New research by Prepaid International Forum (PIF) reveals how innovative technology is successfully thwarting and discouraging criminals seeking to use e-money or prepaid financial services to launder money or commit fraud.
PIF, the not-for-profit trade body representing the prepaid and fintech industries, reports that as the market for e-money products grows (including prepaid bank accounts and digital wallets), so does the potential for attempts by criminals and terrorist groups to harness this sector for their own aims.
However, a detailed review of the sector’s KYC compliance measures, produced in association with identity verification specialist HooYu, shows that prepaid and fintech firms are winning the war on identity fraud thanks to a wide range of innovative technologies combined with best practice principles, due diligence and governance.
Diane Brocklebank, spokesperson for PIF, says:
“The sector is at the forefront of developing innovative financial services to harness new technology in ways that better meet customer needs and changing lifestyles.
“As an industry, we are also very aware that this innovation needs to go hand-in-hand with proportionate compliance measures to prevent its misuse by those seeking to move money for criminal and terrorist purposes.
“In order to track progress against this objective, PIF has undertaken a detailed review of the technologies and procedures being used to on-board new customers.
“The results highlight the sector’s success at balancing the need for compliance with providing an optimum user experience by allowing legitimate customers to get up and running (in the majority of cases) within 15 minutes. Those requiring additional security can be cleared as quickly as possible (100% within 2 days) or, in the case of dishonest users, refused.”
The survey includes businesses representing the full spectrum of e-money and prepaid providers, varying in size, product and business model. The research found that 100% of prepaid fintech firms are achieving Customer Due Diligence compliance requirements, with many firms going above and beyond minimum compliance requirements.
Of those applications failing initial database checks, 14.3% are cleared to be opened within 15 minutes and 100% of valid applications are cleared within two days, dependent on the speed at which applicants return appropriate documentation.
An increasing number of prepaid fintech firms use a range of innovative techniques that are harder to cheat (especially when used in combination) but are still quick and easy for customers without damaging the customers’ digital journey. For example, 43% of checks will use geo-location to check the customer location tallies with the data given in their application. Even newer technologies are being used whereby 57% of firms will examine the applicant’s digital footprint and social media accounts to gain further confidence in the customers’ identity.
David Pope, marketing director at HooYu, which advised on the research commented: “It’s important to show the extent that regulated firms use innovative KYC technology to quickly identify and accept genuine users whilst also cracking down on potential criminal activity”.
PIF’s findings are corroborated by the recent Financial Conduct Authority’s (FCA) report on Money Laundering and Terrorist Financing Risks in the E-Money Sector. The report found that the sector had effective controls and a good culture of compliance.
Diane Brocklebank, added:
“The FCA’s comprehensive review is a great endorsement of the work being done to tackle potential crime.
“It found that the majority of the firms they visited had effective anti-money laundering systems and controls to mitigate money laundering and terrorist financing risk. Also, that there was good awareness and understanding of financial crime and that firms generally demonstrated a low financial crime risk appetite with financial crime prevention “well embedded” in company culture.
“The majority of firms with outsourced distribution of e-money and compliance to programme managers had adequate governance and audit measures to manage the risks.”
Download the full report by visiting https://hooyubusiness.com/prepaid-fintech-kyc-technology-report/
DISPELLING BIOMETRIC MYTHS AND MISCONCEPTIONS
By Lina Andolf-Orup, Head of Marketing at Fingerprints
Gangsters cutting off enemies’ fingers to access secret locations and spies lifting fingerprints from martini glasses – the imagination of the entertainment world has been running wild ever since biometrics entered the scene.
Couple that with the limitations of some early biometric solutions from fifteen years ago, still anchored in the minds of many consumers, and you have the perfect recipe for an apprehensive and uncertain public.
Thawing lukewarm attitudes with a biometric touch
The biometrics industry has made great strides in the last few years – something particularly true for smartphones. Fingerprint authentication has replaced PINs and passwords as the most popular way to authenticate on mobile, with 70% of shipped smartphones now featuring biometrics.
And it doesn’t end there. Many adjacent markets are now eager to benefit from the secure and convenient authentication solutions that biometrics offer. Take the payments industry, for example, where biometrics payment cards are currently gathering real momentum.
However, some consumers are still uneasy about accepting biometrics. A recent study found that 56% of US and EU consumers are concerned about the switch to biometrics as it’s not enough understood to be trusted.
Although attitudes are shifting for the better, stats like this demonstrate there is still some work to do to disprove common biometric myths and showcase just how smart today’s solutions really are.
Dispel, adopt, repeat
The evolution in consumer biometrics in the last two decades has been phenomenal. And today’s solutions are far more advanced and safe than many may think.
To help bring an end to the myths, let’s expose some of the most common misconceptions around biometrics.
Myth: Biometric data is stored as images in easy-to-hack databases.
A leading myth about biometrics is that when a fingerprint is registered to a device, it is stored as an image of the actual fingerprint. This image can then be stolen and used across applications. In reality, the biometric data is stored as a template in binary code – put simply, encrypted 0s and 1s. Storing a mathematical representation rather than an image makes hacking considerably more challenging. In most consumer applications, this template is also not stored in a cloud-based location, its securely hosted in hardware on the device itself for example in the smartphone, in the payment card. Thus, it stays privately with its owner.
Myth: Fingerprints can be easily replicated to ‘trick’ devices.
The internet is full of articles and videos that claim it is possible to use materials from cello tape to gummy bears to craft fingerprint spoofs and access biometric systems. Although there may have been a time where gummy bear spoofing was the go-to party trick, todays’ consumer biometric authentication solutions have too many technological defences, such as improved image quality and matching algorithms, to simply ‘trick’ devices. Plus, on top this, the criminal needs to have access to the person’s device where this fingerprint is enrolled e.g. smartphone, payment card, before he/she notices and blocks it. This is not scalable nor common, in comparison to gaining access to someone’s PIN code or skimming a contactless card.
Myth: Physical change will prohibit access to my device.
Although our irises don’t change as we age, our fingerprints can and our faces will. Does that mean we have to update our biometric devices every few months to capture these changes? Not quite! Unless there are drastic, sudden changes, the ‘self-learning’ algorithms in modern-day biometric systems are able to keep up with our developing looks.
Who you gonna call? Mythbusters!
These are just some of the common biometric myths and misunderstandings perpetuating in consumer mindsets. Thankfully, though, while we’re working hard to rid the world of the myths, belief in the value of biometrics is only expected to grow. But as solutions expand and diversify, the myth-busting fight will continue.
Fingerprints has been a leader of innovation in biometrics for the last two decades. We’re proud of the expertise and R&D we’ve been able to pour into our biometrics solutions to deliver stronger security and a better user-experience. To learn more about the most common biometric misconceptions and the modern-day technology that allows us to dispel them, download our eBook here.
WHAT EVOLUTIONARY AI MEANS FOR FINANCIAL SERVICES
by Babak Hodjat, VP of Evolutionary AI at Cognizant
Many banks and other financial services institutions (FIs) are beginning to recognise the benefits of AI-driven solutions as a way to get ahead in the market and challenge the competition. Amongst many other benefits, the technology enables organisations to offer hyper-personalised customer experience, dramatically improve internal decision making, and drive operational efficiency. However, many businesses are struggling to move beyond the experimental phase and reach actual AI deployment. It is those organisations that are at risk of being left behind.
The financial world has already been transformed by AI, and this transformation is continuous. A new breed of AI, known as ‘evolutionary AI’ has begun to further accelerate innovation. It is capable of automatically designing itself with little need for explicit programming by humans – innovatively creating complex AI models, and optimising decisions considering multiple scenarios.
This technology is revolutionary for industries across the world, but in particular it is set to transform the financial services sector. Enabling businesses to spot novel strategies that would never have been identified by human data scientists, and, in turn, allowing companies to take full advantage of today’s massive data sets – evolutionary AI will soon be a vital tool in all FIs’ arsenals.
The nuts and bolts of evolutionary AI
Emerging technologies that enable AI algorithms to design themselves are allowing organisations to transcend human limitations. Evolutionary AI operates iteratively. Firstly, it randomly generates a set of potential solutions to form an initial population and assigns a score to each solution based on how well it performs relative to other solutions. In the second round, it retains the solutions that performed best, perhaps only 5% of the total, and recombines their components, sometimes “mutating” them to create a new population. This new population is then tested, and the process begins again. Over multiple generations, the appropriate components of the more successful solutions become increasingly prevalent in the population, and eventually a solution is discovered that yields the best outcomes.
Advantages and use cases
Compared to human design, evolutionary AI can be deployed far more quickly, avoids biases and preconceptions, and typically performs better. Furthermore, the chosen model will evolve and improve over time based on new data.
Evolutionary AI can be applied in a wide variety of areas at FIs. Some examples include designing quantitative trading strategies to maximise returns while minimising risk and loan underwriting. Rather than relying on human analysis, evolutionary AI solutions can quickly analyse all the combinations of relevant variables to create models that more accurately assess the risk of default by a potential borrower.
A recipe for success
In order to reap the benefits of the technology, FIs should focus on the following:
- Responsible AI – Behave in ways that make customers and employees comfortable, i.e. not making decisions that are unethical or exhibit bias. Companies need to monitor them to ensure they continue to act appropriately, as they learn and evolve.
- Viewing AI through a business lens – Having AI projects managed by cross-functional teams with business executives in the lead is a good place to start. Companies also need to look across their organisations to identify opportunities to generate concrete business value from AI — not only in reduced costs but also in boosting revenues by delivering enhanced customer experiences and through improved decision-making.
- Enhance data management – AI applications depend on access to timely and accurate data, which is a challenge for many FIs that have fragmented data architectures with multiple legacy systems. Companies need to identify which types of data are required for each AI project and ensure they can be captured in an appropriate format.
- Approach with speed and caution – AI projects need to be rolled out quickly, while at the same time be rigorously measured, so failures are terminated promptly while successes are moved into production.
The sophistication of AI technology is set to significantly improve over the coming years as it continues to design and test itself. As a result, it will become more critical to the productivity of FIs, and soon businesses will recognise it as a vital tool for consulting on important business decisions. It will not be long before humans and AI are working alongside each other, with robots handling routine tasks, enabling employees to focus on more complex and sensitive activities. Delivering more value together than either could on their own.
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