FinTech : Our Hot Topics for 2017

After what has been an exciting year for FINTRAIL, and FinTech, we look ahead to what we think will be three hot topics that will shape the industry in 2017.

1.    Indian Demonetisation

November 2016 saw the Indian Prime Minister make his demonetisation announcement, where all 500 and 1,000 rupee banknotes are no longer recognised as legal tender in a drive to combat ‘black money’ and financial crime, predominately terrorism financing and tax evasion.  These two notes comprise around 86% of the currency in circulation in India.

There is a known correlation between cash-heavy societies and crime – cash fuels black market activities, and that cash then needs to be laundered.  The extent to which India can successfully reduce financial crime through demonetisation, without creating more financial crime than they began with, remains to be seen and will be an interesting test case in 2017.

So what will the world learn about this drive to digitalisation, particularly in emerging markets?  A move to digitalisation increases transparency and traceability of funds but it can also open up new channels or risk vectors such as an increase in cybercrime and internet fraud.

There are already some Indian FinTechs in existence, and benefiting from the demonetisation already. Paytm, an Indian-based FinTech that offers products such as bill payments and e-commerce, had 5 million customers join shortly after the demonetisation announcement, and such rapid onboarding can of course create potential risks unless managed very carefully.

India’s move away from cash and to digital solutions presents huge opportunity for the regional FinTech sector as it moves in to 2017, as well as an opportunity for us to understand more about how financial crime risks materialise when markets make a sudden and rapid transition from cash to digital.

2.    RegTech in 2017 – KYC for Businesses

RegTech is going from strength to strength, whether it be the UK Financial Conduct Authority (FCA) creating the RegTech Sandbox (shortly to take its second cohort) or the likes of Deloitte calling RegTech ‘the new FinTech’. We’ve seen some brilliantly innovative tools in 2016, and it looks like 2017 will continue to be a great year for RegTech.  So what do we think will be big in the operational world of RegTech and specifically financial crime compliance focused RegTech for 2017?

There’s now many RegTech companies offering Identification and Verification (ID&V) and/or Know Your Customer (KYC) for retail customers, transforming the way innovative businesses now onboard customers, enhancing the customer experience and offering a key point of difference over incumbents.  However, the same cannot be said for onboarding business customers. As FinTechs that have to date catered for a retail focused customer base go in search of higher margins offered by business products, we at FINTRAIL think that KYC for businesses will be the focus in 2017.

KYC for businesses is more challenging and has a higher number of complexities than KYC for an individual. In simplistic terms conducting KYC on an individual usually involves confirming their individual identity. However, KYC for a company requires more layered information, which can be far more challenging to obtain and confirm.  For example, there can be many company directors linked to the business, it can be difficult to identify the beneficial owner, the company can have a convoluted corporate structure with multiple subsidiaries, those subsidiaries could be based in different jurisdictions, it can be challenging to verify the company’s trading activities, source of funds, industry and whether it is in your risk appetite, and so on. 

The fact that so much information is required to complete KYC on a business is partly why incumbent banks can take many months to onboard a client. However, it is important to get it right as the risks in providing products for businesses can be higher, as there is the potential for more money, counterparties and individuals to be involved.

3. FinTech, Financial Crime and Information Sharing.  

Information sharing between companies or financial institutions to combat financial crime seems obvious, yet it has only recently begun to gain traction, with the UK Joint Money Laundering Intelligence Taskforce (JMLIT) becoming BAU in May 2016. Major banks only make up a small proportion of the UK and international financial eco-system, and their market share is being eroded as disruptors offer new and innovate products. This means there is potential for a significant gap in knowledge and information exchange that could undermine efforts to collectively address financial crime risks. To address that in-balance FINTRAIL, in partnership with Royal United Services Institute (RUSI), is excited to be launching the FinTech FinCrime Exchange (FFE) in early 2017.  

The FFE is a non-commercial information sharing forum for FinTechs, which addresses an industry requirement to build financial crime risk management knowledge and capability within FinTech and the disruptive finance space.  It will do so through sharing experiences of dealing with financial crime, developing typologies and trends, and helping FinTech members learn from each other.  The FFE will also improve public/private engagement on financial crime risk issues in FinTech. 

Good information sharing can have a profound impact on a FinTechs ability to effectively manage their financial crime risk, and help stop criminals using their products or services for illicit purposes. 

If you would like more information on the FFE, or to become a member, please contact the FINTRAIL team.