AML Bank

Digital Banking and AML Regulatory Compliance

As banks and financial institutions try to embrace advancements in financial technology, the digital banking sector has grown exponentially. The pace of digitization of banking systems has been reinforced by the covid-19 pandemic. Out of all bank customer onboarding in 2020, almost 65% of them were done with online methods. Unfortunately, as digital banking services become more meticulous, so do the criminals trying to find a way into banking systems.

In a changing and growing financial sector, firms need to prioritize compliance for their digital banking sectors and they need to make sure that they can detect and prevent money laundering and terrorist funding, and other financial activities. Banks and financial institutions need to continue to deliver regulatory compliance.

Digital Banking AML Regulation

Digital banking service providers are now facing both the traditional money laundering risks and other risks that have become possible due to technological advancements in the banking sector. Those risks may be the reason for new methodologies such as phishing scams, malicious software, virtual currencies to launder money with new digital banking systems. Digital banking services are popular with money launderers because of the anonymity offered by the digital banking systems.

Global financing authorities are quickly trying to handle these threats and fill in the gap in regulations, by focusing on improving digital banking services. In the United States, the Financial Crimes Enforcement Network (FinCEN) has issued a set of rules and guidelines for organizations dealing with virtual currencies. Europe’s 5th Anti-Money Laundering regulations are a set of regulations for digital financial sectors and cryptocurrency service providers. Similar to that, the Financial Action Task Force (FATF) has also released its guidance on digital identification and compliance with KYC and AML regulations.

How to Comply with AML Regulation in Digital Banking?

Banks and financial institutions need to make sure that they offer digital services in compliance with AML to reduce the risks of money laundering. Under FATF policies, most financial organizations need to follow a risk-based approach to fight AML. They need to implement an internal compliance program:

  • Customer Due Diligence (CDD): Financial institutions need to set up CDD measures to verify the identities of their digital banking customers. Under the risk-based approach, customers that come under a higher risk of money laundering should be verified with proper due diligence measures.
  • Monitoring Measures: Banks and Financial institutions will need to set up measures to monitor suspicious customer activities during digital transactions. Suspicious activities can include unusual transactions, transactions over the usual limit, or regular transactions with high-risk countries. 
  • PEP List Screening: Screening and monitoring potential customers on PEP (politically exposed persons), international sanction lists, and customer involvement in adverse media stories. Any of these can be enough to deem the customer as a potential risk.

Some rules and regulations require financial institutions to get licenses for certain digital services such as cryptocurrency exchange or features like digital wallets. FATF policies also require organizations to train their employees and appoint a compliance officer to go over all the AML programs.

Digital Banking AML Measures

To manage the new money laundering and digital banking risks, banks and financial institutions need to take new approaches to keep up with regulatory compliance. Firms need to change the way they collect and verify customer data. The most effective factors of a digital AML solution includes:

  • Digital Identification: Digital ID systems include biometric verification such as fingerprints and retinal scans. Combine that with fully equipped smartphones, both the customers and banks may use those systems for customer onboarding. Digital identities can support more accurate and efficient CDD during onboarding and throughout the business relationship. Technologies such as DIRO’s online document verification technology can verify customers online by verifying documents such as bank statements, address proof, and utility bills. DIRO’s document verification tech can verify documents instantly thus improving the overall digital onboarding process.
  • Artificial Intelligence: AI technology offers a wide range of opportunities for firms to improve their AML and KYC compliance. AI can help in prioritizing data collection and transaction monitoring. AI-based technologies can also improve the detection of red flags during online transactions and reduce the time and efforts banks spend on detecting suspicious activities manually.
  • Blockchain: As cryptocurrency is slowly growing, blockchain technology is also becoming more common among banking institutions. Blockchain is a public distributed ledger and blockchain allows firms to record and verify transactions. The technology could be used to store and encrypt customer information as a secure block of information. The use of blockchain technology within AML regulations would help fight the challenges associated with digital banking.

Integrating Technologies for Smoother AML Compliance

Managing customer data and following compliance in the era of digital banking means leaving the traditional AML rules behind. Embracing smart technologies for verification and automation for a better customer experience. 

The utilization of DIRO’s document verification technology can offer real-time document verification with 100% of proof of authentication. DIRO’s online document verification technology can verify:

  • Bank statements
  • Bank account holder information
  • Proof of address
  • Insurance information
  • Utility bills
  • Student records & many more.

By employing instant online document verification technology, banks, financial institutions, and FinTechs can improve their digital banking methods. 


Global Anti Money Laundering Regulations: New AML/CTF Laws & Regulations in European Union

The United Nations Office on Drugs & Crime reports that the estimated amount of money laundered annually is 2-5% of the global GDP. To put that in number, the losses due to money laundering are $800 billion – $2 trillion. Following the Anti-Money Laundering Act 2020 being signed into law in the US, the EU and its member states are enacting the same legislation to combat money laundering and terrorist funding. In this article, we will go over the requirements for banks and financial institutions to conduct identity checks for money laundering and terrorist financing and the Know Your Customer process.

Identity Checks for Money Laundering & Fraud Prevention in EU

Identity checks are crucial for banks and financial institutions to screen for money laundering, fraud and uncover illegal financial activities. KYC (Know Your Customer) is the process of verifying a customer’s identity to ensure the customer provides personally identifiable information. KYC is also needed to understand the past financial behavior of customers with previous institutions or other money service providers. 

The Know Your Customer regulation helps in ensuring that the financial institution’s services aren’t misused for money laundering. Compliance with KYC ensures that customers with a suspicious financial background aren’t approved for an account at the bank or other institutions.

KYC Obligations in the EU 

There is a major push to develop identity documents across the EU because most Member States have their own independent regulations regarding KYC and ID verification.

ID Tampering & Fraud: Security Features & Common Criminal Typologies

One of the biggest challenges with identity document verification is forgery and document tampering. EU passports, national IDs, and other identity documents are targets for regular ID thieves and criminals. A strong AML compliance program includes ID tampering and fraud prevention strategies. 

Regulators and law enforcement authorities face threats every day such as:

  • Falsification of documents by overprint
  • Adding a laser-engraved personalization
  • Simulating optical variable devices (OVD)
  • Grinding to access the core of a document
  • Facial spoofing during remote eKYC activities

Common methods used in document tampering are:

  • Scratching
  • Dissolving
  • Cutting
  • Opening using heat, solvents, and tools

It is crucial for banks and financial institutions to keep their eye out for these threats and illegal activities during KYC verification processes. Banks and other institutions should focus on detecting the fraudsters in the manual and remote onboarding process.

eKYC Challenges That Banks Face

eKYC comes with a number of challenges not just in the sense of applying numerous regulations and obligations from regulators and preventing tampering of ID cards. Banks have to be able to use anti-fraud technology such as liveness detection to prevent bad actors before they access the bank’s resources for their gain. 

Ever since the beginning of the Covid-19 Pandemic, banks had to switch to digital technologies. Banks all over the world are now facing challenges with online financial services.

Anti-Money Laundering & Counter-Terrorist Financing Laws and Regulations in EU

The European Union has forced a number of regulations and laws in the past two years including:

  • Sixth Anti-Money Laundering Directive (AMLD6)
  • Markets in Crypto Assets Regulation (MICA)
  • Second Payment Services Directives (PSD2)
  • General Data Protection Regulations (GDPR)

According to industry experts, financial institutions and authorities do even more in their fight against money laundering and terrorist financing. The aim should be to close gaps and loopholes in the current legislation, clarifying regulatory details and toughening criminal penalties across the EU.

The new directive brought better insights and clarification and transparency in regards to some areas:

  • List of offense
  • Money laundering
  • Scope expanded
  • Stricter persecution and punishment (4-year sentences instead of 1 year)

According to some experts, the EU Second Payment Services Directive is bringing in change and innovation in the online payment industry. The directive consists of two main elements of popular importance for e-commerce merchants: strong customer authentication and the emergence of two types of new regulated payment providers. Privacy and customer experience are among the most critical aspects that push new bank customers to complete the onboarding process.

General Data Protection Regulation (GDPR)

General Data Protection Regulation (GDPR) is a number of directives for the European Union (EU) that enhance the protection of the personal data of EU citizens. It also requires companies to comply with the latest rules and regulations that enhance the data privacy and security of every individual within the EU. These rules are strict and include many rules that increase the rights of data subjects. 

Three concepts are important under the GDPR:

  • Consent
  • Security
  • Legitimate interest

Open Banking: Global Developments, Current Landscape, and Future

If there’s one core element that can be credited for the surge of digital transformation in the financial industry, it’s the global COVID-19 pandemic. It’s more than clear that banks, credit unions, payment providers, and other financial service providers are looking to take advantage of technologies to gain an upper hand against their counterparts. The adaptation of Open Banking has also seen an upward curve in the last couple of years. According to industry experts, the total number of Open Banking users globally will reach 64 million by 2024. 

While there’s obviously a global development of Open Banking in the industry, it’s still the beginning. If careful measures are taken, Open Banking can take the financial situation to a whole new level for businesses and customers.

Revolution of Open Banking

The gist of Open finance is that it provides customers with complete control over financial data which in turn can change the financial habits of millions of users regarding money and savings. 

In the future, third-party service providers, by gaining customers’ consent, will be able to access mortgage data, investment data, insurance, savings, and pension data. Data is the core element in Open Banking and Open Finance. By leveraging this crucial customer data, existing companies of the future will be able to tailor financial services based on customer needs and interests. 

With access to seemingly endless data about customers’ financial lives and habits, there will be no end to personalized services and products. With every FinTech, Bank, and other financial institution trying to build custom products and services, there will be a surge in innovation throughout the financial industry. Ultimately encouraging the businesses to leverage the latest tools and technologies as much as possible to stay relevant in the industry while ensuring the best products and services for existing and potential customers. 

Collaborations for a Better Open Finance

Countless businesses across the globe have their own unique take on Open Finance and their own ideas on how to utilize the data to build better products and services for the customer. To help the Open Banking revolution take a better turn, companies across the world need to move ahead with a centralized approach. Without proper frameworks or the incentives to work on Open Finance, it’s less than likely that the industry will be able to utilize the full benefits of open finance.

There needs to be an untied sense of urgency for open banking to take the center stage in the financial industry. FinTechs all over the globe is focused on developing Open Banking APIs that banks can collaborate with to enhance day-to-day workflow. Open Banking APIs like online document verification APIs, online proof of address verification APIs, online bank account verification APIs can streamline the KYC, KYB, and AML workflows. 

Regulatory bodies will need to be more vigilant as open banking becomes more prevalent in the financial industry. With so much customer data open to access, there will be a need to build strong rules and regulations. If we talk about the situation of open banking in the USA, then President Joe Biden has issued a series of customer-friendly executive orders that are primarily focused on ensuring that the US banking system can transition to open banking as seamlessly as possible. 

Australia’s consumer data right offers Australians the right to access all their financial, utility, and telecom data. While it’s true that the open-by-default approach has taken more time to implement than expected, the country is now well on its way to building a strong and secure open banking infrastructure. Another example of the Open Banking revolution is in Canada, similar to Australia, they’ve built a similar plan of action, and they’re expected to roll out their open banking infrastructure by 2023. 

To successfully deliver open banking to consumers on the large scale, there will be a need for collaboration between banks and the government. As the main regulator for most of the firms that would work on the open banking landscape, the regulatory bodies will have to set forth some key rules and regulations. To successfully deliver innovative open banking products and services to the customers, the Bank-FinTech collaboration will be essential. The primary example of this is Open Banking APIs offered by FinTechs globally that can enhance the day-to-day of banks.

What’s Next for Open Banking?

The next step for global open banking is straightforward, it has to be based around a centralized, top to down approach. There have been some great initial steps from regulatory bodies and government entities, but there needs to be a centralized approach to building a proper Open Banking infrastructure. Only then will companies be able to leave traditional banking behind and transition to open banking. Needless to say, open banking and digital transformation are well on their way, the result is just about time.


How Community Banks can help with FinTech Due Diligence

Since the last couple of weeks, bank regulatory bodies have released tons of publications applicable to Community Bank FinTech partnerships. This can be called a newly proposed guidance, a FinTech due diligence guide, and a Federal Reserve white paper on types of FinTech partnerships:

The growth of FinTechs is a major concern for Federal bodies and regulatory bodies. With the release of recent publications, the efforts made by regulatory cross agencies continue to ensure growth throughout the evolving space. To boost that growth, the FinTech due diligence guide was made.

FinTechs need to be careful moving forward and build sustainable mutually beneficial partnerships between banks and FinTechs. So what does the FinTech due diligence checklist have in place?

A Pathway Towards Innovation

The last 10 years have been an incredible time to build a FinTech company as global equity investments in FinTechs have reached more than a trillion dollars with a 45% annual growth rate. The FinTech industry is becoming a threat for banks as they offer better services when it comes to online banking services. When it comes to community banks, FinTechs are even a bigger challenge as they don’t have the scale to access the expertise of a large institution. 

Additionally, this is the best time for community banks to choose innovation over anything else. Community banks can provide their relationship experience and knowledge of compliance in partnership with FinTechs that are building innovative financial solutions that are focused on fulfilling customer needs. This is the core aim of the FinTech due diligence guide. 

The US Paycheck Protection Program (PPP) increased the possibilities of community bank-FinTech relationships as FinTechs helped in enhancing the PPP loan application portals and also became a source of distribution. After all their help in enhancing the banking sector during the pandemic, it’s clear that by building relationships with FinTechs, banks can take their services to the next level. Regulatory bodies have shown more interest in the role that innovation can play in the financial sector and this led to them addressing the FinTechs. There have been several regulatory bodies sponsored events to facilitate better community bank-FinTech relationships. 

The new proposed guidelines were released in July 2021, and the complementary guidelines released in August 2021 by regulators stated that FinTech partnerships are becoming vital in the growth of the financial industry. The proposed FinTech due diligence checklist acknowledges the importance of innovative partnerships for financial institutions.

With increasing relationships, the due diligence process should also be built around the relationships keeping in mind that FinTechs don’t have the compliance experience or infrastructure of a mature bank. The Federal Reserve even acknowledges that keeping up with due diligence is a huge burden for smaller banks, that’s why the “Due Diligence Guide” was built to reduce the burden by offering some tips and tricks.

What Should Sponsor Banks Do for FinTech Due Diligence?

Based on the new proposal guide, there are four main suggestions for sponsor banks to keep up with required FinTech due diligence:

1. Review Current Due Diligence Process Against Suggested Process

The first and foremost step is to conduct a high-level assessment of the current due diligence process against all the suggested areas in the proposed guidelines. Regulators don’t want the process to be exactly as they suggest, but comparing your current due diligence process against their suggested key areas can help enhance the process in the future. 

This is also a great opportunity for businesses to review their contracts as the due diligence guide offers suggestions and examples of ideal contracts between sponsor banks and FinTechs. These contractual guidelines will help in mapping out the bank’s oversight and FinTech’s responsibilities.

2. Build Due Diligence Process based on Maturity of FinTechs

The second step for better FinTech due diligence as proposed by the guidelines is to tailor build the due diligence process based on the FinTech you’re partnering with. Sponsor banks should review their process for FinTechs that have several levels of maturity. 

Let’s say a FinTech company is taking its baby steps, their projected financials won’t have as much weight, and they won’t have a perfect management team and a stable source of funding. Understanding these things as a sponsor bank can help build better and secure bank-FinTech relationships.

3. Your FinTech Partnerships Should Act Like a Portfolio

The FinTech due diligence process is the best way to understand how a FinTech can help in making your relationship portfolio stronger. Similar to a portfolio manager that assesses the correlation and concentrations on their investments, sponsor banks also have to evaluate whether their FinTech partnerships are focused on specific customer segments or specific industries. 

For community banks that are always full of deposits, having a better understanding of balance sheets and regulatory ratio impacts can become an essential part of the due diligence process.

4. Learning When to Say No

Both the guidance and the Federal white paper revolved around a key factor “aligning the sponsor bank’s diligence and decision making on partnerships.” In the Federal White Paper, there’s an example where a bank refused to partner with a FinTech solely based on how they handled customer data.

Each bank needs to have core principles and regulations regarding the type of FinTechs they’re open to partnering with. These principles can be based on product type, industry type, maturity, and level of sophistication. Sponsor banks should also be ready to present their concerns to regulators about why they turned down a deal due to certain findings or simply due to misalignment of business goals.

Document Verification

Detection and Prevention of Sophisticated Document Fraud in 2021

In 2020, the world saw the biggest use of fake and stolen documents for illegal activities. One of the biggest reasons for that is the pandemic that caused millions to face unemployment. We live in a digitally connected world and most of our lives are spent using online services. Digital banking, government tax portals, and digital payments have taken up a huge portion of our lives. That’s why most fraudsters rely on forged documents and try to avoid document fraud detection. To signify the impact of document fraud, it costs more than $3 trillion annually. It is one of the biggest threats a world can face and it continues to grow. That’s why the best document fraud prevention techniques are required. 

Different document fraud types are rising in banks and financial institutions since these organizations have to comply with KYC and onboarding information. Fraudsters use fake documents for various reasons and have a huge impact on the economy. They use the documents to apply for loans, purchase a new property, make fake insurance claims, and travel to countries illegally. All industries support the use of official documents for verification and customer onboarding. That’s why businesses must prevent these cases before fraudsters grandly hurt businesses. Investing in document fraud detection and prevention technologies is the first step towards safety.

Document Fraud Cases for Various Industries

The federal trade commission received over 2.1 million fraud reports in 2020. Imposter scams were the most common type of document fraud and the stealing of online credentials is the second most common type. Businesses lost over $3.3 billion in fraudulent cases by consumers and the FTC received over 4.7 million reports in 2020 about ID theft. 406,365 people reported that their information was misused for numerous illicit activities.

Document fraud types differ from industry to industry. Scammers love going for real estate as there are many types of these frauds. Victims face the consequences of false sale deed filings and fight to prevent getting evicted from homes. Fraudsters claim the ownership of the property using fake documents. They then sue the owners which cost them a huge fee to resolve the issue. Application fraud and identity theft make use of fake documents that are either stolen or purchased off the dark web.

Document Fraud Types

To successfully build document fraud prevention, banks and financial institutions must be aware of document fraud types. This fraud industry is valued at more than $3 trillion and it’s one of the favorite industries of the fraudsters. The most common document fraud types are:

  1. Forged Documents

As the name suggests, forged documents are files that have tampered information in them. It is up to the fraudsters to change the information completely or partially. Some examples of forgeries in documents include adding timestamps, watermarks, adding or removing pages, and digitally changing signatures. These forged documents are usually used alongside fake identities to commit fraud. 

  1. Invoice Fraud

This is a common type of document fraud, this is where an employee impersonates a vendor and makes up a fake invoice. Fraudsters then send these invoices to the company that disburses funds directly to user accounts. 

  1. Blank Documents

Blank document is another common type of fraud, it can be used to insert falsified information and these type of documents are leaked from the manufacturing supply chain. In blank documents, blank fields can tamper however they want since they are empty and are needed to be verified.

  1. Camouflage Documents

Camouflage documents are fake identities that fraudsters create to trick banks and other institutions into believing they are someone else. This is a rare type of document fraud but it can be hard to detect if an institution is not directly looking for it. 

  1. Counterfeit Documents

Counterfeit documents are something that fraudsters build by copying official documents. Bad actors can use these documents to open new accounts, gain access to additional credentials. One of the most common uses of a counterfeit document is to use someone’s driver’s license to learn about the social security number.

Document Fraud Detection

Manual verification of documents is the oldest method that banks, financial institutions, and other businesses rely on. But as the fraud is evolving, manual document verification can’t keep up. Obvious signs can be detected with document verification, but sophisticated documents can’t be detected with manual methods. 

Technologies like DIRO’s online document verification can help businesses to build document fraud prevention programs and detect forged and stolen documents instantly. DIRO verifies over 7000 document types from all over the globe. DIRO can verify documents instantly by verifying the data from the source. The technology also provides 100% proof of verification backed by verifiable credentials to prevent the use of stolen and fake documents. Businesses need to invest in the right technologies to ensure that the documents aren’t stolen or forged.


Open Source Financial Services: What They Are, What They Offer?

Open source has the capability to transform the financial services industry. This evolution will shift the power in the $25 trillion industry from business executives to state-of-the-art developers, not just for FinTechs, but for old-style banks as well. 

Before the evolution of digital transformation in the banking industry, building and offering financial services was a tough task. FinTechs and Startups combined with the latest tools and services, inflexible core systems, complex payment architectures, compliance challenges, fraud prevention, and more. 

Just imagine, you have financial institutions that rely completely on software that can be arranged and rearranged to build new financial services. These software-based services can be reassembled to support different use cases. This is what Open Source finance has to offer for the banking industry. Open Source offers services for multiple people, and isn’t restricted to geographical location, and is freely available for all to use. 

FinTechs will have access to the best technologies from all over the world which they can leverage to build an endless series of financial products and services that weren’t possible earlier.

Shifting from Traditional to Banking-as-a-Service

Due to the major challenges and traditional policies of the banking industry, the banking systems have had an expensive infrastructure by relying on an expensive data center. With the help of technologies, banking systems are becoming better and less expensive to manage. By embracing cloud services, online document verification software, online KYC verification software, open banking APIs and others can assist in building a better banking industry. Banking-as-a-service has helped in building and adding financial services significantly simpler and easier. This allows any company in the world to offer financial services without having a financial background.

Encouragement for Future Innovation

While software as a service (SaaS) has helped significantly in rebuilding existing financial products and services, there’s an enormous need for modernization for the digital banking industry.

Financial services used to be just limited to banks, but now any company has the capability of adding financial services in terms of embedded finance. As consumers and enterprise companies have started becoming ambitious in their approach to finance, they will also require more customization to develop innovative solutions for the customers. 

FinTechs are more than often locally based, most banks on the other hand are country-specific and they have to operate based on the country’s regulations, infrastructure, and consumer payment preferences. As global companies look forward to boosting their financial services, they’ll need to build global banking applications. 

Furthermore, almost 3 billion people across the globe are underbanked and unbanked. Big entrepreneurs understand the need for spreading financial services globally. Immediately accessible open-source financial services library would enhance the process.

The Open Source Evolution

The huge availability of Open Source financial services would help in building products and services that aren’t yet available. For instance, it will be easy to combine crypto and fiat currencies, which will certainly improve digital payments and money transfers. Digital transformation of financial services like Open banking will help in better managing of finance. Flexible, open-source financial services will unleash a plethora of digital products and services.

Change Industry Standards to Increase Reliability

The payments industry has several standards, but most of the services are old and tedious to build. In 2020 over $55 trillion were moved via the ACH payment network. Open-source software libraries will help developers utilize existing services instead of having to spend time from scratch.

Payments usually have thousands of problems, too many for even sizable teams to keep up with. Modern open-source libraries have been made more robust by contributors who run payment through them.

Open Connectivity

Several countries including the UK and Brazil are leveraging open banking regulation in which banks are obligated to create and maintain APIs that enable customers to give third-party applications access to their financial data. Allowing access to financial data will lead to open finance which allows FinTechs to build custom financial services based on customer preferences. 

Developers at banks around the world are developing technologies and open banking APIs that can push the banking industry to whole new heights. If banks used a series of open-source software for building open banking APIs, underbanked and unbanked can have better access to the financial service.


Adopting Digital Assets in Financial Services

Any technology that shows any type of promise is always met with hype. Cryptocurrencies and other digital assets in the financial industry feel the same way, but over the last few months, the developments in the industry show all the signs of digital assets becoming a mainstream service. Needless to say that there are several challenges to overcome before that happens. This is the primary reason why digital assets in financial services are being surveyed thoroughly to gain a better understanding of the adoption of digital assets. 

The inspection of digital assets will analyze the industry attitude towards cryptocurrencies, stablecoins, central bank digital currencies, tokenized securities, and non-fungible tokens from executives in banking, asset management, FinTechs, and future digital asset companies. The timing to put digital assets under a microscope is ideal as there have been some developments to push digital assets into financial services. With increased customer interest and several advances made by banks, it is high time to determine the future of cryptocurrencies and other digital assets. But most customers don’t even know what are digital assets cryptocurrency?

Almost 90% of global central banks are taking steps towards launching their digital assets cryptocurrencies. The biggest example of this in the USA can be the CITI bank, which stated to be looking into the crypto markets to keep up with customer demands. In May 2021, Goldman Sachs introduced their first-ever crypto trades, after announcing that they were entering the bitcoin market. 

Not just cryptocurrencies, this year also brought non-fungible tokens, NFTs came to public attention. Theoretically, anything that can be represented digitally is issued as NFT for sale and purchase. Digital art, tweets, and soundbites are a few top examples of NFTs. The familiarization of NFTs has opened up new revenue models for artists, sports companies, and video-game developers. 

The rising customer interest suggests positive growth, but the market is volatile and unpredictable and it can go down at any given moment. China’s recent stoppage of Bitcoin mining led to a significant price collapse in the market.

Does the Financial Industry See Digital Services as Long-Term Service?

The financial industry can make all the announcements and plans, but it won’t make a difference for customers until some solid actions are taken. The primary concern at the moment is “do banks and other financial institutions consider digital assets worthy for a long-term investment?” 

Top banks from all over the globe have been working and experimenting with digital assets for several years, even before the hype. However, the transition from research and experimentation to investment and execution can be a difficult step to take. As the experimentation phase is over, most banks are now focusing on launching services that will fulfill the customer demands for cryptocurrencies. Other banks are investing in building better digital infrastructure, while the rest are focusing on building digital assets of their own like stablecoins and tokenized securities. 

This states that there is a divide in the financial industry regarding the future of digital assets. Some players in the industry are investing significantly in crypto while others are unsure. Firms operating in the financial industry are unsure of whether or not to invest in crypto or to adopt a ‘wait and see’ methodology. 

Another reason why some banks and institutions are adopting digital assets and cryptocurrencies is because of the rising customer demand. By sitting back to analyze the market, banks are afraid to lose customers.

What’s the Biggest Challenge to Mainstream Adoption of Digital Assets?

As mentioned above, a lot of development is being made in the digital asset in the financial industry, so what’s stopping crypto and other digital assets from becoming mainstream? The lack of regulations in the industry makes it susceptible to fraud, but over-regulation can stop the momentum of the industry altogether. So it’ll be interesting to analyze the next step of the industries. 

Regulators are trying their best to make sure the digital asset in financial services is available to customers without over regulations. The UK Financial Conduct Authority issued a warning to consumers about the dangers of betting on digital assets. The Central Bank of Ireland stated that Bitcoin can’t be treated as a currency as it doesn’t meet the requirements of a functional standard currency, it’s more like a high-risk asset.

The European Union issues a regulation for markets in crypto assets to help in regulating the currency and the service providers in the EU and provide a licensing regime for all member states by 2024. This update in regulation will cover all the digital assets that don’t fall under any regulation.

Impact of Tokenization of Financial Assets

Tokenization simply means a representation of a digital assets cryptocurrency, which can be any physical asset. However, in this situation, tokenization is required for digital assets such as equity or share. While traditional payments take up to 3 days to reflect in the banks, the sale and purchase of token assets offer almost real-time transfers. This fast-paced transfer of funds can increase demands and change the current financial infrastructure.


How Cryptocurrencies are Disrupting Money Transfers?

Using traditional methods for money transfers can be monotonous and slow. Sending or receiving money using regular bank services can take 3-5 business days. Innovative technologies such as digital wallets, third-party payment apps can transfer money faster. New banking infrastructure is disrupting the current financial landscape to improve the financial lives of millions all over the globe. The rise of cryptocurrencies has had a similar impact on the financial industry.

What are Cryptocurrencies?

In simple words, a cryptocurrency is a digital or virtual currency that’s secured by cryptography. Cryptography makes sure that the currency can’t be counterfeited or spent twice. Almost all cryptocurrencies are decentralized networks powered by blockchain technology, a distributed ledger protected by several networks of computers. One of the reasons behind the popularity of cryptocurrencies is that they aren’t issued by a central or regulated entity like banks and other financial institutions. This lack of centralization protects them from manipulation and government interference. 

Cryptocurrencies are frameworks that allow users to make faster and extremely secure payments online that are denominated in terms of “tokens”. The first-ever blockchain-based crypto was Bitcoin, which is still one of the biggest cryptos in the market currently. 

Cryptocurrencies can enhance digital payments without the need to have an intermediary like a bank or credit card company. Payments made by cryptocurrencies are more secure than payments made by banks and financial institutions. 

Cryptocurrency apps and platforms provide the user with virtual currencies and users can send these currencies to whosoever they wish to. Fund transfers are completed with minimal processing fees, thus allowing users to avoid the huge amounts charged by banks and other financial institutions for wire transfers. 

While they sound great in theory, the semi-anonymous nature of cryptocurrencies makes them a hub for illegal activities such as money laundering and tax evasion. But one of the primary reasons behind crypto’s popularity is the anonymity offered, ensuring privacy and security. Some cryptocurrency platforms offer better security and protection than others. 

Bitcoin, for instance, is an incredibly poor choice for conducting illegal activities as the Bitcoin analysis department has helped authorities in prosecuting criminals.

Blockchain and Banking: Role of Decentralized Currency in Financial Services

Blockchain technology allows untrusted parties to come together without using a middleman. By offering a ledger that belongs to no one, blockchain technology has the capability of providing unique technologies. Use cases that don’t require a high degree of decentralization can benefit by leveraging ‘distributed ledger technology (DLT).” Businesses can establish better customer monitoring by using data sharing and collaboration methods. 

Blockchain technology can disrupt the banking industry massively by providing better key banking technologies such as:

  • Payments: By using cryptocurrency for payments, customers can experience faster and better digital payments with low fees. 
  • Securities: By tokenizing the traditional securities such as stocks, bonds, and alternative assets and placing them on public blockchains.
  • Loans and Credit: By eliminating the need for intermediaries from the loans and credit industry, blockchain technology can make it possible to provide better lending options and lower interest rates. 

Customer KYC and Fraud Prevention: By collecting and storing customer information on decentralized channels, banks and other financial institutions can make it easier to verify customer information during onboarding. This can even enhance the level of security in sharing information between financial institutions.

Beyond the Hype: Cryptocurrencies and Blockchain Technologies

While it’s true that cryptocurrencies and blockchain have the capability of disrupting financial institutions, these disruptions don’t happen overnight. The cryptocurrency industry has a long way to go before becoming a streamlined service that can be used in enhancing the workflow of the financial industry. 

It may be possible for cryptocurrencies and blockchain to shift the tides of a few key services provided by banks, but this will require significant improvement in the current landscape. The future remains unclear to what degree the banks will embrace these technologies. One thing remains clear though, cryptocurrencies will have a huge impact on how the digital payment framework runs in the financial industry. 

ID Verification

Identity Verification in The Financial Services Industry

Identity verification is becoming more and more essential in the growing digital financial landscape. It has two different benefits, helps in preventing fraud and prevents fines for non-compliance with KYC and AML regulations. The new and improved financial industry that we experience today has taken so much time and effort to happen. While the concept of finance existed since ancient times, the use of the term “financial services” became widely popular in the late 1990s. Today, we have a completely different financial industry compared to a decade ago. Customer demands and technological advancements have changed the financial industry into a seamless experience. 

Though things are more comfortable for consumers now, the risk of digital financial fraud has gone through the roof. Regulatory bodies, authorities, banks, and businesses need to take strict steps in order to maintain the integrity of the financial workflow. Technological solutions such as online document verification software, online KYC verification software can improve financial technologies.

Problems in The Financial Services Industry

The financial industry includes banks, credit unions, insurance firms, credit card providers, and others. Digitization is helping businesses improve their overall customer experience and productivity. Fraudsters are also leveraging technologies to break into the internal systems of the financial institution. 

1. Cybercrime

In 2019, 62% of all data breaches came from the financial services industry. Hacking and malware attacks for the primary source for data breaches. As of right now, the fraudsters are focusing all their attention on the online financial service platform. 

2. Regulations

Online investment and financial platforms such as crypto exchange, online banking, and other platforms are being used for money laundering and tax evasion. That’s why, regulatory bodies keep evolving and amending the KYC, KYB, and AML regulations. Unfortunately, most businesses fail to comply with these regulations by using ineffective technologies.

3. ID Theft

Identity theft is one of the biggest challenges faced by the financial industry. Fraudsters use various methods to steal or create a fake ID to trick banks and financial institutions. One of the most common types of ID theft is fraudsters stealing credit card information and buying things without user consent. There are instances where fraudsters steal “personally identifiable information (PII)” to open new accounts, apply for credit cards and loans. 

Need for ID Verification in the Financial Industry

ID verification plays a huge role in reducing the risk of financial fraud. Proper ID verification software can assist in preventing ID theft, money laundering, account takeover fraud, and other types of financial fraud. Combine ID verification with online document verification software and banks have a completely digital onboarding solution. 

The ID verification solutions make sure that a customer’s ID matches with the physical person. ID verification is part of the KYC verification process during customer onboarding. As KYC has become obligatory for financial institutions, the need for ID verification in the financial industry has soared. 

Here are some stats to signify the importance of ID verification solutions:

  • According to the FTC, around 9 million Americans report ID theft annually. 
  • Credit cards, loans and leases, and phone frauds are the three top types of ID theft fraud. 
  • The UK, Denmark, and Ireland had the highest rate of ID theft in 2018 and 2019.
  • In 2018 and 2019, more than 55% of Europeans have experienced at least one type of ID fraud. 

How ID Verification Solutions Can Enhance the Financial Industry?

1. AML & KYC Compliance

Banks, credit unions, credit card providers, and other businesses operating in the financial industry are obligated to comply with KYC & AML regulations. To comply with ever-changing KYC and AML directives, firms have to know who they are doing business with. Robust ID verification procedures reduce the risks of businesses running into fraud, avoid huge fines and improve their brand reputation. 

2. Reduce Fraud

Needless to say, the biggest use of having an ID verification procedure for your business is protection against fraud. During onboarding, banks can verify if a customer is who he/she claims to be. Moreover, ID verification improves user experience as users feels safer using your platform.

3. Minimizing Operational Costs

Manually verifying documents and cross verifying customers with ID documents take too much time, effort, and resources. The worst part about all is that it is highly inefficient, most fraudsters tend to make documents that are too perfect to be determined as fake documents. Using online document verification software can enhance online ID verification and digital customer onboarding.


FinTechs and the Financial Industry Revolution

FinTech is a word combined by mixing two words, “financial and technology.” FinTech stands for financial startups that develop technologies to assist banks, and financial institutions in enhancing common day-to-day activities such as online money transfers, mobile payments, and online customer onboarding, and so on. 

New technologies are constantly disrupting the financial industry. From peer-to-peer lending to Robo-advisors, customer screening, and onboarding, old business models are slowly moving towards technologies. FinTech companies can fit into any of the three main models of the financial institution, such as lending, asset and wealth management, and payments. 

This growth of FinTech is pushing high-end banks to reconsider the way they interact with their consumers and potential customers. In the last few years, technology has transformed the way banks operate and the way consumers invest, make payments and apply for a loan. This is possible because banks partner with FinTechs to provide better services to banks, which in turn helps in providing better services to the customers. 

The emergence of technology has changed the way the financial industry operates, it changes the structure of the industry and brings in unseen opportunities. Below we have listed how FinTechs have changed the financial industry.

How FinTechs Enhance the Financial Industry?

1. Virtual Revolution

Traditional banks with their traditional service offerings are becoming monotonous for the newer tech-savvy generation. Gone are the days that banks had to deal with the risks of loss of physical data such as guarding servers and material documents filled with personal customer information. With the help of FinTechs, banks can have computerized tellers, e-payments, digital records, and much more. All this digital data can be accessed and leveraged with simple buttons. 

2. Need for IT in the Industry

IT in financial services is just as important as any other industry. The need for technology is more than vital in the financial industry and is increasing day by day. Mobile apps are quickly becoming the biggest asset in the financial industry as more and more customers are utilizing smartphones for everything. This applies to firms that largely deal with cloud data. Having an agile technological framework is essential for banks in this technology fuelled world.

3. Everything is Global

Technologies allow banks to enhance their customer base and operate globally. With online customer onboarding technologies and online document verification software, banks can reach out to customers everywhere on the globe and onboard them seamlessly. As more and more players are entering the market, the need for technologies is growing at an incredible rate and this demand is pushing forward the need for digital transformation in the industry. 

4. Data Encryption

It’s essential to protect customer data because of the growing amount of data breaches. Because of this, security has become a major concern for financial institutions. The vulnerability greatly exists because of the amount of data that’s existed in the cloud which can be shared or hacked. FinTechs have helped banks and financial institutions to secure their data, ensure that the customer data is secure and build better customer-business relationships. 


FinTech solutions like online document verification software, online bank account verification software, and online AML and KYC verification solutions can help banks to push their services further.