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Combating payments-related financial crime

James Mirfin
James Mirfin
Global Head of Digital Identity & Fraud Solutions, Refinitiv

Payments-related financial crime is increasingly sophisticated, with the emerging payments industry a prime target. A recently published whitepaper highlights an action plan, devised in partnership with Refinitiv, that shows how collaboration and digital identity solutions are crucial to beating the fraudsters.

  1. A report by the Emerging Payments Association, in conjunction with Refinitiv and Barclays, examines payments-related financial crime and the potential solutions.
  2. Payments fraud costs the UK an estimated £2.4 billion (US$3.2 billion) a year, with emerging players in the industry seen as targets for criminals.
  3. The emerging payments industry must use technology collaboratively to #FightFinancialCrime, including through a common digital identity solution.

With fraudsters continuing to evolve their techniques, the emerging payments industry is in urgent need of developing workable solutions — backed by broad-based collaboration — to combat the threat of payments-related financial crime.

Faced with this challenge, Refinitiv and Barclays have supported efforts by the Emerging Payments Association to compile extensive research and analysis, including into the way that payments services are being abused in order to carry out fraud and money laundering.

The resulting white paper — Facing up to Financial Crime — suggests a number of important recommendations, including an action plan to thwart this criminal activity through the development of a common digital identity solution.

Facing up to Financial Crime Emerging Payments Association Combating payments-related financial crime

Fraud and the payments sector

Our increasingly digital economy is well-supported by the emerging payments sector, which facilitates fast and efficient payment transactions between consumers, businesses and banks.

The industry is populated by established players such as Apple Pay and PayPal, but is also home to a range of emerging players, which are targeted by financial criminals.

In the UK alone, payment-related fraud costs the country’s economy an estimated £2.4 billion (US$3.2 billion) annually. This works out as £45 annually for every adult in the UK, and two percent of the financial services industry’s total revenues.

Methods of payments fraud include push payments by taking control of another person’s account, tricking a genuine payer to send a payment to a fraudster’s account (which could be over £1 billion per annum, allowing for current underreporting).

The payments industry is undergoing a period of significant change, with the advent of the Payment Services Directive 2 (PSD2), open banking initiatives and the EU’s 5th Anti-Money Laundering Directive (5MLD).

As the industry comes to terms with this new landscape, there is a growing chasm between the largest players (mostly retail banks) and smaller emerging players, who are capitalizing on the opportunities created by PSD2 and establishing themselves as Payment Service Providers offering innovative consumer products.

Counting the global loss of financial crime. Combating payments-related financial crime

Weaknesses in financial systems

Many of these smaller players, however, are struggling to manage growing risk in a cost-effective and comprehensive way as they face ever-more sophisticated attempts by criminals to exploit any and all weaknesses in financial systems.

According to the report, up to two-thirds of payment fraud involves customer deception, where, for example, consumers may be tricked into disclosing card or security details.

The proceeds of this illicit activity are then laundered using multiple instruments for concealment including by mobile app, card and alternative payments.

To further hide transactions, increasingly complicated company structures are set up.

World-Check One API. Combating payments-related financial crime

Protecting your organization

The report further outlines some best practice solutions to stop financial criminals from exploiting the payments sector.

The importance of Know Your Customer (KYC) procedures has never been more important, with rigorous screening and ongoing monitoring of all third parties the best defense against financial crime.

In order to screen effectively, the first requirement is for organizations to secure access to credible, reputable data, structured in such a way that it can be seamlessly incorporated into in-house due diligence and screening procedures.

For added security, leading edge-technology is already developing new key tools to help organizations keep a step ahead of financial criminals, for example by deploying machine learning and behavioral analytics.

This powerful combination can help organizations create a benchmark of expected patterns of legitimate payment behavior, which can then be used to help spot unusual or potentially suspicious anomalies.

The paper also discusses developments in the digital identity arena, outlining that a common digital identity solution is the next step in keeping digital transactions secure and safe from would-be criminals.

According to the report, a digital identity is a core enabler for ongoing take-up of digital services, facilitating both convenience and security for users.

Watch: The Global Coalition to Fight Financial Crime – working towards establishing a global AML standard

Collaboration is key

As a macro initiative, collaboration — between industry players, governments and regulators, law enforcement, and solution providers — is widely regarded as a key tool in the ongoing fight against financial crime, a view that is overwhelmingly supported by the findings of Refinitiv’s 2018 global survey and report, the True Cost of Financial Crime.

The age of digitalization has spawned a battleground where financial criminals and industry players are continually striving to outwit one another.

Only through the right combination of leading-edge technology, invaluable human expertise, and broad-based collaboration can we hope to win the war on financial crime and create a fairer society for all.

Evolution of KYC webinar. Combating payments-related financial crime