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A recent white paper from Refinitiv – produced in collaboration with global consultancy, FINTRAIL – discusses the key elements currently shaping the evolving fintech space and the key trends that will be shaping the fintech landscape in 2023.
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The fintech industry is one of dynamism and innovation; a space where agile players harness new technology and challenge the status quo of the traditional financial services industry every day.
Undoubtedly, this delivers substantial opportunity for those involved in the sector, but at the same time, financial criminals are similarly leveraging technology and using advancements to devise new ways to further their illicit activities.
In this fast-paced space, characterised by evolution and a growing financial crime threat, what key elements are at play and what factors have shaped and defined the industry in 2022, and will continue to do so in 2023?
Findings from Refinitiv and FINTRAIL, based on interviews with experts from different fintechs across a range of geographies, have identified five key factors that are shaping fintechs today.
The fintechs we spoke to stress that the right technology can make all the difference when it comes to managing financial crime, with some describing machine learning and artificial intelligence (AI) as “indispensable tools”.
This view is in line with the recommendations of the Financial Action Task Force (FATF).
Interviewees also stress the importance of “explainability” – in other words being able to explain what data is used to reach different conclusions and why the results can be trusted – when introducing technology.
Leading technology needs trusted, comprehensive data, but fintechs highlight that striking a balance is key. Requiring too much information can damage the customer experience, while not enough leaves fintechs vulnerable to financial crime.
Collecting the right data – and the right amount of data – and then building a complete picture of risk is key to the combined fintech goals of maximising efficiency, keeping customers happy and protecting against financial crime.
Technology and data are critical in managing financial crime threats, but a third and equally critical element is invaluable human expertise. The right people across difference disciplines can make all the difference.
Those we interviewed said that engineers and data scientists are key, and further that the compliance profession is considered “recession-proof” – upskilling compliance team members should be a key priority for those in the sector.
Interviewees also highlighted that fintechs should concentrate on attracting and retaining key staff, but should also consider outsourced solutions for additional support and expertise.
Effective governance is a key consideration for fintechs as they grow and evolve. The nature of the industry and the rapid growth trajectories often followed by sector participants mean that effective AML controls and good governance need due attention.
Plus, fintechs agree that governance models should not be static – they need to adapt over time.
Efficiencies are increasing in the industry, with new technology now enabling fintechs to integrate specific data points alongside behavioural biometrics to help them spot suspicious activity.
For example, device identification data can identify if an account is accessed from a new device and this can be compared to a client’s history.
To further boost efficiencies, fintechs say that adopting a dynamic approach to risk is key and avoids wasting often scarce resources.
Fintechs can expect these top trends to continue in the year ahead and should especially take note of the powerful combination of tech, data and human expertise that are not only shaping the sector, but can enable better compliance and good governance, while boosting efficiencies.
As the industry continues to grow and develop at pace, many players are rightly concerned with ensuring an engaging and positive customer experience that offers connectivity and seamless interaction. They must, however, also keep tight control of the AML processes they will need to protect against widespread illicit activity and ensure regulatory compliance.
Read the full white paper. AML challenges for fintechs: Insights for the future
12-01-2023 | treasuryXL | Refinitiv | LinkedIn |
For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.
The fintech space is highly dynamic and agile, but this industry of innovation and opportunity is substantially impacted by a constantly evolving financial crime landscape.
Emerging technology, quickly adopted by fintech and leveraged to make every facet of our lives easier, is similarly harnessed by financial criminals seeking to engage in illicit activity.
New findings from Refinitiv and FINTRAIL – based on interviews with experts in different fintech across a range of geographies – reveal the top challenges faced by the fintech and focus on three key challenges currently at play in this dynamic space.
Read the white paper: AML challenges for fintechs: Insights for the future
Fraud continues to grow across the globe and is a key pain point highlighted by the fintech we spoke to.
One of the top fraud-related challenges currently in play is application fraud, where sophisticated financial criminals typically impersonate individuals or make use of synthetic identities.
Illicit actors are leveraging powerful technology to do this – manipulating information, tapping into advanced graphics techniques and exploiting vulnerabilities wherever possible.
In the United Kingdom, where fraud is the most commonly experienced crime, reported losses totalled £2.35 billion in 2021. In the United States, fraud trumps all other proceed-generating crimes and 2.8 million consumers made fraud reports in 2021.
– AML challenges for fintech: Insights for the future
The fintecs we spoke to are responding in a range of ways, from providing better customer education and raising awareness to protect vulnerable customers, to ramping up collaboration initiatives between the private sector, governments and law enforcement agencies.
Crypto continues to grow, and hand-in-hand with this, regulation within the sector is also increasing.
Against a highly dynamic situation, where products and technologies are evolving at speed, virtual asset service providers (VASPs) need to keep pace with a changing regulatory curve, especially when it comes to complying with differences across jurisdictions.
Even fintech that don’t bank digital assets need to stay acutely aware of the crypto-related risk as they may interact with VASPs, and consequently, need to understand potential regulatory obligations.
Sanctions are another key challenge for fintech, and little wonder given the global sanctions landscape that has unfolded throughout most of 2022.
AML teams have been scrambling to keep pace with the exponentially rising volume of sanctions, especially – but not only – those related to the Russian invasion of Ukraine.
Not only has the absolute volume of sanctions been increasing, but individual sanctions have been becoming increasingly complex, leading to rising compliance costs for fintech as well as their traditional financial services industry counterparts.
Non-compliance can have far-reaching consequences – ranging from financial to reputational and more.
The fintech we spoke to are acutely aware of the need to protect against widespread illicit activity and of the requirement to remain compliant at all times.
At the same time, they operate in a lean industry of constant change, exponentially growing customer bases and a breakneck pace of business.
This means that building a best-practice response to financial crime must be carefully considered, efficient and effective.
Leading-edge AML technology, robust data and skilled compliance professionals – whether in-house or outsourced – can offer the solution to help manage and mitigate financial crime risk and the key challenges outlined above.
High on the list of fintech priorities is striking the all-important balance between operational efficiencies, positive customer experiences and regulatory compliance – and with the right data, technology and human insights, this delicate balancing act can be maintained.
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How can data and analytics help banks meet the FRTB Standardised Approach deadline? This blog by Refinitiv helps you understand everything you need on the Standardisded Approach.