Unfiltered Opinions

A place for those in the industry trenches to share their experiential knowledge on key topics prevalent in our industry today.

The Need for Decentralized Identities

The current way of validating identity (KYC & ID Fraud) within the online lending space is primarily done using “triangulation”. Application PII is validated against industrystandard databases that supply an aggregated view of public and credit records on file matching the PII.

Confidence for this solution is developed based on database coverage and reputation. However, there are critical gaps to this approach;

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2. High false positives, specifically for thin-file and new immigrants Because of the subjectivity involved, it is still no fullproof way of answering the holy grail of all questions “Are You Who You Say You Are?”.

This has given way to a plethora of fraud solutions that mostly use similar databases but augmented with more advanced machine learning...yet not solving for the root cause.

A new way of authentications like bio-metrics or mobile verification is unproven and cumbersome to implement. All being said, the complexity in ID verification has added to the regulatory burden and higher costs of doing business for digital lending companies - running into billions of dollars.

A blockchain-backed infrastructure for identity validation seems a promising solution, almost kindling the idea of an individual universal borderless identity. At a high level, it involves developing an identity consortium supported by blockchain to help companies accurately validate an applicant’s identity via a dynamic token, or private-public key, that will, in turn, return the pre-validated consumer information.

Opinion by: Subbu Narayanaswamy

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Fraud in Online Gaming

The fraud sphere has not been altered in the 15 years I have been a part of it. It has pivoted to different types of attack vectors but in principle remains the same. Obtain or steal an identity, monitor a system to find its flaws, and use said identity.

The times of unsophisticated single person operations have evolved into elaborate networks that transcend borders in the pursuit of profit. Having multiple locations, varying identities and access to different cards which may or may not abide by OTP measures gives an advantage to the perpetrators to attack where the system is weakest and with a low-risk profile.

Strategies have evolved into multi-pronged challenge points to counter the sophistication in an intricate game of cat and mouse. The pandemic has brought the industry of e-commerce to the forefront as a means to continue consumer consumption in a contactless environment, along with it fraud has followed... not deviating in the pattern but taking advantage of the volume needing to sifting.

By learning the system and it’s prevention and monitoring procedures even the most elaborate fraud prevention system will see itself bypassed. It is clear that during the pandemic the rate of fraud didn’t increase, or we are led to think this due to the average volume of traffic increasing. The number of gamers was as it is normally, but the playtimes increased. This behaviour may allow for better system studies and procedure testing so future attacks may be more sophisticated and harder to detect.

In parallel to non-accurate delivery times and system overloads, the playing field was in favour of fraud. The results of which we will start seeing within the following months and beyond. On the brighter side, this influx also gave companies to better prepare and tools to better evolve to meet the challenge as well as new tools to emerge. The shift to a more online economy will not come without its headaches, but it is for the foreseeable future quite the reality.

Opinion by: Alex Kamberos

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Europe’s crypto banks: regulations make neobanks safer

It’s been over 11 years since the elusive Satoshi Nakamoto launched Bitcoin’s white paper - the very first cryptocurrency. The main idea behind it was to create a decentralized financial system that would allow anyone, anywhere in the world, to use one type of currency free from the mainstream banking system.

Some might argue that cryptocurrencies are the antithesis of the banking system, but some neobanks have embraced this new technology fully. Challenger and neobanks have come to challenge the traditional banking system by nature, a lot like cryptocurrencies do.

One of them is Ziglu, the creation of Mark Hipperson, cofounder and CTO of UK based Starling Bank. Following a £5.25 million seed round, Ziglu launched in the UK with the core focus to provide a seamless way for consumers to buy cryptocurrencies.

Ziglu will allow users to exchange GBP for bitcoin, ethereum, litecoin, and bitcoin cash - with more fiat currencies to be added, and a Mastercard debit card coming soon. Ziglu is eyeing Millennials who desire easy access to crypto, in a recent interview, Hipperson added, “In 2020, we think the 25-45 [age] demographic will want easy, safe access to crypto,” he said. “Only about 1% of people go to the large platforms to buy crypto and we think we can do better, and perhaps get them better prices as well”. Hipperson claims Ziglu will be 1.5% cheaper than other major crypto exchanges, with the average being 1.25% of the transaction. Ziglu is still waiting for financial regulators to approve its banking licence, but in the meantime, users can buy and sell crypto and move fiat currencies in from their main bank account.

Receiving a banking licence for crypto banks can be complicated, as countries in Europe are still working on regulations that will prevent illegal financial activities. Some countries, like Malta, have a more focused regulation for crypto companies, while other countries are still lagging behind.

In Germany, crypto neobank Bitwala bypassed the need for a banking license by partnering up with SolarisBank. Bitwala’s strategy isn’t aimed at cutting corners as BaFin and Bundesbank, Germany’s financial regulatory bodies, require either a formal banking license or a partnership with an existing bank.

Bitwala operates like a traditional bank, but with the addition of a crypto wallet. All users receive an Iban number and a contactless debit card to buy and sell crypto. In this case, Bitwala has a thorough KYC (Know-your-customer) process, but it is limited to German residents. Even though the account only takes minutes to open, customers need an ID and video verification. Also, as with any bank account in Germany, all euro deposits up to €100,000 are protected by the German Deposit Guarantee Scheme (DGS).

Still in Germany, not a crypto bank but a crypto banking app, newcomer Spot9 is a lot of innovative ideas to Germany’s crypto community. In addition to an innovative mobile banking app, Spot9 will introduce legally compliant Crypto ATMs and offer a white-label solution in partnership with Sutor Bank. Johannes Gorski, CEO of Spot9, when asked how Germany’s financial bodies are dealing with crypto banks, explained: “In comparison to other countries Germany does not provide a regulatory sandbox for fintechs and especially crypto banks. Thus the legal regulatory framework, mainly the banking act (KWG) is applicable. In addition, banks as credit institutes are obliged to conduct KYC and AML-procedures according to the German anti-money-laundering-law (GWG).“

He added that, on the supervisory level, the German regulator is acting with regard to GWG on the basis of its applicable notes. Furthermore, the regulator orientates itself with regard to crypto assets in particular to the regulations and recommendations of the FATF.

Comparing Germany with other European countries regarding anti-money laundering regulations is difficult, but in practice, it has been shown that in Germany, the video identification procedure that is part of GWG, is regarded as standard in the case of identification of persons not present. As far as we know, this is more extensive than any other EU countries regulations. When will we reach standardization?

Opinion by: Marcel Van Oost

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