Fraud Prevention in Fintech Industry

  • Richard Marley
  • December 12, 2017
  • 5 minutes read
  • 2705

The FinTech industry has really made its mark in the last couple of years. FinTechs have been providing financial institutions such as banks, insurance companies, brokerages, etc., technology to ensure efficient and accurate handling and management of their financial aspects. These have been in the form of new softwares, applications, business models and processes. The integration of FinTech has led to the launching of products that challenge traditional finance – PayPal, Apple Pay, Google Wallet, BlockChain Cryptos, etc. They have literally changed the way money is handled, over the Internet or otherwise, and how payments are made. From physical money we are going to digital because of FinTech. As more and more individuals rely on FinTech for the management of their money and less on physical cash, fraud prevention has become essential. The scammers, thieves and thugs of the streets are also turning their interest on how to carry out their business in the world of FinTech. Besides these guys, the underworld and the corrupt politicians of the world are also looking in on how they can utilise these emerging technologies to launder their money. The need for background checks and other AML (Anti-money Laundering) solutions couldn’t be a more urgent requirement in the world of FinTech.

What are the Fraud Prevention Ways?

Although there can be many ways to ensure fraud prevention the simplest ones are usually the best and most cost efficient. Banks and financial institutions have been relying on a process called Know Your Customer (KYC) for quite sometime; it is something that they have to ensure compliance with. Through a simple question answer session where they ask for such simple things as Name, DOB, Address, etc., to sources of income, dependents, assets, etc, they get all the information they need. Then the individual is required to submit documents that prove their identity as well as documents that prove the information they have given is correct. Based on the given information and documents, background checks (to ensure AML compliance) are carried out to make sure the person is not a criminal or not involved in any money laundering activity. Only after clearing all the verifications is the person allowed to open an account or get approved for a loan, etc. This still happens today, but given the Internet and all the improvements in technology the time frame for these has reduced drastically and the process has also been made easier.

FinTech products are mainly digital and online, so one would think how can verifications be done properly and quickly? The answer is third party KYC services that allow FinTechs to gather and verify information at the same time get background results for AML purposes.

How KYC Services Work to Enhance Fraud Prevention?

KYC Services rely on advanced AI, a webcam or a smartphone camera, to carry out all the tasks that were previously mentioned. For example an online payment processor similar to PayPal would partner up with an ID verification provider. Then during the time a user was filling in the registration form, the verification system would take over. It would ask the individual to face his webcam for verification. If there is no webcam it would allow the person to use their smartphone selfie camera. After that it would ask for ID, such as Passport, ID card, Driving License, etc., then it would ask the person to focus in on the picture, DOB, number (if applicable). The advanced AI would then match the picture with the appearance of the individual. Checking for signs of extreme makeup, or any attempt to hide or alter the face. The AI is smart enough to distinguish change due to facial hair, hair styles, glasses, jewellery, etc. At the same time the system checks thousands of Global Watchlists to check if the individual is under suspicion or involved in any money laundering activity. All of this activity is done in real time, is recorded and completed in under a minute. The KYC Services would decline any individual using a fake identity or stolen identity. The same way the background check would support AML, highlight the individual and decline them.

What to look for in a KYC Services Provider?

Having mentioned how KYC can enhance fraud prevention, it is good to know what to look for when searching for a verification service provider. One of the most important things to look for is if the company providing the verification system is aware and up-to-date with the latest industry requirements. As partnering with non-compliant companies can result in heavy fines and other penalties. An example is the GDPR policy for companies and institutions that are handling the information of European residents/citizens. Second comes speed and ease of use. If the process is too complicated and time consuming it could cause legit people to avoid it. Companies that provide such services are good have verification times that are less than a minute. Although almost all service providers use an AI to carry out the verifications, the better ones offer HI (Human Intelligence) along with the AI. Once the verdict is given by the AI it is verified by live people to ensure there are no false positives. Last but not least, the more services a KYC services provider offers usually the more value for money you get. So besides live KYC, some offer offline KYC services and AML services; in this the individual has the option to submit document for verification instead of showing on camera.

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