Criminals and Terrorists on The Back Foot Thanks to Innovative Customer Identity Checks on E-Money, Prepaid and Fintech Financial Services

New research by Prepaid International Forum (PIF) reveals how innovative technology is successfully thwarting and discouraging criminals seeking to use e-money or prepaid financial services to launder money or commit fraud.

PIF, the not-for-profit trade body representing the prepaid and fintech industries, reports that as the market for e-money products grows (including prepaid bank accounts and digital wallets), so does the potential for attempts by criminals and terrorist groups to harness this sector for their own aims.

However, a detailed review of the sector’s KYC compliance measures, produced in association with identity verification specialist HooYu, shows that prepaid and fintech firms are winning the war on identity fraud thanks to a wide range of innovative technologies combined with best practice principles, due diligence and governance.

Diane Brocklebank, spokesperson for PIF, says:

“The sector is at the forefront of developing innovative financial services to harness new technology in ways that better meet customer needs and changing lifestyles.

“As an industry, we are also very aware that this innovation needs to go hand-in-hand with proportionate compliance measures to prevent its misuse by those seeking to move money for criminal and terrorist purposes.

“In order to track progress against this objective, PIF has undertaken a detailed review of the technologies and procedures being used to on-board new customers. 

“The results highlight the sector’s success at balancing the need for compliance with providing an optimum user experience by allowing legitimate customers to get up and running (in the majority of cases) within 15 minutes. Those requiring additional security can be cleared as quickly as possible (100% within 2 days) or, in the case of dishonest users, refused.”

The survey includes businesses representing the full spectrum of e-money and prepaid providers, varying in size, product and business model. The research found that 100% of prepaid fintech firms are achieving Customer Due Diligence compliance requirements, with many firms going above and beyond minimum compliance requirements.

Of those applications failing initial database checks, 14.3% are cleared to be opened within 15 minutes and 100% of valid applications are cleared within two days, dependent on the speed at which applicants return appropriate documentation.

An increasing number of prepaid fintech firms use a range of innovative techniques that are harder to cheat (especially when used in combination) but are still quick and easy for customers without damaging the customers’ digital journey. For example, 43% of checks will use geo-location to check the customer location tallies with the data given in their application.  Even newer technologies are being used whereby 57% of firms will examine the applicant’s digital footprint and social media accounts to gain further confidence in the customers’ identity.

David Pope, marketing director at HooYu, which advised on the research commented: “It’s important to show the extent that regulated firms use innovative KYC technology to quickly identify and accept genuine users whilst also cracking down on potential criminal activity”.

PIF’s findings are corroborated by the recent Financial Conduct Authority’s (FCA) report on Money Laundering and Terrorist Financing Risks in the E-Money Sector.  The report found that the sector had effective controls and a good culture of compliance.

Diane Brocklebank, added:

“The FCA’s comprehensive review is a great endorsement of the work being done to tackle potential crime.

“It found that the majority of the firms they visited had effective anti-money laundering systems and controls to mitigate money laundering and terrorist financing risk.  Also, that there was good awareness and understanding of financial crime and that firms generally demonstrated a low financial crime risk appetite with financial crime prevention “well embedded” in company culture. 

The majority of firms with outsourced distribution of e-money and compliance to programme managers had adequate governance and audit measures to manage the risks.” 

Author: Yash Hirani

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