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WHY MANAGING RISK PERFORMANCE WILL BE LENDERS’ BIGGEST CHALLENGE THIS YEAR

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Michal Smida, Founder & CEO, Twisto

 

  1. What are the key trends you’re seeing in lending?

Q2 was characterised by a conservative approach and a very proactive reaction to managing credit risk. There was substantial tightening in approval rates for onboarding new clients – this in part is due to the uncertainty of the potential impact of unemployment, as well as the increased challenge of gaining access to capital markets. We saw as much as 50% reductions in approval rates across the industry.

There was also a bigger focus on collections and managing risk in the existing portfolio, this includes more proactive and frequent communication with clients. Q3 has seen an easing of the above measures as prime client portfolios in the EU have recorded positive non-performing loan (NPL) performance. In some cases, customer payment behaviour has improved vs. pre-COVID, with some lenders recording their best performance to date.

 

  1. The 2008 financial crisis was the catalyst for alternative lenders. Do you think the current pandemic will be a similar agent for innovation and change, and if so, what might it look like?

The shift to digital has been an ongoing theme since 2008, which gave rise to many great fintechs, but also pushed banks to digitalise rapidly. What the current crisis has brought is increased customer adoption of what has already been in the market for some time. So we don’t see the change in the product offerings of financial institutions, but rather a change in customer behaviour and their willingness to use digital channels, which are not only much more convenient, but also safer and quicker to use in comparison to traditional offline processes.

 

  1. What are the biggest challenges for lenders in the next 12 months?

Maintaining and further managing risk performance. Q4 will be critical in proving the resilience of the customer base. As governments have stepped in to support businesses and the wider economy, the possible impact on unemployment has been delayed.

This in turn can lead to credit deterioration once the support stops. Venture capital and debt markets effectively shut down in Q2, with reopening noted in Q3. As many lenders require additional capital to sustain growth momentum, the key challenge will be attracting capital from investors who became even more selective and cautious.

 

  1. What do lenders need to prioritise to deliver a better customer experience?

It’s mostly about finding a sweet spot between a smooth customer journey and all the requirements coming from different stakeholders around areas such as risk factors.

Many financial institutions are not so brave in terms of challenging the status quo of the current financial conditions. We are doing our best to make bold decisions that might make a difference at the end of the day.

 

  1. You have already started to make the transition to lending 3.0. Why did you want to build a card programme?

Creating a payment card was the logical next step in fulfilling our vision of simplifying daily payments for customers. We started with simple deferred payments “Buy now. Pay later” for e-commerce, but in an age when the overwhelming majority of payments still occur offline, it was necessary to also enter that market and provide an omni-channel solution. The key was to have a better app and overall experience than traditional card issuers.

This was demonstrated in our recent launch of the Twisto app and card offering in Poland, which has been well received by customers, with over 70,000 sign ups and over 20,000 cards ordered in the first 30 days from launch. We are very pleased with the speed of execution through this launch, and strategic partners like Mastercard and Marqeta have been fundamental to enabling the success of the technology. We look forward to exploring expansion opportunities across the EU on the back of this solution.

 

  1. What’s your vision for your card programme and how it will help you solve your challenges and deliver a better customer experience?

At Twisto we believe that having a plastic card in your wallet is already outdated. Because of this, we’ve committed to our goal to stop issuing plastic cards by 2025. We believe that the future is paying with mobile phones. Thanks to Marqeta and our Digital First certification from Mastercard, we’re one of the first companies in Europe, or even the world, who doesn’t have to issue physical cards.

 

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Interview with Devin de Vries, founder and CEO at WhereIsMyTransport

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  1. Where did the idea for WhereIsMyTransport come from?

At WhereIsMyTransport, we are working to ensure that better data and technology benefits people living and working in emerging markets, and creates opportunities from improved understanding. But the idea for WhereIsMyTransport came when I was a student. At the time, I was challenged to take on a real world problem using technology. I felt then, as I do now, that the strongest potential for growth and impact was in public transportation. Urban mobility is to people what blood flow is to our bodies, it’s vital. We want people to be able to use information that they can rely on to access the things that enrich their lives.

  1. Can you tell us about your role and responsibilities?

As the CEO and co-founder of WhereIsMyTransport, I am responsible for the company’s vision and strategy. Under my leadership WhereIsMyTransport has grown from a two-person team to a 130-person company with employees around the globe. As the person at the helm, I am also responsible for driving its vision of bringing the benefits of high-quality data and technological innovation to people living and working in emerging markets.

  1. What has been your highlight in your current role?

There have been a number of highlights over the years. Perhaps the biggest, however, comes from building and leading a globally remote team that is united by turning a vision into reality. We’re taking on what many people would perceive to be an impossible task of making the invisible, visible. Witnessing our determination as a business grow into global impact – a data offering across 50 cities and counting, numerous client successes, and a consumer product helping communities of public transport users has been incredibly fulfilling.

  1. What is your leadership style?

As the company has evolved, so has my leadership style. In the early days, I was hands-on and very involved in every project. I believe I’m someone who believes in people’s potential, so as the company’s grown, I’ve learned to let go more and more and trust the incredibly talented team we’ve built up over the years. One thing that hasn’t changed about my leadership style is the infectious enthusiasm I’ve tried to impart. This is especially true when it comes to the Majority World’s potential to hold the world’s next great creative solutions.

  1. What makes a hyperlocal market understanding an enabler for global growth, and what have you implemented in the company to make this happen?

At WhereIsMyTransport, our expertise in producing accurate mobility and location data, on the ground in markets that remain unfamiliar to many, means our clients can establish new opportunities, and generate actionable insights, in high-growth regions. To better understand the impact that a hyperlocal market understanding can have, it’s worth looking at the benefits it can have for individual businesses. Retailers, for example, can use reliable mobility and location data to ensure that their delivery drivers always use the most efficient routes, as well as planning store locations so that they’re always as close as possible to where their future customers go. With that kind of information, they can focus on growth immediately and avoid expensive mistakes held back by lack of data. The same is true for companies of all sizes in all verticals as well as governments and municipal organisations.

  1. What is the role of location data for understanding emerging markets and how has your team ensured it is possible?

At WhereIsMyTransport, we’ve built our name on producing reliable public transport network data from every mode, however it operates. But more recently we’ve expanded our offering to include location data, so points of interest like retailers, food sellers, and the indoor mapping of pathways and levels at public transport exchanges that are so critical for connections and the first and last mile. Location data like this is critical for improving understanding. Emerging markets are expected to experience greater economic growth than developed markets between now and 2030, but we also know that the informal economy is sizable in these markets. 90% of WhereIsMyTransport’s POIs aren’t available from other location data providers, meaning it’s possible for clients to leverage this unmatched insight into the truth of these high-growth markets. How do we do it? Our approach combines cutting-edge tech with localised processes. We hire teams of local people to map and collate data like bus stops, shops, wifi points, and so on. Our team is trained in their roles and the technologies we use before beginning work in the field. And we remain active after our initial data collection, updating data sets to ensure our offering reflects the ground truth.

  1. In terms of the company, what are some of the global mobility and urban development megatrends and how might they happen in emerging markets?

As a company, the global mobility megatrends we’re most excited about are all underpinned by what we call “infostructure”. This can be understood as the layer of information that forms the foundation for a well-functioning, modern city. Commuters and businesses in many European, North American, and some Asian cities take this for granted, benefiting from easy access to reliable data. The decentralised nature of public transport in emerging-market cities, however, means the infostructure opportunity has not been well harnessed to date. But the increasing ubiquity of smartphones in these markets means that it’s becoming possible to build this layer in a way that works for them. There is new potential to reach people in innovative ways and, more immediately, for our own data production methods which are partly undertaken using our purpose-built mobile phone application.

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Overcoming the threat of voice fraud in the financial industry

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Introduction

The level of fraud hitting the financial industry is a serious crisis. According to UK Finance, in the first half of 2021 more than £750m of bank customers’ funds were lost to fraud, an increase of more than 20% over the same period in 2020.

We spoke to Nikolay Gaubitch, Director of Research EMEA at Pindrop, about possible causes for the increasing volume of fraud – and what can be done about it.

 

Q1: Reported banking fraud skyrocketed in 2021. What is causing this alarming trend?

There are a few different trends at play here. First of all, fraudsters are increasingly able to pass security measures and access accounts thanks to the huge volume of personal records being stolen on a daily basis. More than five billion individual personal records are believed to have been breached in 2021 alone.

With that much data floating around, it’s never been easier for fraudsters to acquire login credentials and other personal information to bypass security measures. Financial account information is sold as a commodity on the dark web – for example, Pindrop’s recent Voice Intelligence and Security Report discovered that complete sets of financial data can easily be bought for less than £50.

In addition, criminal gangs have become more organised and more adept at targeting less secure areas of the financial ecosystem to overcome or bypass strict security measures. In particular, the voice channels relied upon by financial organisations for customer service can be highly vulnerable to fraudsters seeking to access customer accounts.

 

Q2: Why are fraudsters targeting the voice channel?

The voice channel is seen by fraudsters as a more accessible alternative to online platforms that have been bolstered by stronger security measures. Telephony can be exploited to provide direct access to customer accounts without the technical skills and resources required for breaching online platforms.

Caller verification is usually handled by knowledge-based authentication (KBA), a series of questions that usually involve a mixture of personal information and passwords or PIN codes. This process can be overcome by a combination of stolen information and a strong social engineering playbook, with criminals bluffing their way past any knowledge gaps. As stolen personal data has become more freely available on the dark web, KBAs have become less and less effective.

In fact, KBAs have become so ineffective that Pindrop research indicates fraudsters now have an easier time passing them than legitimate callers do. A Pindrop case study with a national contact centre found that 92 percent of fraudsters were able to pass KBAs, compared to just 46 percent of legitimate callers.

Fraudsters can also harvest or verify already stolen data by exploiting automated IVR systems or cross-referencing with other accounts.

As the financial industry offers the most direct access to a lucrative payday from fraudsters, the voice channels for banks and other financial firms are a primary target for these tactics. Our research showed that an estimated one in 1175 calls handled on behalf of banking and finance organisations was fraudulent in 2021.


Q3: Why has the voice channel been more difficult to secure than online platforms?

Securing the voice channel has historically been limited by technology due to the format and the real-time nature of the telephony channel. With limited technological options for securing and ensuring authentication in the past, fortunately solutions have now become available in the last few years.

A key consideration has been that it has been difficult to implement more effective measures without causing significant disruption for legitimate callers. For example, layers of verification such as multifactor authentication (MFA) that are common in online platforms would be too slow and unwieldy during a live call.

 

Q4: Why is the balance between authentication and accessibility so important?

Striking the right balance between effective authentication and a positive user experience is a challenge for most communication channels. However, it is particularly critical for voice.

The human aspect of voice is one of its strongest assets, providing customers with the chance to engage directly and in-depth with a trained support agent.

Financial firms risk backlash from their customers if they make voice access too difficult with strict authentication methods. Recent research by the Call Centre Management Association (CCMA) found that just over a quarter (27 percent) of all respondents had stopped doing business with at least one organisation because of authentication issues.

 

Q5: How can the voice channel be secured against fraud?

One of the most promising developments in securing the voice channel is the application of AI and machine learning technology. The technology can be used to rapidly detect fraudsters through

multiple data points such as their voice, device, and call metadata. This means imposters can be outed no matter how much stolen data they have, and regardless of how slick their social engineering skills are.

Crucially, this process should be entirely passive, taking place in the background with no additional burden or friction for legitimate callers. The real-time analytical power of AI and machine learning can also be applied to authentication to create a more efficient and seamless process.

Pindrop’s technology has delivered proven results for callers and call-handlers alike. In one example, the US-based United Community Bank (UCB) was able to handle 14 percent more calls thanks to the time saved in cutting down lengthy authentication processes. As a result of this efficiency, the average time spent on hold decreased by one minute and 11 seconds and the number of abandoned calls dropped by seven percent. Post-call satisfaction surveys saw a five percent increase in customer satisfaction.

In another example, the First National Bank of Omaha (FNBO) was able to improve account takeover (ATO) detection  by 59 percent. Total losses from ATO reportedly went down by 16 percent, and overall average loss decreased by 47 percent after implementing Pindrop technology.

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