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With growth comes risk. Why AI powered identity verification holds the key to regulatory compliance

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Victor Fredung, CEO, Shufti Pro

 

The fintech space is booming, with the industry expected to enjoy a compound annual growth rate (CAGR) of 19.8% by 2028. In particular – due to their attractive consumer propositions – challenger and neobanks are experiencing rapid growth.

However, with this growth comes increased risk. More services mean more access points. For criminals this means more opportunities to conduct illicit activity, leading to rising fraud and issues such as money laundering.

Neobanks may be assigning vast sums and resources to vetting clients but their processes are still falling short of increasingly stringent rules and compliance standards. Organisations therefore need to be a lot more vigilant in conducting due diligence. They need to find new ways to collect the required data to ensure individuals and companies are thoroughly checked before they become clients and that transactions are monitored for suspicious activity. AI-backed Know Your Customer (KYC) verification is a key weapon rapidly scaling fintechs have in their arsenal to weed out bad players, without hindering the experience of legitimate customers.

 

The FCA’s warning

As we recently learned from the Financial Conduct Authority’s (FCA) recent report on challenger banks, rapid growth and compliance are not always natural bedfellows. The FCA’s review raised concerns over the adequacy of challenger banks’ defences against financial crime, after a ‘substantial’ increase in suspicious activity reports filed last year. Put simply, the watchdog warned challenger banks to stop cutting corners in combating financial crime for the sake of quickly onboarding new customers, stressing the need to vet them adequately.

The report comes as the ombudsman attempts to strengthen its approach on tackling money laundering, which costs the UK something in the region of £100 billion pounds a year, according to the National Crime Agency. This high volume of criminal money flowing through the country not only results in a loss of confidence in the UK economy but is also often used to fund serious criminal activity.

The main failings of the fintechs, called out by the FCA, involved the inadequate screening of customers. These neobanks are often not taking the details of customer income and occupation, limiting their ability to fully assess risk. Without full customer risk assessments, banks cannot ensure that due diligence measures and ongoing monitoring are effective and proportionate to the risks posed by its customers.

Bearing in mind the economic and reputational implications of non-compliance have never been higher, these FCA findings are sobering reading for professionals in the fintech industry – in 2021 the FCA issued fines amounting to just over half a billion pounds for non-compliance.

 

The opportunity presented by AI 

These findings present an opportunity for institutions of all stripes (not just neobanks) to strengthen their KYC and anti-money laundering (AML) measures. Not only will effective identity verification meet the demands of regulators but also more importantly keep customers safe.

Against this backdrop, the need for AI-backed identity verification is clear. At present, many challenger banks operate across multiple geographies, cultures, languages and time-zones, all adhering to specific regulations and incorporating numerous data points from thousands of customers. Here rudimentary tools and traditional ‘manual’ techniques will not suffice. Not only do such methods result in countless inefficiencies, but they also place institutions at significant risk of missing key information and therefore, non-compliance.

By contrast, AI can alleviate admin-heavy processes by performing repetitive tasks, saving a lot of valuable time, resources and efforts that can be refocused on other responsibilities. And all the while, enhancing fraud detection far beyond human capabilities with its ability to mine a great volume of data to prevent risk, simplifying the process of identification of high-risk clients.

AI in KYC increases precision, speed of verification, language capabilities and configurability by adapting to different regulatory requirements. It highlights patterns and red flags that the naked human eye could never spot. This means it has the potential to analyse large amounts of data, to filter out false alerts and identify complex criminal conduct. It can identify connections and patterns that are too complex to be picked up by straightforward, rule-based monitoring.

Herein, comes the role of SaaS KYC service providers. Providers of identity verification as a service, nowadays are using machine learning, advanced biometrics, and artificial Intelligence capabilities to verify end users. It is a solution that is equipped to fully automate KYC procedures and customer compliance programs in companies. KYC services typically include document, face, and address, consent verification along with global AML background checks, and video KYC.

The practice of money laundering is as old as the hills because it is extremely difficult to eliminate as it can be done in so many different ways. It’s also a practice that continues to change with the times, with criminals recently using online banking, cryptocurrencies, and even NFT market places in order to wash dirty money.

It’s clear, adoption of technology to ensure robust identity verification is the key to remaining compliant and clamping down on fraud, while at the same time helping to maintain growth momentum.

 

Banking

Digital Banking – a hedge against uncertainty?

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By

Ankit Shah, Head of Digital Banking, Apex Group

 

The story of the 2020’s thus far is one of crisis. First the world was plunged into a global pandemic which saw the locking down of people and economies across the world. Now we deal with the inevitable economic consequences as currencies devalue and inflation bites. This has been compounded by Russia’s invasion of Ukraine and subsequent energy politics.

And the outlook remains uncertain. Tensions continue to build between China and Taiwan and inflationary conditions are forecast to continue well into 2023. This uncertainty is impacting everyone, and every sector. And finance is no exception with effects being felt everywhere from commodity and FX markets to global supply chains.

But it’s not all doom and gloom. Rollercoaster markets and an ever-evolving geopolitical situation have made 2022 a tricky year far, but, despite the challenges, digital banking has proven resilient. In fact, the adoption of digital banking services has continued to grow over the last few years, and is predicted to continue.

So, what are the forces driving this resilience?

In an increasingly digital world and economy, digital banking comes with some advantages baked in, which have seen the sector continue to succeed despite the tumult in the wider world. In fact, the crises which have shaped the decade so far may even have been to the advantage of digital banking. Just as during the pandemic, technologies which could facilitate remote working saw a huge uptick in users, so to digital banking is well suited to a world where both people, and institutions demand the convenience that online banking services offer.

And while uptake of digital banking services is widespread amongst retail consumers, a trend likely to continue as digital first generations like Gen Z become an ever-greater proportion of the consumer market, uptake amongst corporate and institutional customers has been slower. This is largely down to a lack of fintech businesses serving the more complex needs of the institutional market, but, in a post-Covid world of hybrid working business, corporate clients are looking for the same ease of use and geographic freedom in their banking that is enjoyed by retail consumers.

This is not just a pipe dream – with the recent roll out of Apex Group’s Digital Banking services, institutions can enjoy the kind of multi-currency, cloud-based banking solutions, with 24/7 account access that many of us take for granted when it comes to our personal banking.

Staying compliant

One significant difference between retail and business accounts however, for banking service providers, is the relative levels of compliance which are needed. While compliance is crucial in the delivery of all financial services, running compliance on multi-million pound transactions between international businesses brings with it a level of complexity that an individual buying goods and services online doesn’t.

For digital banking services providers, this situation is further compounded by guidance earlier this year from HM Treasury – against the backdrop of the Russia-Ukraine conflict- requiring enhanced levels of compliance and due diligence when it comes to doing business with “a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country or with a sanctioned individual.”

So, can digital banks meet these standards while also providing institutions with the kind of easily accessible, mobile service which retail customers enjoy?

The answer is yes and again, once initial hurdles are overcome, digital banking brings with it features which give it the edge over traditional banking services. Paperless processes, for example, mean greater transparency and allow for better and more efficient use of data. This means AI can be employed to search documents, as well as provide verification. It also means compliance processes, often notoriously complicated, become easier to track. Indeed, digitising time intensive manual process means the risk of human error in the compliance process is reduced.

Digital banking can also better integrate transaction monitoring tools, helping businesses identify fraud and irregularity more quickly. This can be hugely important, especially in the times of heightened risk we find ourselves in, where falling foul of a sanctions regime could have significant legal, financial and reputational consequences.

Cross-border business

Our world is increasingly globalised, and so is business. For corporate and institutional banking customers, being able to operate seamlessly across borders is key to the operation of their business.

This brings with it challenges, which are again compounded by difficult geopolitical and economic circumstances. In recent weeks for example, we’ve seen significant flux on FX markets which can have real consequences for businesses or institutional investors who are buying and selling assets in multiple currencies and jurisdictions. The ability to move quickly then, and transact in a currency of choice, is vital. Advanced digital banking platforms can help – offering automated money market fund sweeps in multiple core currencies to help their clients optimise their investment returns and effectively manage liquidity.

Control admin uncertainty

In times of uncertainty, digital banking can provide additional comfort via customisable multi-level payment approvals to enhance control of what is being paid out of business accounts, with custom limits available for different users or members of a team. Transparency and accountability are also essential, with corporate clients requiring fully integrated digital reporting and statements and instant visibility with transaction cost and  balances updated in real-time.

Outlook

For some, the perception remains that digital banking is the upstart industry trying to offer the services that the traditional banking industry has built itself upon. Increasingly however, the reality is that the pressure is on traditional banks to try and stake a claim to some of the territory being taken by digital first financial services.

With a whole range of features built in which make them well suited to business in a digital world, digital banking is on a growth trajectory. Until now, much of the focus has been upon the roll-out of services to retail consumers, but with features such as automated compliance, effortless international transactions and powerful AI coming as standard for many digital banks, the digital offering to the corporate world looks increasingly attractive.

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Business

Redefining the human touch with digital transformation

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Simon Kearsley, CEO of bluQube

 

It may not be a new phrase, but digital transformation is still inducing anxiety amongst 80% of employees. Reigniting the conversation around the future role of the human workforce, the COVID-19 pandemic caused 47% of business leaders to implement new technologies, and a further 29% to develop plans to do so in the near future.

Creating increased efficiencies, cost savings, and improved customer service, several new technologies are becoming ingrained within core business operations. For example, the capabilities of cloud computing have enhanced the customer experience, and many companies are also using this to digitise their supply chain. Likewise, the combination of artificial intelligence and big data can also be used to automate nearly 80% of physical work, and 70% of data-processing.

In the digital era with so many new channels for communication, the ability to receive valuable insights from customers has in practice never been greater, which can in turn be used to inform future planning. Leveraged properly, this means that technology can drive benefits and growth for not just businesses, but also their customers and even their workforce. As technology empowers staff to transition their roles from more onerous, repetitive tasks towards impactful decisions within their organisation, this encourages the workforce to better realise the value of their contributions.

 

A data-driven workforce

When businesses embrace data-driven digital technologies, process optimisation across various sectors of the organisation occurs. For example, digitally-led automation, such as the use of OCR software, has been able to take over many time-consuming manual tasks, including data-entry, re-keying, and core administration roles. Although tasks of this nature may have formed a large part of some employees’ roles, this doesn’t mean that anxieties around the purpose of their job must increase.

Optimisation across the business isn’t limited to processes and costs, it also extends throughout the workforce. Less monotonous roles mean that employees are free to take on strategic roles that form a more rewarding career. In practice, this access to enhanced data empowers employees to expand beyond the limited resources they have for decision-making, instead leveraging the insight collected by analytics to make more informed decisions.

By replacing repetitive tasks, staff are becoming increasingly involved in the ideation process for new products and how to improve the company’s existing services. Besides the clear benefits this has to daily productivity and efficiency, staff are equipped with the tools to more clearly demonstrate their contribution to the business and, in turn, provide greater scope for progression.

As investment in data-led solutions continues and traditional roles are reshaped around its impact, employees’ digital skillsets will act as a key driver within the talent market and generate career progression that staff may have previously felt was unattainable. However, this outcome for staff will only be achieved if managers and senior members of the company are open to change and flexible enough to evolve alongside digital transformation. Technology adaptations are inevitable, and as its organisational applications continue to expand, managers would be wise to support new digital initiatives to remain ahead of the competition.

 

Organisational impact

The business value provided by enhanced insights into customer preferences and behaviours cannot be overstated. With a clear overview of key behaviours, business leaders can accurately determine which areas of their processes need to be streamlined, where to focus their efforts, and how to attain the greatest possible value. On this basis, employees’ contributions will be vital for driving fundamental changes across the business, including roles in strategy development and operational management. Likewise, employees will be free to develop new product ideas and ways to improve the current service offering to benefit the business on a wider scale.

Amidst ongoing economic constraints, it has arguably never been more important for businesses to implement sustainable technologies that support their ability to respond to changing circumstances. Indeed, the insights discerned from employees’ data analysis and increased team collaboration are essential for reducing the risk of costly errors for the business.

In the coming years, AI-backed automation will become a key driver for technological change. As AI systems learn how to fit into the organisation and are programmed to improve over time, this encourages a greater focus on people on the long term. Not only should this reassure employees of their value, but it should also reassure managers that their investment was worthwhile.

 

Customer preferences

Further reinforcing the value of a data-led workforce is the customer preference for real, human customer service – the value of which remains remarkably high. This is recognised by the vast majority (90%) of business leaders, who believe that the human touch of customer service has become even more important amidst advancing technology, with 40% describing the continued human touch in customer service as a ‘100% mission critical focus.’

Experienced across virtually every industry, many companies may have temporarily seen customer service levels slip during the COVID-19 pandemic. However, technology is able to reverse this trend, supporting the human element of customer service with high-value data and insight. This enables teams to make decisions based on what they have learnt from evolving customer data and feedback, which can then be leveraged to improve the customer experience on an ongoing basis.

An additional benefit of digital transformation for customer service teams is that technology streamlining businesses’ operations in turn frees up organisations to provide the other crucial strand of the human touch, with dedicated customer service teams to personally connect with customers.

 

The bottom line

Simply enough, data-led technology significantly benefits business leaders, employees and customers alike. Achieving just base-level insights increases job satisfaction and security, encourages client retention, and instils confidence in customers that they are receiving a high-value service. For the four out of five workers that remain anxious about the implementation of digital technologies, it must be remembered that these advancements create an exciting opportunity for the human touch to grow alongside them.

 

 

 

 

 

 

 

 

 

 

 

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