AMLAnti-Terrorist FinancingFinTechKYC

Four insights from PayExpo 2016

By June 24, 2016 No Comments

Earlier this month the team ventured over to ExCeL London for PayExpo Europe, the UK’s largest payments event. More than 2000 delegates showed up to see 75 exhibitors and listen to 150 speakers over the course of two days – needless to say, we had quite a packed schedule! But between attending talks, visiting expo stands and networking with industry folks, we did manage to note down a few of the most interesting insights from the event. Read on for the four biggest lessons we took from PayExpo 2016.

Gaming braces for the storm

For those coming to PayExpo from the gaming industry, one word (OK, it’s an initialism) was top of mind: MLD4. Under MLD3, the new EU directive’s creatively-named predecessor, usually only casinos were regulated; now all gaming entities must comply with AML and customer due diligence requirements by default. (Some can be exempted under specific conditions, though.)

In other words, a huge number of gaming companies will have to learn to comply with EU rules for the first time. Jochen Biewer, from Chevron Consultants, gave an excellent talk about the teething pains this will cause for the industry. He noted that gaming companies often face problems with KYC processes because they’re usually inclined to offer quick, easy registration processes and only screen for AML risk when funds are withdrawn. This can stall the detection of suspicious activity and leave gaming companies open to liability. Biewer suggested that companies will have to implement at least a simplified form of KYC and CDD at the start of the registration process.

It’s not all doom, gloom and extra workload, though. Biewer argued that KYC is not just an obligation for gaming companies. In fact, it can be a positive way to know how to maximise revenue in the online gambling space based on spending habits and income, he said.

Everyone’s thinking about counter-terrorist financing and AML

For obvious reasons, preventing criminal misuse of the financial system played heavily on the minds of PayExpo attendees. Aimen Dean, a CFT consultant, spoke about the need for people in Payments to understand the terrorists’ shift in operational tactics. ISIS, for instance, now functions like a proto-state, using asset-based funding and taxation to finance its wars. This means they will have to interact with the financial system as never before, he said, increasing the need for extreme vigilance by those in the financial sector.

Another danger area for terrorist financing is false invoicing through crowdfunding platforms. Robert Evans, from FINTRAIL, described an Indonesian group who managed to smuggle money to ISIS using this technique.

Facing these threats, firms with lagging AML/CFT procedures need to adapt – and fast. One company described how it still manually screens its database of five million clients. Solutions like this don’t cut it in today’s political and regulatory environment. Mike Smith, from Raphaels Bank, said it best: “there’s no amount of commission … which can justify the damage to innocent people and your brand” if your products are used to fund terrorism.

payexpo complyadvantage

Andrew and Conor from the Sales team enjoy a well-earned break from talks and networking.

Tech, consumer appetite, and regulations converge at last

Evident from both the formal talks and the general ‘buzz’ of the event was a real sense of momentum across the industry and the wider FinTech ecosystem. A sense that the pieces are finally coming together for alternative payments and other innovations in finance was clear throughout our conversations at the event.

Advances in mobile computing in particular have created fertile ground for financial innovation, and this is joined by growing enthusiasm from consumers who are finally catching on to the advantages of new technologies in banking and payments. Paul Smith, the Payment Systems Regulator’s head of policy, pointed to the massive growth in contactless payments as evidence of this – £7.75 billion was spent using contactless cards in 2015, up from just £2.32 billion in 2014. Smith also discussed the important role of regulatory developments in fostering this growth.

FinTech kills the banking star?

The energetic growth across FinTech led to some deep discussions about the future of banks and banking. This question was raised in several of the event’s “Payments Punch Ups” (for those of you who weren’t there, these were lively debates held in a boxing ring – gloves and all!). In one punch up, Ollie Purdue, CEO of Loot App, debated Nick Middleton, Head of Strategy & Design at TSB, on the proposition “The future of banking is not a better bank.” Purdue predicted that in the future banks will become more like utilities, providing banking infrastructure to FinTech firms who can utilise the latest technology to deliver a better customer/user experience.

This idea was echoed by Laurence Krieger of innovative startup Revolut, which is shaking up the forex and prepaid card sectors. He argued that banks are too integrated into the global financial system to simply vanish; new FinTech companies and other banks alike rely on the infrastructure provided by the traditional banking system. That being said, we shouldn’t necessarily expect the banks to get on board with this vision of the future. As Krieger added, “Banks won’t roll over and die”. And, of course, banks have already started to adapt and compete with their FinTech rivals in spaces like mobile wallets and mobile payments.

That being said, we shouldn’t expect an all-out war between the banking behemoth and plucky FinTech start ups any time soon. As we discussed in April, the future of the Fintech-Bank relationship looks to be one of increased cooperation and collaboration. FinTechs will be able to focus on the innovative, end-user oriented products they do best, while banks will continue to provide niche or especially complex products and maintain core banking infrastructure. We’ll also see more direct collaborations, like that of Kabbage and Santander, who work together to boost small business lending, and that of Transferwise and LHV, Estonia’s largest domestic bank. In a nutshell, we expect significant change to wash over the financial sector in the coming years, but there will be room in this new ecosystem for both FinTechs and the old guard.

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