Technologies and services allow organisations to automate customer due-diligence procedures – such as verifying identity, supporting international compliance and preventing fraud – during account creation
Trust is fundamental to human interactions, and the need for building it online has never been greater.
There are now 3.9 billion online users, and three of the world’s six largest companies rely on digital transactions to generate revenue.
Borders and distances – the physical barriers that, not too long ago, made the cost of doing international business prohibitively expensive – have been overcome by the vast reach of the internet, spawning new business models and creating an online, borderless economy in which trillions of dollars change hands every year.
But while the borderless online economy has been a catalyst for business, organisations have not entirely learnt to cope with the range of risks it brings.
Fake news is being conjured up by rogue governments to interfere with democratic processes, data breaches are exposing the personal information of billions of people around the world, and fraudsters are laundering illegally obtained money associated with drug trafficking and terrorism. Indeed, the digital world poses new risks that businesses are only just waking up to.
Fraudsters are adept at identifying new loopholes
It is hard to quantify the size and delineate the scope of risks that organisations must contend with in the online environment, as fraudsters are adept at identifying new loopholes in screening and fraud detection processes, and changing tack accordingly. To get a general picture of these myriad risks, however, consider these examples.
A few years ago, an online payments company was fined $7.7m after lapses in its screening processes allowed thousands of dollars to be sent to an arms dealer who had been blacklisted by the US Treasury Department for selling nuclear technology to Libya, Iran and North Korea.
More recently, a holiday rental platform was misused by a money laundering ring. The fraudsters, allegedly operating from Russia, booked accommodation listed by complicit hosts, and laundered illegally obtained money in the process.
Similarly, a ride-sharing app was used to launder money via “ghost rides” – a coinage used to describe situations in which money changes hands between the driver and the passenger, but the rides never actually take place.
Even though these risks were not anticipated in the early days of the internet, in hindsight they seem inevitable. The internet did not develop systematically – at its inception, it was a proverbial Wild West.
Regulation was slow to catch up, and we were left to deal with the absence of an identity infrastructure that could enable trust in online interactions.
And so, while its benefits and the ways in which it has transformed our day-to-day are legion, it also offers bad actors a cover of anonymity.
“Prevention is the operative word here, because too often fraud is only detected after the fact“. Financial institutions and financial services, which traditionally controlled the flow of money around the world, were slow to digitalise outdated and analogue customer due-diligence processes, which had existed long before access to the internet became ubiquitous.
Financial institutions and financial services, which traditionally controlled the flow of money around the world, were slow to digitalise outdated and analogue customer due-diligence processes, which had existed long before access to the internet became ubiquitous.
Regulatory changes and innovations alters the landscape
A decade of regulatory changes and innovations in the realm of online identity verification has since altered the landscape.
Regulatory changes in Europe such as the Fifth Anti-Money Laundering Directive (5AMLD), the Revised Payment Services Directive (PSD2) and Open Banking in the UK are together creating more stringent requirements for identity and business verification across Britain and the EU.
Likewise, there now exist technologies and services that allow organisations to automate customer due-diligence procedures – such as verifying the identity of customers, supporting international compliance requirements, and preventing fraud – during account creation.
Indeed, prevention is the operative word here, because too often fraud is only detected after the fact. By using electronic identity verification solutions at the beginning of the customer onboarding process, organisations can know precisely who the customer is, and gain a better understanding of the risks they pose.
To trust is human, and ultimately, trust is built on knowing your customer – particularly when building new relationships with the billions transacting every day in the online, borderless economy.
This article was originally published by Business Reporter. View the original article at business-reporter.co.uk