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MONEY LAUNDERING AND THE GRAPH-POWERED FIGHTBACK

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Amy Hodler is Director, Analytics and AI Program at Neo4j

 

Conventional anti-money laundering (AML) analytics fail to detect the hidden relationships that reveal criminal networks, says Neo4j’s Amy Hodler

Catching money launderers is a huge and growing challenge. Criminal money laundering activities are often hidden in plain sight, within legitimate transactions. Money laundering now comprises up to 5% of global GDP or US$2 trillion per year. Financial criminals have a lot to play for and are getting better at creating an intricate network of identities and accounts to obscure their activities.

Conventional anti-money laundering (AML) measures typically look to identify deviation from standard patterns within discrete data and transactions, and are based on a relational database model where data is stored in predefined tables and columns. This approach is ideal for many business applications. When it is applied to large, unstructured data sets though, it slows to a crawl. Crucially, this approach fails to pick up the relationships between data that would identify money laundering networks.

While AML systems can analyze networked data, they can’t scale up efficiently, leading to long lead times to investigate and resolve complex alerts. Focusing on discrete data alone tends to generate a lot of false positives, leading to fruitless investigations which may harm customer relationships.

 

Contextual insight

Using a relational database for a complex AML investigation frequently leads to slow response times and a failure to identify fraud. The problem is that relational database AML solutions struggle to detect money laundering because they lack broader contextual insight. What is needed is the ability to follow a trail from one account to another. A 360-degree view of complex money laundering networks is necessary to flag up relationships between assets and individuals. For this reason, some of the world’s leading banks have turned to graph database technology and artificial intelligence (AI) to help them tackle the money laundering issue.

The underlying architecture of graph technology lends itself well to AML work. With graph database technology, any number of qualitative or quantitative properties can be assigned to data, describing complex relationships coherently and descriptively. Graph databases use individual data such as ‘person’, ‘account’, ‘company’, ‘address’ – and their relationships with one another, like ‘registered at’, or ‘transacted with’, uncovering complex connections.

This way, money laundering teams benefit from a detailed picture of assets and the relationships between people. Graph databases expose patterns and relationships very quickly, providing financial institutions with real-time insight into their assets and relationships. Compliance experts Kerberos use graph-based AML: “Instead of taking a superficial look at relationships, [our] legal experts can also uncover relationships only apparent at the second or third level.”

 

Machine learning graph algorithm 

PageRank is one of the best-known graph algorithms for tackling money laundering. This machine learning algorithm measures connectivity between nodes or objects. It can uncover objects based on their additive relationships and rank nodes with a relative score. Graph technology can identify important or influential customers who drive a high number of transactions. Then, nodes with a high PageRank score can be flagged up using a visualisation tool to make them appear larger.

Another key graph algorithm is ‘Weakly Connected Components’, designed to reveal the hidden networks that show a money laundering trail. This uncovers data connections such as multiple companies that appear to be registered at the same address. Analysts can then focus on these companies to check for any suspicious activity.

 

Real world graph-powered investigations

 The world’s biggest investigations of the offshore financial industry, the FinCEN Files, Panama and Paradise Papers, put graph databases to work to uncover hidden relationships that led to the investigators recouping more than $1.2 billion in resulting fines and back taxes. The International Consortium of Journalists (ICIJ), the group behind the graph-powered investigations, has just been nominated for a Nobel peace prize for its work.

 In Iceland, AML start-up Lucinity uses what it describes as a ‘human AI’ approach to help its AML clients create 360-degree views of the transaction networks that banks need to monitor. With AI, investigators are not only seeing exactly why the algorithm flagged a case of money laundering—in addition, the system can tell them exactly how the criminal is doing the money laundering. The algorithm is constantly fine-tuned and improved with human feedback from the AML investigators.

Graph database software and AI technology are moving AML investigations to another level. Real-time analysis that uncovers data relationships is the only way to keep one step ahead of the criminal networks and their dirty money. Armed with graph database software and AI, the banking and finance sector is taking on the money launderers and winning.

 

Business

THE ACCELERATION TOWARDS A MOBILE FIRST ECONOMY

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By Brad Hyett, CEO at phos

 

Over the last year, we have seen a big shift towards contactless payments. Fuelling this has of course been the coronavirus pandemic, which has made the public hesitant to handle cash due to the health concerns.

As multiple national lockdowns forced physical stores to close, and customers demanded easy, cash-free payment options, merchants had to quickly adapt. The result? An increased provision of pay and collect services.

In the UK alone, 83% of people use contactless payments according to data from the Office of National Statistics.

So it’s vital that merchants are equipped with the most efficient payment solutions, as the UK heads towards a mobile-first economy.

 

Proliferation of contactless payments

In 2020, 90% of UK card payments were contactless. This equates to an increase of 12% on the year prior, despite the total number of payments made falling by 11% from 2019 to 2020. Moreover, the affordability of smartphones has increased significantly over the last decade. And it’s estimated that 84% of UK adults now own one.

We’re Seeing merchants embrace more efficient and cost effective payment methods in response. While physical payment terminals are often too expensive for many small businesses, software point of sale, or SoftPoS, enables merchants to turn hardware that they already own – i.e. their mobile device – into a point of sale terminal.

With merchants increasingly adopting these innovative technologies, contactless payments will continue to gain popularity among the general public. In 2020, 13.7 million people in the UK either didn’t use cash at all or only used it to make a single purchase. That’s double the same figure from the previous year.

 

Changing consumer demand

Now more than ever, consumers are aware of how innovative payment solutions can add efficiency to their daily lives. As such, consumers now demand better payment services, including reduced queuing times, checkoutless stores, and bespoke loyalty schemes.

Businesses such as Mercedes offer an end-to-end digital car purchasing service, so customers can go through the whole car purchasing journey from the comfort of their own home. This includes car deliveries, financing, insurance and more.

Meanwhile, eCommerce giant Amazon has started trialling checkoutless ‘Go’ stores, speeding up the shopping experience by eliminating the queuing process altogether. The days of waiting for a table at a restaurant are also over, as more people have grown used to booking in advance.

Hence, it’s important that we empower small businesses to remain competitive and provide them with the payment solutions to meet customer demand.

 

Global transformations

The digital payments revolution isn’t slowing down anytime soon. By 2026, only 21 percent of transactions will be made using cash.

The US might have been slow out of the gate, but it’s starting to see increased adoption of mobile payments. In-store mobile payments grew by 29% in the States last year alone.

This growth was primarily fuelled by Gen Z-ers and millennials. Latest projections show that there will be 6 million new mobile wallet users by 2025, with millennials accounting for 4 million of this figure. These two generations, the former in particular, have grown up with mobile banking.

For most Gen Z-ers, their first foray into financial services was with a challenger bank like Starling or Monzo. These banks are able to offer online features such as ‘split the bill’, fee-free withdrawals abroad and much more to cater to the modern financial needs of the younger generation.

The Middle East experienced similarly sharp increases in contactless payments. From 2019 to 2020, there was a 200% growth in contactless transactions. This shift towards a mobile-first economy in the region was inevitable; the pandemic merely accelerated this shift. A recent study showed that 80% of people living in the Middle East planned to continue using contactless payments post-pandemic, with speed and security being the main draw.

 

The future is mobile

As parts of the world now start to come out of lockdown, there’s an openness to new solutions and a widespread acceptance of new technologies.

It is now a case of when, rather than if, we’ll see a permanent shift to cashless in the future. For businesses, embracing digital innovation will be key to remaining competitive and keeping pace with consumer demand in this fast-changing payments landscape.

 

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HOW MERCHANTS CAN IMPROVE THE ONLINE PAYMENTS EXPERIENCE

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By Alan Irwin, Senior Director of Product at Global Payments UK

 

The dramatic increase in online shopping over the past 18 months has encouraged many businesses to invest in developing their omnichannel shopping experiences. The reasons vary – some are keen to capitalise on the trend of older shoppers migrating towards ecommerce and some are trying to make up for loss of sales in brick-and-mortar stores during the pandemic. It is also true that many businesses are shifting their models to sell direct to consumers to avoid high marketplace fees and are therefore building their ecommerce channels for the first time.

The checkout experience is arguably the most important and delicate part of the ecommerce transaction, as it can make the difference between a happy customer likely to return, and a shopping cart abandoned out of frustration and confusion. A survey from March 2020 suggested that 88% of online shopping orders were abandoned, i.e. not converted into a purchase. A seamless, customer-centric online payment experience is therefore critically important in ensuring completed transactions. But with so many payment providers available, what should businesses be looking for when trying to keep friction to a minimum?

 

Keep clicks to a minimum

Less touchscreen interaction equals less abandonment. Adapting the payment page to fit any device and supporting popular mobile digital wallets like Google Pay ensures a seamless, stress- and hassle-free checkout experience for the customer and keeps clicks to a minimum. Friction can present itself in the most minor features – for example, when the customer is navigating the payment form, the appropriate keypad should be shown to the customer when required. It’s much easier to enter a card number using the dial pad instead of switching between QWERTY keypad layouts.

Simplifying online forms with autofill and tokenisation also significantly reduces friction at checkout and shortens necessary time taken. Ensuring checkout forms are tagged correctly for “autofill” is a great way to offer customers a single-click to input the payment, shipping, and billing data that they have stored in their browser profile. Similarly offering a guest checkout option will help convert customers who are in a hurry or looking for a one-off purchase. This can also be achieved by offering to store the payment details (called ‘tokenisation’) for express repeat and one-click purchases.

 

Make it easy to understand

A tailored payments approach can increase both domestic and international global sales. By offering a checkout experience in the customer’s language, the option to pay in their currency of choice, and use their preferred method of payment (whether it’s PayPal, Alipay or card), businesses can build loyalty quickly and put customers at ease. It is equally important for merchants to ensure they always display simple direction and information about next steps to instil confidence and prevent customer drop-off. The customer should be informed of what is happening at every stage in the process, for example, whether they will proceed to SCA (Secure Customer Authentication) next or go straight through to completion.

In addition, validating forms in real-time means merchants can highlight potential errors to the customer early on, and payment providers should provide this functionality. This could be an invalid expiry date, an incorrect digit in the card number or incorrect CVV number based on card type. When issues are only flagged at the end of the process, this forces the customer to go back through the steps to figure out the error. Real-time signposting of problems removes this potential friction and reduces the potential for a declined transaction.

 

Ensure seamless security

Merchants should work with a payment partner who offers the right blend of security and compliance management without it coming at a cost to the end-to-end checkout experience for the user. Instilling trust and security in your checkout flow while utilising the right solutions to drive seamless authentication flows will increase customer confidence and help prevent drop-off.

The greatest level of security and control comes from either utilising hosted payment fields that the
merchant can natively integrate into their checkout flow, or a hosted payment page where they can
manage the look and feel. Showcasing your brand on the checkout page with trust signals and logos also adds to building trust with the customer.

Staying ahead of regulations is also important. Secure Customer Authentication (SCA) will soon be mandatory in the UK for all eligible digital transactions, and this doesn’t have to be a friction-full process. Tools like Transaction Risk Analysis (TRA) and Exemption Optimisation Service (EOS) can quickly score transactions and drive exemptions where there is the right blend of transaction risk.

 

The devil is in the details

These three rules for successful ecommerce checkout experiences may seem straightforward, but it is important to apply them at a micro level. It can take only one minor point of friction to cause a customer to abandon their cart, and this will inevitably be replicated across other similar customers. It is critical to identify friction points early on and anticipate customer needs throughout the process. Discussing these points and any opportunities to improve customer checkout experience with your ecommerce team and payment provider is an important first step towards ensuring your entire shopping experience remains competitively seamless and loyalty is won. It may be that your payment provider cannot address them, in which case it could be time to move on in order to stay competitive.

 

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