For any company looking to get into the digital payments space, or already offering services in this area, tackling fraud and reducing the negative impacts of crime is a huge challenge. Losing time to fraudsters or individuals seeking to carry out illicit transactions can cost digital payment companies millions upon millions of dollars each year.
Not only do fraudulent transactions cost time and money, but they can also negatively affect customer services and user experiences. Time-consuming verification processes can be a real sticking point for businesses when it comes to complying with KYC (know your customer) regulations and bombarding clients with constant requests for authentication, IDs or other documentation.
At the moment, customer experience is usually poor. For instance, banks or payment companies are asking customers for all this regulatory and compliance information, for tax information... All of these things detract from a customer’s experience. |
Thankfully, due to new advances in technology, alongside innovations such as open banking, data sharing and sophisticated analytics, companies these days have the potential to build up an entire ecosystem of checks, links, verification and data sources to construct a complex profile of each one of their individual customers.
Such ecosystems can not only help payment businesses become much more streamlined and efficient, but they can also enable businesses to market to their customers more efficiently and offer a more seamless user experience.
Hong Kong expert in financial fraud and KYC regulations
One of the most prominent exponents of such an approach to KYC and marketing integration is Josh Heiliczer, the Hong Kong-based legal expert who specializes in anti-money laundering compliance and financial crime at leading global consultancy firm EY. He has over 14 years of experience working in compliance departments for major banks and is currently partner, APAC Financial Crime Leader, for EY at their offices in Hong Kong.
Duxes was privileged to welcome Heiliczer to attend the recent (PAS) Payment Asia Summit 2019 in Shenzhen from 21-22 November, where he gave a much-welcomed and well-received talk on “How to conduct KYC in a digital real-time environment”.
During his in-depth presentation, he described how, at the moment, for many companies, KYC is a pain point that prevents them from doing business and reaching their full potential. As a solution, he set out his own conceptual strategy whereby he advises businesses to build up a customer-centric ecosystem that provides a sophisticated risk profile of each customer, streamlines the method of data collection, and delivers a sophisticated end-user experience.
Customers want to know if there is fraud on their card, but they don’t want to be bombarded all the time about fraudulent payments. They only want to be notified about the ones that are truly potentially fraud. |
Just after his appearance at PAS, we caught up with Heiliczer again, to ask him a few more questions about his talk and get further insight from him on the future direction of the digital payments industry in Asia. We asked him to expand on some of his ideas, and explain how customer-centric ecosystem approach can help businesses working in Asia and beyond.
Finding synergies to enhance risk controls and customer experience
Pinpointing the main objective of his talk, Heiliczer said “The goal is to find synergies to strengthen risk controls and enhance customer experience. At the moment, customer experience is usually poor. For instance, banks or payment companies are asking customers for all this regulatory and compliance information, for tax information to comply with Foreign Account Tax Compliance Act (FATCA) or Common Reporting Standard (CRS). All of these things detract from a customer’s experience.”
On the other hand, he warned, if banks fail to carry out their KYC and anti-money laundering duties properly, then there can be significant ramifications. “One would be the fraud risk. Two, would be potentially facilitating money laundering or illicit activity that can lead to regulatory fines. Third, is the potential for sanctions risk. That would be around facilitating payments for somebody or a front for somebody that is sanctioned or a country that is sanctioned.”
Building up a customer-centric KYC ecosystem
When it comes to spotting fraud, he explained: “Customers want to know if there is fraud on their card, but they don’t want to be bombarded all the time about fraudulent payments. They only want to be notified about the ones that are truly potentially fraud. So, that is the issue.”
Heiliczer advocates for companies to take advantage of a wide range of services and data sources to build up their own ecosystem which would make checks smarter and ease dependency away from the customer. “All KYC and fraud checks are generally handled in a silo structure right now. But if a company can integrate data sources, and automate all of the controls, they can better find out where there are issues.”
Some of the ways that you can gather that information could be publicly-available information, media articles. It could be through credit bureaus or other checks. In China they have the Bureau of Public Security. |
He also says that certain information to build such an ecosystem need not come directly from the customer, but rather can be obtained independently. For example, China has a State-backed department that offers a range of services that can directly benefit payment firms. “Some of the ways that you can gather that information could be publicly-available information, media articles. It could be through credit bureaus or other checks. In China they have the Bureau of Public Security. You can basically send them a request and obtain information,” he points out.
In one scenario, Heiliczer envisages a situation whereby a customer might have presented an ID to a payment company to open a utility account. That information could be saved and stored as a form of address verification to be used at a later point, if necessary. “If a company is able to tie that in against the customer information – for example, knowledge about location, those types of things – maybe they can say that a certain future transaction isn’t fraudulent. If a payments company has elements around KYC that they also need for tax compliance purposes, they can access those at the same time,” he explains.
Using KYC to better market to customers
Crucially, he continues – such information that is acquired about a customer for KYC purposes, from third-party, independent sources or otherwise, can also be used to market products back to customers more appropriately. “If I want to market to a customer and they are going to present their ID or they’re going to open a utility account, it could be a cell phone account as well, then I can actually see address information, I can understand where a customer is; it makes it easier to market to them.”
If you offer exclusive deals as a payment company, then maybe you’re more likely to have that client staying in the process. And so this can work for a supermarket, this can work for a luxury goods provider. It really depends on what sort of ecosystem you want to create. |
In the same way, Heiliczer believes that payment companies should do their best to take advantage of tie-ins and exclusive deals, with the aim of drawing customers into the ecosystem and making them less likely to be poached away by competitors. “If you offer exclusive deals as a payment company, then maybe you’re more likely to have that client staying in the process. And so this can work for a supermarket, this can work for a luxury goods provider. It really depends on what sort of ecosystem you want to create around the types of payments you are looking to facilitate.”
Linking up all parts of the integrated data network
In short, Heiliczer says the main advice for companies that are just starting out, or expanding into the digital payments sector, is to make sure all of the parts of their ecosystem link up. “The main advice would be make sure you can clearly map all of the data that you are collecting, so that you can ensure that you can use it both for your KYC purposes, but also to create an ecosystem to market,” he says. “So, make sure you have all of that data foundation in a very strong place, so that you can ultimately use it for all the different purposes that you need it for, and are not then collecting duplicative information.”
They don’t want it to take several days for an international payment, or for a domestic payment to take a couple of hours. They want instantaneous money transfer… they want instantaneous clearance of customer transactions. |
There are many benefits to creating such a customer-focused ecosystem, Heiliczer explains. “In terms of creating a frictionless payments process, the more information you’re able to gather about what a customer is doing, the easier it is to reduce your false positive matches,” he says. Furthermore, “By having a customer ecosystem around payments and other processes you make the customer really tied into your ecosystem so that they don’t end up leaving and going somewhere else or to another banking relationship or payment company.”
The future of the digital payments industry in Asia
Finally, Heiliczer shared his optimistic outlook on the digital payments industry in Asia as he sees it progressing. “I think it is only going to increase in the next two to five years because, one, customers want to make payments in an instantaneous manner. They don’t want it to take several days for an international payment, or for a domestic payment to take a couple of hours. They want instantaneous money transfer, and from a merchant perspective, they want instantaneous clearance of customer transactions.”
“For me, over the next few years, the industry is only going to exponentially expand, both from traditional payments providers, but also from new entrants into the payments field. You’re going to have more linkages in terms of market places, whether it be Alipay, Tencent, WeChat, Amazon, or others entering into the space or already in the space but expanding into that. And you’re going to have traditional banking providers having to create some sort of marketplace, or some sort of other offering linking up with one, in order to facilitate payments,” he concluded.
Find out more about Duxes Finances Series and upcoming events
Trends in financial fraud, marketing and approaches to KYC regulations were just some of many topics explored at PAS 2019. Each year Duxes invites a high-profile line-up of experts to speak on the latest issues that matter to professionals in the digital payments industry in Asia.
Next year’s event will be the (PAS) Payment Asia Summit 2020, so make sure you look out for further details on the event as they are announced. The Summit is a great way to build connections for your company, and make sure you stay on top of all the latest developments and regulatory changes.
For further information on Duxes Finance Series and for more details of all forthcoming events, don’t forget to visit our event calendar here: www.duxes.cn/DuxesEventCalendar
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