This is a transcription of our interview with Shubhradeep (Shub) Nandi, CEO of PiChain.
You can watch or listen to the interview on our Risk Management podcast here or via any podcast app.
Boris. Welcome to the Risk Management Show. I am Boris Agranovich founder and CEO at Global Risk Community. In this episode we are talking with Shub Nandi, founder of PiChain which is a RegTech company on a mission to make compliance sustainable. It develops a deep tech system that can provide, practically learn, solve, and automate compliance problems for financial institutions using artificial intelligence and blockchain. Shub, welcome to our show today.
Shub. Thank you so much for extending your invitation, and I'm glad that today I am in your show.
Boris. Thank you. I really appreciate your time and look forward to our conversation. Shub, could you tell us a short story of how you started PiChain and what are you guys up to these days?
Shub. Well, the goal is to primarily build an enterprise that will last a really long and have many satisfied customers, a rich investors and happy employees. So, that was the whole goal that we had as we mentioned in the entrepreneurship, but PiChain was conceived by me and my two cofounders. Our goal is a very focused, so we understand the GRC domain primarily, which is the governance risk and compliance.
And, we could see that specifically in the area of compliance, there were many gaps. So we understand that most of them evolving around the technologies like AI, machine learning, distributed technology, all of these technologies, which has great potential and can impact in a better way, the compliance industry. So coming from the background, we understand where the gaps are.
And a goal was primarily to ensure that how we can ensure this particular space, which is compliance and regulation. Can we made it more explainable, easy, and ensure that the whole process of compliance become sustainable. For us, sustainable compliance are, has got a three key attributes. So first thing is to increase the compliance confidence score all of the bank, financial institution on the FinTech that we are working with.
The next is primarily to efficiently use the regulatory capital. And number three is the most important. is just to reduce the cost of compliance.
Now, if you can do all these three things, basically to repeat this, all of these three things year on year, that means we have made something sustainable. And a sustainability is something which you want to provide to compliance. We have a ambitious goal, which is primarily to help 500 large Enterprises. to obtain sustainable compliance by the end of 2025.
Boris. What the company does a in relation to compliance specifically, what is your best type of customer and how are you different from other providers operating in the space?
Shub. Absolutely. Let me start with a bit of the challenges. We already know that there are a lot of compliance and regulatory software providers in the market.
But let us give you some statistics. The number one is that globally less than 1% of the illicit transfers are being brought to light and roughly an estimated amount of money laundered per year is roughly $US 1 trillion.
That's quite a big amount of money, number two - why do we have compliance and regulatory software? Compliance and regulatory software are a basically implanted in banks and financial institutions primarily to ensure that the whole system become a compliant and they don't face any penalties, they don't face any, any punitive actions.
But if I talk about the whole process, the regulatory fines imposed on banks, financial institution for compliance, lapses, stood at about U S 50 billion, if you start from the last meltdown till now. So hat's a huge amount of money for banks and finance institutions for which we have the data for and that's roughly $450 billion
This data is globally available, but let's get insight into one of the processes of the bank. Let's talk a bit about AML transactions or AML screening.
Banks typically handle a, roughly 1400 AML alerts on a daily basis.
Interestingly, a 97% of them are a false positive. And when I'm talking about AML alerts as a bank and talking about only one branch,. If it has multiple branches imagine how many alerts are generated? How many? 97% of them are false positives.
That means you still have to triage all these AML alerts, which is a huge number. If you are primarily triaging so many alerts, you are primarily wasting a lot of your money, a lot of you're productive resources. Which is a huge loss for the bank.
If we are going to a little bit detail. Why the penalties happen? Why even with such a large compliance teams we cannot stop money laundering.? Why we are unable to triage the right one and basically stop any form of money laundering, even fraud.
Let's talk about the day of the life of compliance officer. A compliance officer has to deal with roughly 12 IT systems to solve the single case. Unfortunately, all of this data is a different format so the person has an additional responsibility to harmonize this data. Add to this changes in regulations every six months to every two years.
They typically keep on changing the regulations to prevent organized fraud, money laundering. So they have to keep them abreast of the changes. So even for the best SME in compliance, he or she has to spend 80% of the time in gathering data, converting them into insights, seeing them they're in aligned with the regulation. And this decision has got also a lot of liability on the person.
So that's why the biggest challenge happens that banks finally, because of the shortage of manpower, even with the large teams, they go for random checking or random compliance checks. And also there are times when the deadlines are missed. So with all these challenges, we could understand because we are part of the system. And as we were part of the system, we could understand those challenges.
So we brought in the right systems. When it comes to PiChain, we built in a system called DeepPi which typically understands a compliance process like a human being, and tries to triage like a human being, but a larger scale. Understanding more data in real time and make better decisions. So that's typically the advantage that we provide and ensure that the cases are solved at a lower cost also because the systems are very robust.
The second most important thing is that we understand that if you have a legacy rule based systems which are currently present, they will generate a lot of false positives. But if you have a secondary, scoring system, it can quickly remove all those false positives and help the compliance officer to focus only on the real cases which are fraud or which are the cases of money laundering. So that's the way we provide benefit to banks, financial institutions,
Boris. In many industries COVID-19 has accelerated to the move to digital transformation as Microsoft CEO, Satya Nadella put it, “we saw two years of digital transformation in two months”. What changes are you seeing in the market, especially now in this COVID era, can you tell us how well your clients are impacted by the crisis and what organizations will need to do in order to adapt?
Shub: I think a lot of things have changed during the COVID period. Thankfully the good part was that we, never had understanding that COVID will happen, but we understood one thing very clearly. And that's the world is going forward in a digital direction. So that digital is our key methodology to solve any use case when it comes to compliance.
So let’s discuss a bit about lending rights. In lending, you typically have a lender and then there is a borrower. The lender and the borrower typically have to interact. The borrower has to come down to the lenders place to have the first interaction. So what we have done over there is to have made that part digital with our video KYC solution or a video of interaction solution. So first to consult, we do interaction solution where a lender and the borrower meet digitally.
The next part is primarily where the different documentation happens. So if the borrower provides documentation and the lender feels confidence in the borrower, they can go ahead.
The next step is primarily the KYC process where there are multiple ways the things were done today. In the India region the things were not that much digital.
What we did over here is that we ensure that the whole form KYC data, everything is digitized to have interactive forms, smart forms, advisory forms, which ensures different genre of people who are coming as a borrower can quickly fill those forms.
As a next step, we have the complete KYC process, which we have also completely automated, which means that you don't need to go to the, the lender and the borrower can meet digitally like how we are meeting over Zoom.
We have a platform which is a secure KYC platform where we have insured that the documents are stored. We also get the behavioral data and also create the risk metrics. So that's the third part to it.
After that once a person is inside the system, there has to be a set of processes, like an agreement. In India we have some people stamp papers, which legalizes this agreement.
So you have ensured that this whole journey is digital. Essentially, we have made this whole process completely digital.
Of course now the lender or the borrower can meet digitally, complete the whole process, a build a trust, and then go ahead with a finalization of, how, or what is the amount of there'll be lending or at what rates or the lending has happened and how probably the payments to be done, buy the borrower.
So, that's the one of the use cases like this. What we understand yet is that COVID has accelerated digitization, and we have built a system end to end into the digital space and we're seeing a lot of interest into our product, both in India and the European region.
So COVID is an unfortunate event which, is not at all good for the humanity, but from a business perspective, what we are seeing is that people are becoming more smarter.
They're going digital, and that's where our solutions are impacting and helping them to make a completely digital and still run their business during this very tough times.
Boris: I'd like to ask you a personal opinion. What is so fascinating for you about financial compliance and what is a commonly held belief as it relates to compliance that you actually disagree with?
Shub: When I talked to many people, we understand that whatever you do compliance is considered as a black box. So that's something which we fortunately with a new system and technology in place we say that this is no more the truth.
If you have deployed all the right systems in place, compliance is no more a black box. It can be made explainable. And the reason we also want to tell people that there is no more need of doing random compliance checks.
You can totally do the compliance checks from end to end and your compliance checks are not directly proportional to the size of your compliance teams. So this is one of the biggest myths, which is there and which we are trying to change and take the whole journey of GRC ahead.
Boris Your personal opinion is very interesting, and why you're a busy with this area of expertise. I wonder what tips do you have for compliance managers to help the organizations to stay on course during this crisis, for example, what's something that they should start doing right now that they are not doing currently, or perhaps another way around- what they should stop doing right now, what they are doing currently.
Shub: Well, I think one of the key things here is that compliance officers have a process in place which includes going to a multiple systems and spending a lot of time with multiple different systems, getting the data and then making decisions.
I think compliance officers, are the best people to make decisions because they have the whole knowledge experience of a particular case. Now, what they can do over here is instead of spending time on gathering this information, they can probably take help of technology to help gather the information and also augment them with insights.
So if we just talked about a screening perspective, you don't need to have a system where you probably do an AML PEP screening, and you just put in that name and then you have to navigate to 15 different pages to find out whether this is the right person or not.
In those cases, a lot of time is get wasted. That's where probably a compliance officer can bring in some of the advanced technologies, which are available in the market and augment himself or herself with those newer technologies, and then do best part at what he or she is, which is making decisions that can never be taken, taken up by an AI or any of that one solutions that could definitely come from human beings.
But technology is going to provide support to the decision points.
Here we will have two benefits. First, they will have a peaceful day because they will save a lot of the time and also ensure that the thing is correct.
Second, a lot of times they'll have enough time for the friends and family. And, probably that would help them to have a better work life balance.
Boris: So looking broadly in your industry, what are the biggest challenges in future trends, in AML and compliance and what should we expect from you guys in the future?
Shub: I think that here is that what we did in the beginning of 2019, right? We surveyed a hundred compliance officers who are primarily in the job of ensuring that their organizations are compliant. So we understood that there are three challenges, which are definitely going to stay.
One is the regulations will be different in different geographies and for the chief compliance officer of an organization that's one of the major challenge because every geography will have changes in different regulations. So they have to keep on getting adapted to that. So that would be one challenge.
The second would be the organized financial, fraud which will definitely become smarter day by day. And with today, everything becoming digital, you would see a mix of smart cyber fraudsters. So you have to stay ahead of them in the game.
And of course, they have to take care of the cost of compliance,. So that the cost of compliance did not go higher and will get whole organization's compliant.
So we see this three areas which primary going to keep on changing. And we understand that only smarter systems can tackle these areas. For example, how can we stay ahead of the fraudster? So you need to think like a fraudster and then understand how we can prevent it. So you need to have those kinds of systems, which are smarter cognitively and probably think like a human being and helps the human being to make better decisions.
So those are the areas we are going to focus on and we'll keep on investing. So a lot of our investment goes into research and development for more resilient systems.
Boris: Fantastic. So to summarize, if someone who is listening to this Interview would like to walk away with one or two major takeaways, what would that be?
Shub: Well, I think I, I have given it all, I think the first thing is that let's start believing in technology and understand that the new normal is the digitalization. So we need to start adopting it a quicker and faster. The next most important thing is that lets try to go back and see what are the set of activities we are doing.
If some of the activities are repetitive in nature and probably causing a lot of stress in our daily lives, probably we can offload them to a system.
I think that third, most important thing is that you have to be always in a state of curiosity. Initially in my career, I didn't start as a person in the compliance, but , I quickly started learning, because I had a very big curiosity around this.
So curiosity in compliance and curiosity in technology is something which I see one of the key behaviors, if you have, you're definitely going to learn new things and also master them slowly.
Boris: Well, thank you very much for your Interview. I think it was very informative and very useful for our members. And I wish you a company, PiChain, very, high growth and reaching your goal of 500 customers in a few years. Hopefully we'll hear from you in the future.
Shub: Absolutely. Thank you so much for is a, I mean, I'm glad that you invited me and we had this wonderful discussion. Thank you so much.