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Fraud and Financial Crime: The Role of Collaboration Between Banks and Fintechs

The Rising Threat of Financial Crime

Did you know about HDFC Bank and Razorpay or ICICI Bank and Paytm

Yes, it’s the magical power of bank fintech collaboration. Traditional banking institutions indeed require the support of fintechs to combat financial crimes and develop AML traits. This shared intelligence with help eradicate crime in real time. 

The entities and companies we interact with capture a natural data flow surrounding our digital existence. Online organizations must ensure that this data is utilized, stored, analyzed, and secured to provide a secure, frictionless, and rapid user experience.

This could result in a scenario in which an organization is compelled to integrate various solutions and technologies to manage the user journey, including authentication, identity verification, onboarding, and transaction monitoring. Additionally, the organization must be capable of detecting and preventing deception. Consequently, identity verification, compliance, and fraud detection are becoming more inextricably linked. A more efficient and effective defense can be achieved through close collaboration among various departments within an organization (through data sharing and bridging) and third parties (other banks, TPPs, law enforcement, etc.).

The Rising Threat of Financial Crime

Occasionally, organizations are unable to completely leverage their data because technology, data, and teams are operating independently. This is due to the absence of effective methods for integrating technology silos. Analysts may encounter difficulties in analyzing the vast quantities of data necessary for client activity evaluations in the context of banks. This data is frequently dispersed across various silos, resulting in a lack of cohesiveness between departments and systems.

Financial institutions’ analytic and detection capabilities can be improved by aggregating consumer information generated through the close collaboration of groups specializing in cybersecurity, fraud, and economic crime. Ultimately, the fraud fighter community is at a disadvantage, and consumers are at risk when it fails to assist one another, particularly in industries where knowledge-sharing practices are weak.

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Why Collaboration Matters?

Why Collaboration Matters?

For FinTechs to expand globally, they may encounter challenges in locating partners, whether they are banks or not, due to the absence of a well-established strategy for managing regulatory issues like AML and KYC. While there are numerous frameworks to evaluate, newcomers must begin with the fundamentals:

  1. Is there a well-defined business strategy within the organization?
  2. What is the company’s approach to managing global regulatory obligations?
  3. What actions is it taking to safeguard customers?
  4. In what manner is it achieving the ESG objectives that investors and regulators have established?

As the tempo of change accelerates, fintechs must ensure that their governance aligns with both existing and forthcoming regulations, and no list is exhaustive.

Businesses must be cognizant of the changing regulations that govern consumer protection and manage the direct impact on customers, reputation, and internal systems during a cyberattack. FinTechs must establish communication channels with relevant authorities and industry colleagues to promptly respond to regulations and mitigate potential threats. By capitalizing on their institutional expertise, partner banks can aid FinTechs in fulfilling their obligations as they establish themselves within the financial ecosystem.

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Types of Partnerships Between Banks and Fintech Companies?

Your organization’s customer retention and trust-building efforts are facilitated by fintech partnerships. When evaluating fintech partners, assessing the following five partnership models is advisable.

  1. Partnership for Referrals

Your institution receives a commission for referring customers to your fintech associate under this model. Before providing any services, you continue to evaluate your fintech partnership. This model may be the solution you seek if your institution lacks the resources to invest in managing a new offering.

  1. Facilitated Private-Label Partnerships

This is a frequently encountered partnership in which the consumer experience is the responsibility and control of your institution and your fintech partner. Ultimately, your institution receives all of the advantages of fintech technology without the need to perform all of the labor.

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  1. Private-Label Partnerships

The fintech solution is acquired by your institution, which then customizes it and distributes it to your customers. The fintech company’s name will probably not be visible to your customers on the product. You can offer a bank-branded product online while ensuring your consumers have a seamless experience. Nevertheless, there is a greater need for internal resources in sales, marketing, and support.

  1. Loans for Small Businesses

This enables fintech companies to concentrate on developing loan programs for small businesses. The company can capitalize on the lending capabilities of a conventional bank in situations where it would be challenging to secure financing from traditional lenders.

  1. Debit Cards

Banks may distribute debit cards or provide a payment card program for certain partnerships. This may appeal to users who are hesitant to establish an account with a traditional banking institution or are not connected to a bank.

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The Benefits of Collaboration

  1. Facilitates Compliance Throughout the Ecosystem, sponsor bank partners are essential in assisting fintechs in navigating intricate compliance requirements.
  2. Increasing Operational Efficiency: To improve operational efficiency, reduce costs, and enhance the overall consumer experience, banks may incorporate fintech innovations into their current systems.
  3. Banks’ established customer networks and distribution channels can be advantageous to fintech companies, particularly those that concentrate on niche markets, in terms of expanding their market reach.
  4. Capital and Resources: Fintech ventures frequently encounter obstacles in obtaining the necessary funding and resources to expand. 

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