Personal finance security start-up BillGuard, which describes itself as "people-powered antivirus for bills," has closed $10 million in second-round financing.

The New York City-based company scans credit card bills for unauthorized, wrong, or deceptive charges using a combination of algorithms, complaints posted on the Internet about scams, and feedback from users (the last bit being the "people-powered" part of the equation). It launched in May 2011, and founder and CEO Yaron Samid said so far it's saved users a half a million dollars.

The company was named "Best of Show" at the Finovate financial services industry innovation conference in September, and the "Big-Data Startup of the Year" at O'Reilly Media's Strata Conference. Khosla Ventures led the company's second round. Other investors: Peter Thiel's Founders Fund, Eric Schmidt's Innovation Endeavors, Bessemer Venture Partners, and IA Ventures (the last two are existing investors).

Samid says the money will be used to expand the company's business development, marketing, and research and development.

Said Vinod Khosla, the founding partner of Khosla Ventures: “We love entrepreneurs who dare to tackle large problems with disruptive, bottom-up methods. BillGuard is one of the most exciting recent examples of this."

Samid is a serial entrepreneur whose previous projects include file-sharing software Pando, which has over 50 million users. The inspiration for BillGuard, he said, was personal: A mystery $12 per month charge on his wife's credit card that, it turned out, stemmed from a cashback reward whose fine print was virtually impenetrable.

"People just don't go through and check bills line by line," he said. "And so you find out you're still paying Classmates.com $30 a month for something you signed up for five years ago."

BillGuard was intended to weed out fraud, but in fact 80 percent of the charges flagged are in what Samid called "the gray area--hidden charges, billing errors, misleading subscriptions."

This type of service isn't without precedent. Mint.com occasionally has flagged bad charges: In 2009 the service, now part of Intuit, scanned user transaction data for a fraud that was reported in the news at the time. It found that 800 of its 800,000 users were victims, and sent an alert to those users. But it's not Mint's business to do this consistently. 

BillGuard's service is free to consumers, who provide it with read-only access to their credit card statements in exchange for monthly e-mails that flag suspicious charges. (Samid said so far the company has only a 20 percent drop-off rate when it asks new users to enter credit card information required to open an account, though he admits early adopters "are typically more willing to test out new technology than average consumers who may be turned away by the credit card login information request." Follow-up e-mails are sent when the company discovers new potential fraud, for example, a fellow user flags a charge, much the way people currently mark spam.

Revenue will come from merchants, who pay annual fees to be alerted when a customer is complaining (it's cheaper for them to sort out problems before the banks get involved) and who receive a badge for their website with their reliability score. The grand hope is to integrate the service into online banking services, "to make BillGuard an industrywide standard that just comes with your credit card," Samid said. Phone bill protection is in the works, as are text-message alerts.

Said Roger Ehrenberg of IA Ventures: "BillGuard is poised to revolutionize the field of fraud detection by augmenting human input with machine learning for the benefit of millions of credit card users.