This editorial was first published in our Web Fraud Prevention and Online Authentication Market Guide 2017/2018. The Guide is a complete overview of the fraud management, digital identity verification and authentication ecosystem provided by thought leaders in the industry from leading solution providers (both established and new players) to associations and experts.
Scale necessity for European banks – AMLD a blocking issue?
With Bigtech companies pounding at the gates, traditional banks and other financial service providers are challenged to slash costs while improving the service quality. However, when doing so, they face significant regulatory obstacles. Take the recently updated European Anti-Money Laundering Directive (‘AMLD’), which has led to widely different interpretations across countries and deep implications for products and operations. Consumers in different regions are used to and expect certain identifying and verifying protocols, as well as, familiar authentication and signing methods for making transactions. This variety complicates things, as services also need to be tailored to local tastes. Moreover, these requirements contain a hidden competitive advantage. Not only banks have to comply with AMLD4, but so do potential newcomers. For banks this is a known fact, as they have deep experience in offering compliant products and services. For tech giants, this is a new game altogether. Key question for banks and other incumbents is how to turn this potential roadblock into an advantage: how to realise European roll-outs that are (a) compliant and (b) in line with local customer expectations?
The INNOPAY approach to geographic expansion with AMLD compliant products
In solving this complex problem, INNOPAY has developed an approach in four phases (Figure 1).
Figure 1: steps and illustrative example to assess front-end product design for AML regulation
1. Determine strategy
Product vision and strategy are key starting points for strategic decisions on product design. Decisions on strategy have to be made in developing and implementing a simple and seamless customer journey. There is an inherent trade-off between offering a uniform product across geographies and tailoring a product to local requirements in each country. The latter allows for designing an optimal product for each geography given regulatory requirements and customer expectations, but may increase cost and complexity. A second trade-off exists between being a market lead or following competitors in specific countries on specific product characteristics and product prices.
2. Analyse regulatory requirements
The first step towards realising compliant products across the footprint is assessing compliance requirements in relevant countries. This results in an overview of regulatory requirements per country. Sources for compliance requirements include EU directives, local regulation, guidance for the implementation in the local regulation, guidelines set by local regulators and local jurisprudence.
3. Analyse competing products
Analysing competing products in different countries helps in creating compliant products and gives insights into customer expectations. Market players are usually bound to offer products that are aligned to or improve on market practices to create market traction. Market practices for the customer journey differ highly across countries and regulatory requirements and existing market solutions dictate the possibilities for design.
Another reason for analysing the competitors’ products is that interpretation of local regulation may result in different requirements than expected. Interpretation of regulation is best assessed in practice.
4. Determine product design
During product design, the best way to meet different regulatory regimes should be defined. However, different solution designs can all meet the same regulatory requirements. Selecting the right design should be an iterative process between product vision and strategy, customer expectations and regulatory requirements.
Standard Customer Due Diligence (CDD) requires the obliged entity to obtain customer attributes, the ID copy and identity verification. However, multiple solutions exist for different requirements, but not all solutions are appropriate in all cases. For a uniform product across countries, authentication through a third party identity scheme is insufficient as third party schemes are only available in some countries. The most basic customer journey, that of filling in datafields and physical verification, is not sufficient to become a market lead in a specific country. This shows that choosing the right solutions depends on the chosen strategy. It is an iterative process between strategy development and product design. An organisation and customer experience specific optimum balance should be found.
Figure 2: possible design of obtaining attributes, ID scan and verification
Towards cross-border compliant products
With a focus on the front-end design of financial products, geographical expansion with compliant products should be done by performing an analysis on regulatory requirements for AMLD in EU countries. Analysing competing products helps in creating a competitive product in each country, but also for interpreting regulations across countries. By expanding across geographies, traditional financial services companies will make an important step in remaining competitive in the face of the increasing competition from digital newcomers. Is your organisation ready to meet the Bigtechs challenge? Do you want to let AML work for you when driving your geographical expansion? Please feel free to contact us for more information on how to develop and deliver compliant financial service products as part of your geographical expansion strategy.
About Walter Lutz
Walter is project manager at INNOPAY and supports clients operating in transaction markets to solve strategic challenges when introducing new products or entering new markets.
About Jorrit Penninga
Jorrit holds a master’s degree in Systems Engineering, Policy Analysis and Management and has experience in strategic assessments and market research on introducing innovative products and services at INNOPAY.
About Bernd Brinkers
Bernd’s background in service design and experience gained at INNOPAY enables him to help clients combine technology, regulation and business value into user-centred products and strategies.
About Innopay
INNOPAY is an independent consulting company, specialised in online payments, digital identity and e-business. We help our clients, including financial institutions, governments and corporates, to develop the compelling strategies and digital services for consumers and companies that are key for successful competition in a rapidly digitising world.
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