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AI VS. THE CROOKS: CAN MACHINES BEAT THE FRAUDSTERS?

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Konstantin Bodragin, Business Analyst and Digital Marketing Officer at Bruc Bond

 

Over the last couple of decades, AML has taken centre stage in the banking world. Nowadays, AML, shorthand for anti-money laundering, drives strategic planning and organisational structuring. AML concerns keep many a manager up long into the night, as the risks are huge, the penalties for infractions potentially devastating, and the criminals – especially in the era of COVID-19 – ever more enterprising. While the prevention of money laundering is paramount, the weight and risk faced by financial institutions may feel onerous to many. Luckily, the banking landscape is changing rapidly, with automation and AI making the burden significantly lighter to carry.

Banks and financial institutions face a two-pronged problem. On the one hand, the pace of digital payment is growing exponentially. Much of the world’s trade is now conducted through purely digital conduits. But it’s not only the volume of digital payments and users growing, so is the speed of transactions, with instant payment systems being deployed around the world.

The increases in speed and volume are of course good news for the bottom line, but require significant resources to handle effectively. Resources that many in the banking industry are struggling to provide adequately. The industry is shrinking rapidly, with bank closures, mergers & acquisitions, and a massive reduction in the workforce dominating headlines in the last decade. COVID-19 has only accelerated the trend, with bank after bank announcing imminent layoffs and reductions in trading. With the squeeze on resources, many banks would have struggled to keep up with the increased workload regardless of any other constraints, but here they are faced with the second prong: the complexities of AML.

AML regulations have grown thick and convoluted in recent decades, and with penalties as severe as truly massive fines and personal liability for offending compliance officers, it is taken extremely seriously. And for good reason. Fraudulent and criminal activity is costing the global economy many billions each year, with the lighter end of the spectrum meant to merely enrich the perpetrators, while at the other lies terrorist financing and socially damaging criminality. Nevertheless, it is a significant strain on banks’ already constrained resources, directly at odds with the growing pace of global digital trade.

To alleviate these pains, bankers and financiers of all varieties are scrambling to adopt the newest technologies to combat money laundering effectively, efficiently and with minimal costs. For this, AI seems to be the answer, and everybody wants a piece of the action. In 2020, you would struggle to find a fraud prevention company that doesn’t have the words ‘AI’ or ‘machine learning’ somewhere in its description.

Machine learning, one of the tools underpinning the AI fight against fraud, means the use of algorithms and statistical models to allow computers to perform tasks without specific instructions. In the context of payments, this means allowing computers to make decision related to AML compliance with no human intervention. While letting go of control is a scary prospect for many a financier, it may be the only right thing to do for effective AML implementation, both to prevent money-laundering incidents and to reduce the rate of false positives.

Current statistics indicate that for every fraudulent transaction stopped by a bank’s compliance team, some 20 legitimate transactions are prevented from going through by understandably overcautious compliance officers. Not only does this represent a serious hit to the bank’s bottom line, it wastes whatever precious resources are at the team’s disposal.

With current, manual methods, any suspicious transaction needs to be investigated in a process that can take anywhere from an hour to several days or weeks, often requiring the input of numerous team members and stakeholders across several departments. The cumulative resource drain is palpable, and the end result is that transactions are often rejected not due to any illegality, but because it is simpler, quicker and cheaper to do so. It is simply easier to suspect everyone and reject transactions outright. With AI systems, this process can take an entirely different shape.

Machine learning algorithms learn from human behaviour, create and continuously improve user profiles and use this information to validate transactions. Where this technology shines are with onboarding and transaction verification. Or rather, whenever a known user’s identity needs to be verified. A distinct change in a user’s behaviour is serious cause for alarm and indicates potential fraud, with someone pretending to be a user they’re not.

Unfortunately, AI cannot provide everything we want. When it comes to the cross-border and B2B space, AI is more limited in its uses. While businesses demand increasingly faster account opening and onboarding, the entirety of the process can’t be automated. The problem stems from a difficulty in standardising. Variations in geography, type of business, corporate structures, and even the individuals involved mean that a risk profile must be created for each case individually. Even if the processes could be automated to a higher degree, the risk to reward ratio may mean that the investment in AI isn’t sufficiently attractive. Simply put, financial institutions are rightly anxious about an automated system messing up in complex cases that could lead to massive fines or worse.

Moreover, there exists a question of accountability. When a decision is made by AI, how are you then able to find the exact reason behind why a transaction is not stopped when it should have been – other than to blame it on the algorithm? Using AI makes it very difficult to audit payments, as the fuzzy logic of Machine Learning is almost entirely obscure to us humans.

In short, yes, AI and automation are providing a much-needed breathing room for banks, financial institutions and fintechs looking to alleviate some of the AML burden. However, they are no panacea. Real-life, human bankers will stay with us for a while longer. And for those looking for banking with a friendly face, that may not be such a bad thing after all.

 

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Business

OUTSOURCING YOUR IT SOLUTIONS CAN SAVE YOU FROM COSTLY DOWNTIME

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Amir Hashmi, CEO and Founder of leading IT and Cloud services provider Zsah, discusses why you need full-time professionals if you want to avoid the money pits of IT downtime

 

A lot of wealthy business owners will uphold the following infamous statement – time is money. Many CEOs believe that it should be at the heart of your business strategy. They aren’t wrong, and it is no different when it comes to IT. Therefore, it is high-time that businesses consider the real risks and costs associated with IT downtime, and do all they can to avoid it

In the midst of a post-pandemic technological revolution, it’s now more important than ever to carefully consider who manages your technology. It is essentially the motor that drives productivity, efficiency and growth, and if therefore, if there isn’t a thorough and dedicated system in place, businesses risk system failure, which can risk everything.

Something so essential to a company deserves to be taken more seriously than just to deploy the services of an IT help desk when there’s a significant issue. The answer isn’t necessarily to consider ways in which you can fix a problem once it arises, but instead to ponder upon ways of preventing an issue from occurring in the first place. This is what leads us to managed IT support services: your personal, dedicated team of IT experts that not only fix issues when they occur, but that also constantly improve the software and hardware so there is less chance they ever take place.

 

The real cost of downtime

Whenever your IT isn’t functioning at its full capability, you are losing money. Even the shortest of gaps in service can severely impact the customers’ experience, your reputation, and the output and efficiency of your entire staff.

In 2017, ITIC sent out an independent survey to measure downtime costs. It found that 98% of organisations say that a single hour of downtime costs over USD $100,000, with 81% putting the figure at over $300,000. For 33% of businesses, 60 minutes of downtime would cost their firms between $1 million and £5 million.

Figures from Statista.com reveal 24% of organisations worldwide reporting average hourly downtime costs amounting to between USD 301,000 and USD 400,000, with 14% reporting greater than USD 5 million in costs.

Elsewhere, IHS Markit surveyed 400 companies and found downtime was costing them a collective USD 700 billion per year – 78% of which was from lost employee productivity during outages.

 

Managed IT solutions are the key

Though we may never know the full cost of downtime, it is evident that it costs individuals and businesses a large amount of money. Don’t wait until your next emergency to remedy a problem; get the professionals in now to prepare for the future, rather than just fix problems in the present.

When you work with a managed technology services provider, your network and infrastructure are supervised 24 hours a day, all year round. As with any IT service, this means that issues will be fixed – however the real advantage is more long-term. As technology service providers perform regular proactive upkeep, there will be a reduced chance of suffering from issues in the first instance, and when (or if) they do occur, it will be far simpler to recover data thanks to full cloud integration.

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Banking

HOW TRADITIONAL INSURERS CAN USE TECHNOLOGY TO IMPROVE THEIR RELATIONSHIP WITH CUSTOMERS

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The customer experience with insurance is anomalous, in that one is only required to engage with their insurer if things are going wrong for them. To add value to the relationship, new technology and methods should be adopted, in turn driving loyalty and business growth, writes Oliver Werneyer, CEO and Co-founder of Imburse

Oliver Werneyer

Insurance is one of the oldest industries in the world and it is still, to this day, considered a grudge purchase. Looking back, insurance has a history of having a challenging relationship with its customers. According to an IBM study, in 2008, only 39% of consumers trusted the insurance industry. This percentage has stayed largely similar over the years, having reached only 42% in 2020. For any business with growth ambitions, good customer relationships are crucial.

I believe that now more than ever, the insurance industry not only needs to continue investing in improving relationships with customers, but to really think about new ways of doing so. At a basic level, the moment of truth for an insurance customer is when either they need to pay or are getting paid. Insurers can have the best policy wording, quick claims processes, apps and advisors, but if the experience to pay premiums or to receive a claim is bad, the customer immediately loses trust.

The pandemic has exposed this tenuous relationship between insurers and its customers. The need to move everything online and provide personalised services has exposed significant shortcomings in the service insurers provide. The industry has been too slow to adopt newer technologies and move engagements closer to the customer (self-service and empowered). This is largely due to the legacy systems and processes that insurers failed to modernise over previous years.

This means that the better-positioned incumbents have stronger customer relationships and benefit disproportionately from the pandemic, as they are able to win more new customers and convert customers from other insurers. They also benefit from significantly lower customer acquisition costs and much better growth, as illustrated in this McKinsey report. Even new entrants or InsurTechs are benefitting massively by focusing on improved customer experience and customer relationships.

However, it is never too late for insurers to build better relationships with customers. The main way to build a good relationship with a client is to make life easier, live up to promises and add value through the relationship with them. By working on these key elements, insurers can start building strong relationships with their customers, and, through the right partners, deliver this in a timely and non-disruptive manner.

 

Embedded Services

Insurance products often get a bad reputation because they cost money, but the benefits might only come much later, or never. Customers don’t get to experience a positive relationship with insurance products, either because they never claim and feel like they lost out, or they claim and they’re in a bad situation. By either embedding other services into the insurance experience to deliver a more transactional engagement, or embedding insurance products into general customer experiences such as online shopping or rewards, insurers can enrich customer relationships to generate value.

This way, insurers become a value-adding part of the customers’ everyday activities and not just a product that they have to pay for and may never get anything back from. One example is to embed micro-savings capabilities, often found in banking, into pension savings and insurance products. This can allow customers to save more for pension, attract younger customers and build a portfolio of fiscally disciplined customers.

 

Tailored journeys and personalisation

Customers have come to expect personalised journeys and engagements from product providers. Streaming services, social media, e-commerce or mobility services have shaped the customer expectations. Now, customers are also expecting personalisation for insurers.

Insurers need to invest very heavily in delivering personalisation and customisation to customers as they engage with their products. Failure to deliver this puts renewed strain on the value perceived by the customer and their relationship with the insurer. This applies not only to customer interfaces, but to aspects such as payments. Insurers should make it easy and pleasant for customers to pay and get paid. As the main moment of truth, payment experiences need to work optimally.

 

Perceived customer value metrics and delivery

The value customers derive from insurance products is, generally, monetary. Therefore, insurers must invest in product enhancement to increase its perceived value. Perceived value is not tied to a monetary value. By being able to choose between multiple payment options, such as a $300 pay-out to a bank account or a $320 Amazon voucher, the customer has a higher perceived value of the payment. This can be achieved by leveraging non-insurance products that can be purchased at a discounted price, exclusive access that the customer would otherwise not have or conversion into a form that is more useful to the customer.

Payments, for collection and pay-out, are at the core of delivering this value. An excellent payment experience immediately influences the customer to be positively inclined toward a product (PwC report). In order to offer this, insurers need to leverage multiple technologies and providers, offer any speed of transaction in any market, and deliver faster automation and better risk control. The key is to transform insurance products into transactional value-adds to customers’ lives and use this opportunity to continuously build on relationships with customers.

The main roadblock for insurers is still the operational implications of these activities and the costs that arise. In looking to build a better customer relationship, insurers need to look at partners that are operational enablers to deliver this. Partners that can solve the integration and speed-to-market problem so that insurers are enabled to deliver new capabilities, not bombard them with new ideas and no path to delivery.

Imburse, for instance, enables insurers to access all the global payment providers and technologies available in any market. Through a single connection, insurers can deploy any payment capability into any channel, for collection and pay-outs, without ever again needing to build a direct operational integration to the providers. This gives them full freedom to leverage payments as a key value driver and customer experience enhancer.

Building a better relationship with insurance customers is key for the insurance industry to close the protection gap. Incumbents are in the prime position to look at Insurtech and Fintech partners to rapidly and significantly modernise, digitalise and transform their own capabilities to deliver major enhanced value to their customers.

Imburse is an advanced universal payment connector that enables businesses to gain cost-effective access to complete global payments technology, regardless of the service provider. To learn more, please visit www.imbursepayments.com.

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