The importance of Regtech to navigate through the haze of regulation, criminality and bad shopping choices in the Covid era.
By Riten Gohil, – Sphonic
Living With The New-Norm
You’re on Mute! Clearly the phrase of the summer as millions of us descend to the dining tables, garden rooms, loft, home office or whatever space you can find amidst the fun and games of kids taking instructions from a teacher during a Zoom class whilst jumping around on all fours.
Yes -welcome to the new norm, the Covid-19 pandemic and its subsequent global lockdown has required us to make the best of the resources to our disposal and power on in leading our lives in the best way possible. Beyond this, there has been of course the unprecedented levels of human suffering with families losing loved ones as a result of this wretched disease, whilst we learn to adjust to these new norms people have been dying so its always important to consider perspective.
Given we are online more – think back to the early days of Lockdown when the swathes of queues outside supermarkets stockpiling for Armageddon meant many of us spent hours on end registering with multiple online grocery sites hoping to get lucky with a delivery slot even if it was for 4am on a Saturday.
So whilst we spend more time online, register our details here and there and click down the rabbit-hole of news sites to distract our minds from the pandemic, we are increasing the opportunities for our personal data to end up in the hands of criminals for illicit use.
Changing Nature of Digitally-driven Fraud
The problem is we were already overwhelmed as an industry by cybercrime Tsunami, long before the pandemic. Think APP fraud (Authorised Push Payment), UK Finance reported a staggering £455m worth of losses in 2019, it was the biggest menace in relation to banking fraud.
Consider the modus operandi of the criminal here – socially engineer the customer to believe you are dealing with a genuine entity, then transfer your hard-earned cash somewhere into cyberspace to never be seen again. Many of the victims are small businesses or the elderly and vulnerable who can’t always spot the nuances between what looks right and what doesn’t.
Now add a global pandemic to the mix with this heinous type of crime, a deluge of opportunity to prey on society when they are at their weakest with the prospect of eliciting even more significant sums than we have been used to in the past.
Social Engineering is a real menace and its originated by the extraction of personal data from interception, mass breaches and in many cases insider fraud. Often the criminal has only some of the credentials needed to perform an attack on the consumer (or business) and then attempts numerous techniques to obtain the missing pieces.
Sphonic’s technology is well placed to identify and eliminate identity theft and account takeover given our focus on creating a ‘digital picture’ of a customer using a myriad of market-leading innovations. Our philosophy is such that identifying risk signals from a multitude of independent risk technologies (we have access to over 85) means it is more difficult for the criminal to hide. In these challenging times leveraging innovation in risk tools will be a key defence in protecting your business and clients from such audacious attacks.
Balancing Risk with Customer Experience
History has shown that during an economic downturn fraud and financial crime is most rife, as well as the tactics deployed by organised criminals described previously we see more opportunistic lower-scale crimes from ordinary people who just don’t have enough to get by or see that there are weaknesses here that are there to be exploited.
This is best explained by the Government support schemes, let’s take CBILS and BBILS first, which had to be rushed forward for obvious reasons to ensure that businesses could stay afloat and minimise lay-offs. With huge sums up for grabs there was naturally a major opportunity to commit fraud and financial crime. Whilst there have been numerous examples of scams which take over the credentials of an unsuspecting company and redirect payment instructions, there has also been a significant challenge on the lenders supporting the scheme to originate and issue these loans as quick as possible.
From my experience, the complexities for larger banks in aligning multiple stakeholders, technology systems, and process to get these loans through the door are challenging enough. When you consider that many banks are still going through digital transformation and lending through online platforms are still under development – the difficulties are all too obvious.
The impact for the larger banks is that whilst there are likely to be fraud losses down the line (we won’t know for sure until Summer 2021 when the ‘payment free’ period ends and defaults ensue), getting these loans out in a reasonable amount of time becomes the complication as the risk, credit and financial policies still have to meet their appetite to lend.
Sphonic works with many lenders in automating the end-to-end lending funnel from eligibility, credit risk, AML, KYC and Fraud risk and during the pandemic our work around CBILS and BBLS was aimed at automating decisions for lenders in a matter of seconds.
Funding Circle is a great example, whom we have worked with for over 5 years. Their desire for speed and embracing innovation made them a perfect partner for Sphonic. Solving complex business challenges through collaborative design and implementation processes and ensuring the best possible customer experience can be achieved at the same time as meeting regulatory obligations.
Furthermore, we also spent a significant amount of time in automating CIFAS data within our core platform so false positives can be driven out quicker and our key focus on data orchestration and contextualisation can achieve more positive outcomes for a client.
In-fact KYB has been another hot topic for Sphonic during the pandemic. In particular, small businesses wanting to get online and/or start to accept card payments given the public at large want to reduce the amount of things they touch, whether its cash or limiting time in physical stores, taking card payments is now becoming the default method for purchasing in the Covid era – protecting both staff and customers alike.
Traditionally the biggest roadblock to taking card payments is being approved to take card payments. Rightly so, there are regulations in place to ensure that fraud and abuse is minimised, but some of the methods to on-board merchants out there are archaic, very manually driven and time consuming, making the whole process ultimately costlier.
For some time, we have been working with numerous acquirers and Payment Services Providers – an industry that has been in acceleration mode for some time – by taking our methodology of orchestrating and augmenting digital risk and regulatory compliance (including identifying and verifying UBO’s). Through workflow processes we can on-board merchants digitally within around 20 seconds.
Sphonic as a Trusted Partner
We of course ensure such tools are all aligned to the regulatory landscape, and in April this year the FCA wrote to the CEO’s of major financial institutions requesting them to embrace innovation in Customer Due Diligence (CDD) during the pandemic – yet ensuring they still meet their regulatory obligations.
The UK JMLSG (Joint Money Laundering Steering Group) was already on this path and its guidance from earlier this year was drawing greater attention to ‘anti-impersonation’ and taking a ‘risk based’ approach in CDD which all happens to be key features in Sphonic technology since our launch in 2012.
With a big focus on Transaction Monitoring in the 5th AMLD, as discussed by Sphonic Founder Andy Lee recently, we are well placed to support the challenges faced by Banks, Fintechs payment companies and Gaming operators across the globe.
It has been a busy time for the Sphonic Rocketship, the challenges from the pandemic has resulted in a renewed interest in our technology from new and existing clients who have been keen to optimise and enhance the services to support more digitally focussed risk processes, leverage our wider marketplace of over 85 of the world’s leading data providers that we expose via our single API platform.
More than anything, it’s the expertise of the team and the collaborative nature of the service we provide that mean working together to solve the complexities of the new norms can be easily achieved with market-leading RegTech.