Author: Julie Muhn (@julieschicktanz)

Banks Battle with New Competitive Advantages

Banks Battle with New Competitive Advantages
By Julie Muhn (@julieschicktanz) Posted on
Categories: Julie's Column, Thought Leadership

What happens after the newest cutting-edge banking technologies become table stakes? Banks move on to tackle another new technology.

In fact, in the past decade or so, banks have been constantly moving from one new technology to the next– from remote deposit capture to merchant-funded rewards, roboadvisory services, AI-informed marketing strategies, and finally on to complete digital transformation.

So now that 2020 served as the year of digital transformation, what’s next? How will banks use their limited resources to get ahead of the curve? Below are a few areas in which banks are focusing their attention to gain competitive advantage:

Communication

Last year we saw multiple financial services organizations update their communication technologies in tandem with digital transformation. But the game of facilitating customer communication is far from over. As Ron Shevlin pointed out in his piece, Every Bank Needs A Chatbot (Or Two) For Its Digital Transformation, chatbots are no longer simply a novelty. Instead, these tools offer fast turnaround for customer inquiries, provide additional data about consumers, and help firms hold personalized conversations with clients.

Another communication enhancement comes in the form of leveraging popular third party apps to communicate with customers. Axis Bank, for example, India’s third-largest private sector bank, recently announced a partnership with WhatsApp. Customers can now use WhatsApp to inquire about their account balance, recent transactions, credit card payments, deposit details, and block their credit or debit card.

Cryptocurrencies

Ready or not, crypto is here! In January, the U.S. Office of the Comptroller of the Currency (OCC) published an interpretive letter detailing that banks can transfer stablecoins to other banks. While banks haven’t been rushing to leverage this functionality, there have been a few moves that indicate financial services are slowly entering the cryptocurrency game.

First off, marketing services company Kasasa unveiled plans to help its bank and credit union clients provide bitcoin wallets to their consumers. Additionally,  Mastercard recently announced it will allow merchants to accept payments in cryptocurrencies, and BNY Mellon agreed to begin custody of cryptocurrencies.

Payment tools

With so many payments moving online in the past year, banks need to be even more aware of their role in the online payments flow. In fact, the recent rise in embedded payments poses a risk to banks as third party apps such as Uber and DoorDash make the payment element of a transaction almost disappear.

There’s also been a lot of competition in the booming buy now, pay later (BNPL) space, and not just from third party fintechs like Klarna and Afterpay. Last year, Citi announced Citi Flex Pay, a product that enables cardholders to pay for select purchases over time at a lower interest rate than their card’s purchase rate. And in 2019, JPMorgan Chase launched My Chase Plan, an offering that allows cardholders to make equal monthly payments on purchases of $100 or more with no interest, just a fixed monthly fee.

Offering another tool to make payments more flexible, is U.K.-based fintech Curve. The fintech connects with consumers’ existing payment cards to offer rewards as well as a Go Back in Time feature that lets users switch payments from one card to another for up to 14 days after the purchase was made.

Sustainability

If you’re not green, you’re gone! O.K., maybe not quite, but in the past few months we’ve seen an increase in fintechs working toward a more sustainable future. In fact, just this month there have been multiple headlines that highlight fintech’s green future. First, U.K.-based digital bank Starling Bank launched recycled plastic debit cards. Second, Citi began restricting financing for companies expanding coal power. And finally, Meniga partnered with Iceland’s Íslandsbanki to integrate Meniga’s Carbon Insight into its digital banking solution.

Fintechs are also helping consumers do their part to minimize their impact on the environment. Aspiration, for example, ensures accountholders that their deposits won’t fund fossil fuel projects like pipelines, oil drilling and coal mines. The startup also works with reforestation partners to plant a tree when users roundup their purchase to the nearest dollar. And speaking of trees, Treecard offers a wooden Mastercard and donates 80% of its profits to reforestation efforts.


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Stripe Rakes in $600 Million in Funding, Boosting Valuation to $95 Billion

Stripe Rakes in $600 Million in Funding, Boosting Valuation to $95 Billion
By Julie Muhn (@julieschicktanz) Posted on
Categories: Daily news, Funding

Ecommerce technology company Stripe announced over the weekend that it recently raised $600 million in funding. The Series H round brings the company’s total funding to $2.2 billion and boosts its valuation to $95 billion.

Investors in this month’s funding round include Allianz X, Axa, Baillie Gifford, Fidelity Management & Research Company, Sequoia Capital, and Ireland’s National Treasury Management Agency.

Stripe will use the funds to expand its Global Payments and Treasury Network and invest in its European operations to support increasing demand in the region. Specifically, the California-based company aims to boost its Dublin headquarters.

“We’re investing a ton more in Europe this year, particularly in Ireland,” said Stripe President and Cofounder, John Collison. “Whether in fintech, mobility, retail, or SaaS, the growth opportunity for the European digital economy is immense.”

Stripe has clients in 42 countries, 31 of which are in Europe. Among the company’s European clients are Deliveroo, Doctolib, Glofox, Klarna, ManoMano, N26, UiPath, and Vinted.

As Stripe pointed out in a blog post, only 14% of commerce happens online. That’s why, as the company’s CFO Dhivya Suryadevara notes, Stripe is “investing in the infrastructure that will power internet commerce in 2030 and beyond.” More specifically, the company is expanding its software and services and is making its technology available to millions more businesses in Brazil, India, Indonesia, Thailand, and the UAE.

“While Stripe already processes hundreds of billions of dollars per year for millions of businesses worldwide, the opportunity ahead is much larger for Stripe than it was when the company was started 10 years ago,” added Suryadevara.

Photo by Paweł Czerwiński on Unsplash

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Taulia Makes $6 Billion Credit Facility Available to Clients

Taulia Makes $6 Billion Credit Facility Available to Clients
By Julie Muhn (@julieschicktanz) Posted on
Categories: Alumni News, Daily news, Funding, Taulia

Supply chain financing expert Taulia is making a $6 billion credit facility available to its supplier clients this week. The funds were secured through a JPMorgan-led consortium that also includes UniCredit, UBS, and BBVA.

The news comes after Taulia partner Greensill Finance filed for insolvency earlier this week due to its largest client, GFG Alliance, defaulting on its debts. Taulia expects that the credit facility will help its clients that relied on Greensill Finance by offering them access to a different source of liquidity.

To be clear, the financing is not funding for Taulia itself; it is funding to help suppliers on its platform that are linked to Greensill Capital clients.

“Taulia’s priority, first and foremost, has been to enable businesses both large and small to unlock liquidity trapped in their supply chain in order to invest, operate and thrive,” said Taulia CEO Cedric Bru. “In the current environment, with the potential loss of a funder, our commitment to providing choice has become even more paramount.”

Today’s financing is the continuation of Taulia’s strategic partnership with JPMorgan that began in April of last year. Last July, the financier participated in Taulia’s $60 million financing round that boosted the San Francisco-based company’s total funding to $177 million.

Photo by Tom Fisk from Pexels

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Luvleen Sidhu on Working with Big Banks, Google, and Why She Chose a SPAC

Luvleen Sidhu on Working with Big Banks, Google, and Why She Chose a SPAC
By Julie Muhn (@julieschicktanz) Posted on
Categories: Speaker series, Women in Fintech

Luvleen Sidhu, CEO of BM Technologies (formerly known as BankMobile), is now one of the youngest female founders and CEOs of a public company.

Since she co-founded BM Technologies in 2014, the company has made major news headlines. We recently spoke with Sidhu to get the background behind some of those decisions and to get her opinion on what it takes to compete in the fintech world as an ethnic minority and a woman.

First off, give us some background on BM Technologies (BMTX) and how it differentiates itself from other challenger digital banking platforms.

Luvleen Sidhu: BM Technologies, Inc. (NYSE American: BMTX, BMTX.W) is among the first neobanking fintechs to go public and is one of the largest digital banking platforms in the U.S. (with over 2 million accountholders), providing access to checking and savings accounts, personal loans and credit cards. We are on a mission to utilize technology to provide millions of Americans with a better banking experience, especially around affordability, transparency and more consumer-friendly products. We are proud to share that we were named the “Most Innovative Bank” by LendIt Fintech in 2019 and we continue to stay true to our mission of being a customer-centric focused company committed to innovation, and financially empowering millions of Americans.

We are a profitable and high-growth company and have been able to build this strong foundation through our Banking-as-a-Service (BaaS) strategy, which enables the acquisition of customers at higher volumes and substantially lower expense than traditional banks. This allows us to provide low-cost banking services to low/middle-income Americans. Today, the BankMobile BaaS platform is provided to colleges and universities through BankMobile Disbursements and serves over two million account-holders, providing disbursement services at 722 campuses, covering one out of every three students in the U.S.

Additionally, BM Technologies executed an agreement with Google to introduce digital bank accounts, which will be available to its customers. We also expanded our white label strategy with T-Mobile for the launch of T-Mobile MONEY.

Tell us about why you chose to offer not only B2C banking products and services, but also banking-as-service tools?

Sidhu: When we launched our company over six years ago, we actually only had a B2C banking product. However, fairly early on, we realized we were not growing at the exponential rate that we had anticipated and our customer acquisition cost was high. This caused us to pause and reevaluate our strategy. We recognized that there was an opportunity to pivot our strategy to a B2B2C model where we could lower our customer acquisition cost to less than $10 and in return still deliver a tech-enabled banking experience to millions of Americans through our distribution partners. This has been critical in our growth and our success as a company.

BM Technologies has its roots in the traditional banking world, having been developed internally by Customers Bancorp. How did that relationship shape BM Technologies?

Sidhu: Customers Bancorp gave us an extremely solid foundation as a company. Even when we launched in 2015, Customers Bank had $6.5 billion in assets. My father, Jay Sidhu was then the CEO of Customers Bank and cofounded BankMobile with me. Richard Ehst, then President of Customers Bank, also helped guide me, along with other members of the company’s leadership team. Having the chance to work with banking veterans provided us with immense knowledge of the industry, which helped us be successful.

BM Technologies is one of the 11 financial institutions collaborating with Google to pilot its Plex bank accounts. What benefits does this partnership offer BM Technologies? Are there any challenges with the new partnership?

Sidhu: This collaboration is mutually beneficial and is differentiated from the others because of our unique college student acquisition funnel. This means we are bringing to Google Plex potentially millions of student customers.

For us, the collaboration offers additional brand equity since Google is one of the leading technology companies in the world and has chosen BM Technologies to work with.

Why did BM Technologies choose to go the SPAC route to become a public company? What opportunities will this offer?

Sidhu: We decided to go the SPAC route because it was a more efficient way for us to take the company public. Our ultimate goal is to add a new white-label partner and gain at least a million new bank customers each year and most importantly provide them with the most financially empowering banking experience. We also plan to use our new funds to continue to focus on innovations and expand our product offerings.

As not only an ethnic minority but also a woman, what have you learned about what it takes to compete in the fintech world?

Sidhu: It takes a lot of determination, flexibility and a “can-do” attitude. I have been raised by two parents who have always supported and encouraged me and given me the tools and resources to succeed. This has helped me throughout childhood and adulthood and has given me a strong foundation to launch my own company. “Never give up” is a motto that my father said to me since I was a young child and one that I truly believe in. There have been obstacles along the way, but by continuing on despite them and overcoming them, I feel I have been able to be competitive.

In general, what developments can we expect in the challenger banking space in 2021?

Sidhu: I think that challenger banks will continue to grow their customer base, becoming increasingly popular with consumers across the country. More and more people are turning to digital banking, and the pandemic accelerated this trend. Challenger banks are nimble and consistently creating new services, which are attractive to Americans. I also believe that more challenger banks will go public this year.

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NTT Data Launches New Digital Banking Platform

NTT Data Launches New Digital Banking Platform
By Julie Muhn (@julieschicktanz) Posted on
Categories: Alumni News, Daily news, NTT Data

Consulting and IT services company NTT Data announced the launch of a new digital banking platform today. The new offering, Platea Banking, helps banks with digital transformation while maintaining their legacy technology.

Platea Banking helps retail banks take a platform-based approach to facilitate a customer-centric focus on the banking experience. The new platform offers banks access to NTT Data’s partner ecosystem and modules, including customer onboarding, lending, planning and financial management, card issuing and processing, payments, and others.

The open banking approach allows banks to select the features they need and move quickly through a platform-based approach that doesn’t tie them down to a single vendor.

“Technology plays a central role in helping banks innovate and deliver next-generation banking services to their customers,” said Global Head of NTT DATA’s Open Banking Practice Manuel Romero. “With consumers demanding digital banking experiences, it is imperative that banks act accordingly to respond [to] their needs. Platea Banking has been built to empower banks, providing them with a path to incorporate cloud-native technology to expand their business, as well as the ability to overcome obstacles such as scalability issues, legacy IT and compliance.”

Founded in 1988 and headquartered in Tokyo, Japan, NTT Data offers a range of IT services and solutions, including consulting, systems integration, and IT outsourcing, for multiple sectors. A Finovate alum, the company most recently demoed at FinovateFall 2019. Yo Honma is CEO.

Photo by Vlada Karpovich from Pexels

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What the U.S. Can Learn From Open Banking Abroad

What the U.S. Can Learn From Open Banking Abroad
By Julie Muhn (@julieschicktanz) Posted on
Categories: Guest Post

This is a guest post written by Shannon Flynn, managing editor at ReHack.com.

Across the world, open banking is creating opportunities for banks, fintech platforms, and individuals like never before. Open banking allows third-party sources to use a financial institution’s existing platform or resources to provide their own services. With consumer permission, open banking allows these outside sources to grow the industry and give power to the people.

However, some countries inevitably use open banking more than others. Currently, the United Kingdom and Saudi Arabia are two examples to follow. While the United States has made significant progress, it has a lot to learn from the countries that are leading this form of finance. That way, more opportunities open up for enterprises and consumers alike.

Where the U.S. stands

The U.S. is progressive in some ways with open banking. In others, it needs work. Notably, platforms like Venmo and PayPal expand on what’s possible for users. They allow you to make payments or transfer funds in the blink of an eye. However, compared to other countries, the States fall flat.

Big tech is currently a hot political topic due to the potential mishandling of user data. Though conversations like these are not uncommon elsewhere in the world, the U.S. needs to nail down some federal regulations. As of now, the U.S. still doesn’t have a federal-level law on data compliance. It’s up to each state to enforce its own regulations.

Brick-and-mortar locations may have an easier time following individual state guidelines, but the nature of open banking is inherently digital. These fintech services span across state borders, which makes compliance trickier without federal guidance.

For the country to proceed, the first step will be getting a universal law in place that shows banks and tech companies exactly how they must operate when it comes to compliance.

Engagement must increase

Open banking should welcome disruption. A country with a few centralized banks is one that does not allow for much disruption. Instead, only the top banks and tech companies have room to expand and create, leaving startups and smaller companies in the dust.

The U.S. has big tech companies like Apple, Google, Facebook, and Microsoft that each delve into new tech. For instance, Apple Pay and Google Pay let you buy on smartphones instantly.

The U.K. has an ideal open banking model that disrupts this lack of inclusivity. In 2018, the nation introduced the Second Payment Services Directive (PSD2). This initiative put an emphasis on increasing competition and creativity in the financial field. Ultimately, this directive wanted to create a more equal landscape between banks and fintech companies.

Since its introduction, 300 fintech brands have joined the new finance-oriented environment in the U.K. In the States, new brands pop up all the time. However, whether or not they stick and make an impact is a different story. The competitive market must change in the U.S. so more open banking innovation emerges.

Transparency is essential

People want to know what goes on with their data. They want to know who’s using it and for what — which inherently includes when third-party platforms are part of the equation. In a survey, almost 40% of respondents would reconsider their selected features if it meant a third party required access. This mistrust is a product of poor transparency throughout the industry.

Saudi Arabia recently expanded on its plans to make open banking more accessible for fintech companies. Through this process, transparency becomes a key factor. The Saudia Arabian Monetary Authority (SAMA), the central bank, will create a new initiative that focuses on bringing consumers into the loop.

With the increased use of technology for banking, investing, and mobile payments, more and more people rely on technology daily. SAMA understands this need to combine financial and digital literacy, doing so through open banking. With consumer permission, third parties can use data to connect the financial institution with personal finance services.

The U.S. must use the same tactics of bringing transparency and functionality together through open banking. That way, digital literacy in the U.S. incorporates access to quick purchases, investments, and transfers alongside a better understanding of how companies use data.

Changing the U.S.

Apps like Venmo and PayPal are a good start to open banking. You’ll find that newer fintech platforms, like Robinhood, Acorns, and MoneyLion are popular resources alongside the countless startups launching daily. While nourishing open banking features and fintechs is beneficial, the underlying theme is the most critical — more regulation is the key to widespread adoption. With it, the U.S. can then fully see the benefits of this form of finance.

Shannon Flynn is a technology and culture writer with two plus years of experience writing about consumer trends and tech news.

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Betterment Acquires Wealthsimple’s U.S. Investment Advisory Business

Betterment Acquires Wealthsimple’s U.S. Investment Advisory Business
By Julie Muhn (@julieschicktanz) Posted on
Categories: Alumni News, Betterment, Daily news, Mergers & Acquisitions

U.S. wealthtech player Betterment is building up its assets under management. That’s because the company acquired the U.S. investment advisory business of Canada-based Wealthsimple this week.

Terms of the deal– which notably does not include Wealthsimple’s technology, employees, or operations– were not disclosed.

“As we shift our focus to our Canadian business for the time being, finding a partner for our U.S. business that shared our commitment to putting clients first was our top priority,” said Wealthsimple Co-founder and CEO Michael Katchen. “It’s been a privilege to serve our U.S. clients, and we’re confident that their investments will continue to be in good hands with Betterment.”

To find a suitable home for its U.S. accounts, Wealthsimple selected Betterment in a competitive bidding process for its strong reputation and customer-first mentality. Wealthsimple’s U.S. clients will be moved over to Betterment in June of this year.

“This was an excellent opportunity for us to grow our customer base, and we’ll continue to be aggressive in opportunities that accelerate our business goals,” said Betterment’s newly-appointed CEO Sarah Levy.

Photo by Gabby K from Pexels

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Plaid Releases Income Verification Tool

Plaid Releases Income Verification Tool
By Julie Muhn (@julieschicktanz) Posted on
Categories: Alumni News, Daily news, Plaid

Banking technology player Plaid announced Plaid Income this week, the company’s new income verification tool.

Income offers a secure and fast way to help consumers prove their salary in order to qualify for and secure loans, rent apartments, lease vehicles, and more. Lenders benefit from this data by being able to make better-informed risk decisions, issue pre-approvals or approvals faster, and allocate fewer resources to manually reviewing documents. 

Plaid places consumers in control of their own data by offering them the option to choose whether to share their data. With Income, they can opt to share their salary information by connecting to their employer account, payroll provider account, or by verifying their salary using documents such as paystubs, W2s, and some 1099s.

To help users connect directly with their payroll provider, Plaid supports real-time payroll authentication for over 250,000 of the largest employers in the U.S. The company is also developing credential-less authentication capabilities with leading payroll providers, including ADP.

The new Income tool is part of the Plaid for Payroll suite, which also includes the company’s Deposit Switch offering launched earlier this year.

Plaid’s income verification tool is similar to an offering from its competitor Finicity, which launched its Verification of Income and Employment solution in 2019. Among Finicity’s clients are Freddie Mac, Quicken Loans, and Experian.

Interestingly, Finicity was acquired by Mastercard late last year, just days after the U.S. Department of Justice filed a civil antitrust lawsuit to block Visa’s ability to acquire innovative fintech.

Photo by Karolina Grabowska from Pexels

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Aon Pilots Decentralized Insurance Offering

Aon Pilots Decentralized Insurance Offering
By Julie Muhn (@julieschicktanz) Posted on
Categories: Daily news

Aon announced partnerships this week that are helping the insurance broker to pilot a decentralized insurance offering. The new product will cover risks associated with DeFi platforms. More specifically, it will cover clients who experience losses as a result of hacks or buggy software.

The firm formed partnerships with smart insurance contracts provider Nayms, decentralized lending platform Teller Finance, and Relm, an insurance company that embraces new and emerging business categories.

“The Nayms platform puts the tool of smart contracts in the hand of regulated underwriters (like Relm) and brokers (like Aon), to open up a new capital source when underwriting crypto risk,” Nayms CEO Dan Roberts told NASDAQ via email. “This could be in either crypto (ETH, BTC) or in fiat (via a stablecoin). Aon is assessing both options as part of longer term programs.”

Aon and Nayms are conducting the pilot through Teller Finance, while Relm is underwriting the insurance contract.

While other players have offered insurance protection for crypto wallets in the past, Aon aims to be different. That’s because not only is the firm staying above board with fully regulated players, it is also focused on keeping the underlying processes straightforward and intelligible. Both of these attributes are difficult to achieve in the crypto world.

Photo by Matheus Bertelli from Pexels

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FinovateEurope On Demand

FinovateEurope On Demand
By Julie Muhn (@julieschicktanz) Posted on
Categories: FinovateEurope 2021

FinovateEurope is taking place digitally on March 23 through 25, but we’re launching on-demand content a week before the event.

Starting on Monday, March 15, registered attendees will have access to hours of content, hosted on the new Totem platform.

Among these exclusive videos are our popular interview series where we ask our demo companies a series of 25 rapid-fire questions in under five minutes. Additionally, we’ll have content aimed specifically at young fintechs in our Startup Booster series. Some of these sessions include:

  • Ready to Raise Money? Here’s a Checklist.
    SixThirty Ventures Regional Manager EMEA Samarth Shekhar will present on how to find the right partner at the right price and how to avoid common pitfalls when meeting with investors.
  • Accelerating Growth
    This panel features accelerators from across the Europe. Each will give insights into how working with an accelerator can kick start your growth.
  • Brand Origin Story Time
    Marqeta CMO Vidya Peters offers tips on how to ensure your startup story and brand stand out from the crowd.
  • Know Your Customer
    NetGuardians CEO and Co-Founder Joël Winteregg explains how you can get to know your customer as you’re just starting out.
  • Tips & Tricks from a Sales Expert
    CurrencyCloud Sales Director Lauren Passey offers up a lesson in sales.

The seven-minute demos from each demo company will also be released early. This way you can watch, fast-forward, and rewind before the event even begins. And be sure to make note of your questions so that you can ask the demoers in person during the Q&A sessions that will take place during the live event.

And because we know you’re busy, we’ve made all of this content available on the event platform for two weeks after the event concludes.

There’s still time to book your ticket for FinovateEurope. Check out the main agenda to see the range of networking opportunities, keynote speakers, panel discussions, and more that we have planned.

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Subaio Lands $5.9 Million from Ex-Mastercard President

Subaio Lands $5.9 Million from Ex-Mastercard President
By Julie Muhn (@julieschicktanz) Posted on
Categories: Alumni News, Daily news, Funding, Subaio

Subscription management startup Subaio landed $5.9 million (€4 million) this week. The investment comes from newly established venture firm, Global PayTech Ventures, which ex-Mastercard President Javier Perez launched after stepping down from Mastercard at the start of this year.

Founded in 2016, Subaio has received two previous funding rounds. The first came from Nordea in 2018 and the second was from startup accelerator Plug and Play last year. Both rounds were undisclosed.

“There is a massive market demand within the payments ecosystem and the team has deep technical expertise and a great product that solves a problem for banks and consumers alike,” said Perez. “That is why they have a European market leading position within the subscription management space, and we will invest both capital, our payment expertise and network of global contacts to realize the company’s full potential.”

Subaio’s value proposition fits well into today’s economy, where the average consumer has between eight and 11 subscriptions. That’s because Subaio enables banks to help their consumers view, manage, and cancel their subscriptions with one easy-to-use interface.

Eight bank clients, including Nordea, ABN AMRO, and Lunar, are currently leveraging Subaio’s subscription management technology.

Subaio CEO and Co-founder, Thomas Laursen, sees today’s funding as a vote of confidence for the technology. “The fintech sector is flush with funding,” said Laursen. “Thus, raising capital is not about how much you raise, but who you raise it from. It was imperative for us to receive a smart money investment that can propel us to the next level. Partnering up with a capacity such as Javier Perez and his team at GPT with their unique insight into the paytech industry is about getting knowledge and network into our company.”

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What You Don’t Know About Device Reputation Tracking- and Other Security Fails

What You Don’t Know About Device Reputation Tracking- and Other Security Fails
By Julie Muhn (@julieschicktanz) Posted on
Categories: Speaker series

In an economy that is taking place increasingly online, the recent boost in fraud has left many banks, fintechs, and retailers underprepared in the fight against bad actors.

In a recent conversation, I spoke with Neustar Senior VP Robert McKay, who offered his perspective on the increase in fraud, the use of device reputation tracking, and steps firms can take to minimize their shortcomings.

Catch us up on the current security landscape in fintech and banking

Robert McKay: The pandemic has forced almost all customer interactions with institutions to digital channels. While it offers a new level of convenience for customers, it has exacerbated an existing problem in these types of interactions – increasing ambiguity for seeking secure, trusted connections across anonymous interactions. Institutions and fintechs that deal with highly sensitive customer information have long struggled to properly authenticate the identities of consumers across these digital channels, and fraudsters have developed savvy methods to skirt some of the most prominent forms of identity authentication.

Trust is at the center of successful fraud mitigation. If you can trust, with a high enough level of confidence, that the person on other end of the device is who they claim to be, then financial institutions and fintechs can reduce friction and improve the experience for legitimate customers while limiting additional verification and fraud-fighting resources to suspicious interactions.

2020 disrupted every subsector of fintech. Talk to us about how it changed the online security realm.

McKay: McKinsey cited that the pre-COVID consumer adoption rates for performing balance inquiries and transactions in the digital channels in the U.S. was at 50% while adoption for more complex activities like new account openings or credit card applications was around 36%. Many institutions and fintechs had to quickly address this as consumer activity shifts boomed across digital channels in a ‘survive-or-die’ approach. The combination of branch closures and an under-preparedness for these digital shifts resulted in spikes in call volumes and wait times, for example.

This disruption also shown a light on the robustness of institution’s authentication processes. Throughout 2020, a commonly used method for mitigating fraud was device behavior analysis using device reputation tracking, which determines whether a device has been linked to fraud in the past. Today, fraudsters can easily bypass this method by constantly rotating out devices they use to commit fraud.

Fintechs and their business customers need to take a more comprehensive approach to consumer authentication, exploring who is behind the device rather than focusing exclusively on the device itself.

Discuss what device reputation tracking is and why it is no longer an acceptable form of fraud prevention.

McKay: Device reputation tracking is a method of fraud mitigation that gathers device fingerprints — a series of device characteristics – and assembles a view of that device’s previous association with fraudulent activity. It’s a simple, yet effective, method to catch basic forms of fraud. However, sophisticated fraudsters know this approach relies on backward-looking data, and avoid it by using multiple ‘burner’ devices to commit fraud. Once they complete their interaction, they’ll abandon that device and use a new device to continue their scam. New devices present a big question mark to device reputation solutions since, without past user data, it cannot indicate whether the new device can be trusted.

Additionally, knowing a device is connected to normal or safe behaviors is also not a failsafe solution. It only takes one time for a device to fall into the wrong hands to open the door to fraud.

What is the easiest way for a firm currently using device reputation tracking or fingerprinting to adapt to a more secure fraud prevention technique?

McKay: To adapt, firms should consider a device-based identity resolution technique that connects the device to what is known about a consumer with persistence, and then observe how this online/offline identity graph is honed through continued observations of digital interactions. These online/offline identity graphs should also draw upon historical behavioral data and device fingerprints as just one source element of a multilayered fraud-prevention approach.

Device-based identity resolution determines not only whether a device has been linked to unsafe behaviors in the past, but also whether the device is likely in the hands of the individual who owns it. Hundreds of signals in an array of combinations provide a clear direction to either proceed with the transaction or seek additional verification from the fraud team.

A robust, layered approach like this incorporates data that cannot be hacked and stops fraud in its tracks.

The digital identity conversation is hotter than ever. What are some new developments in this space that we should be paying attention to?

McKay: Consumers, especially digital natives, have developed high expectations for a frictionless customer experience. When considering fraud-mitigation tools, it is critical to remember that most consumers are not fraudsters. If businesses treat all customers as such, it will increase friction and drive good customers away. To provide a smooth customer experience while simultaneously reducing the risk of fraud, businesses need authoritative identity signals that enable them to accurately evaluate the degree of trust in digital interactions.

As fintechs look to accommodate an increasingly remote customer interaction model, it is even more essential to ensure the person on the other end of the interaction is who they claim to be.

What is the number one way you see financial firms fail in terms of security?

McKay: Firms often scrutinize and treat every interaction as possible fraud. This not only impedes the customer experience, but also spreads already thin fraud resources even thinner, leaving the business scrambling and that much more vulnerable to fraud.

Further impeding sound security and efficient fraud mitigation, many firms fail to make the connections across various customer touchpoints (e.g., digital, call center, in-person) and across different business units (e.g., credit card, retail, insurance) to gain the full view of a customer’s identity.

What is the best way for firms to fix this flaw?

McKay: Firms should seek out an identity resolution organization that can help form an identity graph with a singular view of a consumer against every touchpoint, and implement strong and silent authentication measures to automatically authenticate the great majority of interactions that are legitimate. This will allow firms to focus fraud-fighting resources and warranted consumer friction on the minority of interactions that truly represent potential fraud, instead of applying fraud fighting resources against every call center and digital interaction.

Photo by hessam nabavi on Unsplash

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