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Mark Taylor 

Fraud Market Expert at Featurespace

Financial crime prevention can help Challenger Banks deliver valuable customer experiences

The Challenger Bank market is set to reach around $30,100 million by 2025, with a compound annual growth rate (CAGR) of 40.4% (2019 Global Neo and Challenger Bank Market report).

Over the last year, investment levels in Challenger Banks - also known as neo or digital banks - has seen Monzo raise $147 million, Berlin-based N26 raise $170 million and World Remit secure $197 million in funding. These are only a few examples illustrating the levels of trust and resource available to disruptors to fuel the modernization of financial services. Consumer expectations are already high with a demand that banking, like all other industries, should be more cutting-edge, digitally oriented and available 24/7.

Removing risk challenges to growth

An extraordinary opportunity has been created with this rapid transformation of the financial services industry, placing Challenger Banks in a unique position to pioneer the next surge of modernization. To harness this wave of opportunity and growth, it is important to assess what lies ahead on the journey - and factoring in the risks posed by criminals is a crucial element that Challenger Banks need to consider.

Well-organized criminals are constantly looking for ways to exploit any weakness in defenses. To ensure continuous innovation, and to challenge the status quo while expanding as a neo bank, it is important to strike a balance between staying true to the organization’s visionary approach and making sure customers always feel safe.

Challenging the methods used by criminals

Digitally-led Challenger Banks are setup from day one with state-of-the-art IT systems. This is an advantageous opening position, because the business can easily adopt the best-in-class fraud prevention and anti-money laundering (AML) detection solutions to prevent financial crime in real time. The ideal software solution should deliver a reduction in false positives (genuine transactions declined incorrectly), reduce operational costs, and allow Challenger Banks to meet compliance requirements without compromising on customer experience.

Criminals continue to use more sophisticated methods and Authorized Push Payment (APP) scams in particular, have been growing at an alarming rate. Industry data from UK Finance shows scams in 2019 were responsible for  double the financial losses of other payment fraud types. With the advent of better controls and new regulations designed to improve authentication and reduce scam successes, fraudsters are finding a new weak link – the end user.

Challenger Banks have also been targeted by money mules looking to exploit developing banking processes. Money laundering is a trillion-dollar issue affecting financial institutions, for example students are used to move large amounts of money into the financial system as mule accounts. An obvious good start is to ensure that Know Your Customer (KYC) processes are watertight and defensible but a solid financial crime prevention system monitoring all activity is also a crucial line in your defense.

Criminals are challenging the rules, you can too

Challenger Banks can be perceived as easy targets by technology savvy criminals, who may assume a lack of maturity in the controls that are in place. The good news is that the technology already exists to support new entrants to the market to get up to speed with a failsafe financial crime prevention strategy.

Change the playing field by harnessing the power of machine learning and unique Adaptive Behavioral Analytics to assess complex data sets, monitor individual customer profiles in real-time and detect more fraud and financial crime without getting caught off-guard by new attack methods. The ARIC™ Risk Hub enables banks to understand their customers in real-time – stopping more crime, while dramatically reducing customer friction by recognizing genuine activity.

As a pioneer in our own field, Featurespace has a unique understanding of the particular challenges that new entrants to the market face. A significant advantage we have is our knowledgeable team of fraud and financial crime experts who truly understand the issues that Challenger Banks are facing.

To find out more, download your copy of this whitepaper which explores the unique challenges and opportunities available for Challenger Banks. It outlines how Featurespace’s ARIC™ Risk Hub is enabling Challenger Banks to meet fraud and AML risk obligations while continuing to delight customers, using best-in-class machine learning and Adaptive Behavioral Analytics technology.

Several of the world’s largest banks, payments processors and acquirers – including TSYS, HSBC, Worldpay and Natwest - trust the ARIC Risk Hub to protect and serve their customers.

Challenger Bank: Financial Crime Prevention as a Competitive Advantage 

A Challenger Bank’s Guide to Fraud & Financial Crime Risk Management

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About Featurespace – www.featurespace.com

Headquartered in the U.S. and U.K. and with offices in Atlanta, Cambridge and London, Featurespace™ is the world-leader in fraud prevention and creator of the ARIC™ platform, a real-time AI machine learning software that risk scores events in more than 180 countries.

The ARIC platform combines adaptive behavioural analytics and anomaly detection to automatically identify risk and catch new attacks as they happen. The increased accuracy of understanding behavior strikes the balance between improving fraud and risk detection and operational efficiencies, while also reducing the number of genuine transactions that would be incorrectly declined by as much as 70 percent.