Understanding FinTech — Improving Financial Security
In recent years, it has become abundantly clear how the financial sector needs to be innovated sooner rather than later. Before the financial sector can be revamped completely, however, there are certain things that need to be taken into consideration. Making payments more consumer-friendly and accessible is one thing, but that doesn’t mean certain rules and requirements can be bypassed all of a sudden.
Also read: Square Faces Fraud Issues Right Before IPO Stage
Know-Your-Customer Procedure is More Important Than Ever
The current financial system is far from transparent and allows consumers to be completely anonymous in most cases. Only when somebody uses a payment method tied to a bank or central authority, customer information is being shared between parties. But whenever paper money is being used to pay for goods or services, there is no way to know who the other party is dealing with.
This is one of the main misconceptions when it comes to traditional paper currency: it is far more anonymous than most people give it credit for. Granted, every bill has a serial number engraved at the top, but those numbers can not be matched in a database unless the bills are deposited into a bank account.
Within the ecosystem of banks, they can easily track payments and funds belonging to each and every individual customer. Once that money leaves the bank in the form, of paper bills and coins, there is no way to verify where the funds end up. In its purest form, fiat currency is far more anonymous compared to any other form of money in existence today;
It goes without saying this scenario creates a key problem for any company active in the financial space. Governments all over the world have started cracking down on these companies to collect as much user data as possible. The Know Your Customer (KYC) procedure is an integral part of a business in this industry, and it should be mandatory for all customers in any case.
As you may have guessed by now, not all customers are happy with this scenario, as they will need to provide sensitive personal information to a company. Among the information provided are details such as their full name and address, a phone number, and their identity will need to verified through document submission. In most cases, a scan of a customer’s ID, and a recent bank statement or utility bill, will be more than sufficient.
Keeping The Fraudsters Out
Verifying somebody’s identity causes a fair amount of friction, making it a less-than-ideal customer experience. There is a certain trade-off between less strict verification procedures and opening the door to fraudsters. Giving customers easy access to platforms that allow them to move funds in a matter of mere minutes or seconds results in vulnerable money transmitting solutions.
Instead of relying on these traditional means, companies will have to start looking at ways to monitor other information regarding financial transactions. Not just verify the user’s identity, but keep a close eye on their location when making a transfer and implementing two-factor authentication verification, are just a few ideas worth exploring.
The FinTech industry is full of passionate developers and industry experts who can come up with creative solutions to reduce fraud levels all across the board. Collaborative fraud networks will help companies fight fraud, as most hoodlums use the same tactics over and over again, making it easier to determine the pattern of attack.
Source: News Tip From Money20/20
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Originally published at Fintechist.
