with female drivers given a lower premium rate than males (they tend to have better driving records). In the aggregate, the premium for teenagers is much more than for adult drivers. As the kids head into their mid-20s, their insurance premiums gradually decrease. Cartagena can see a teenager’s reputation score as a differentiating factor in how they are rated, thus separating a bit more wheat from the chaff.
Another of his insurance concepts involves secondhand cars. “People generally don’t trust buying a used car from the owner, given the risk of it being a lemon,” said Cartagena. “An entire industry—used car dealerships—has evolved to take advantage of this distrust. The dealer buys a perfectly good used car from the owner and then sells it at a tidy profit. People trust dealers, since they typically guarantee under-the-hood repairs. All this does is make cars needlessly more expensive.”
Traity can be used in the development of an insurance policy for sale to second-hand car owners, guaranteeing the actual value of the vehicle. It’s the same concept as landlord income protection insurance—just substitute the car seller for the landlord. If the buyer of the seller’s vehicle has to fix a broken exhaust pipe that was not declared in the sale and purchase agreement, the insurance would pick up the cost of the repair. The seller’s reputation score would factor into the availability of the insurance and its cost.
“The seller could increase the price of the car slightly to cover the premium but would still be able to price the vehicle well under what a dealer would charge,” said Cartagena. “The consumer benefits by being able to buy the car at a much lower price than at a dealership.”
With more than 40 million used cars sold in the U.S. each year, it’s another great idea with “win-win” potential for buyers and sellers, removing the intermediary from the equation. That gets the fighter’s spirit aroused in Cartagena. “I am addicted to fighting Goliath, falling back to the ground, spitting some blood and standing up again,” he wrote in another blog.
As he told me with more than a hint of pride, “We’re helping people trust each other.”