Wire Transfers and Best Practices to Avoid Wire Transfer Fraud

All of us have heard the term wire transfer being thrown around in fancy movies and shows. Wire transfer is one of the most popular methods of moving money from one place to another. In actuality, do you know what is wire transfer and how do wire transfer work?

Whether you’re sending the money to family overseas or concluding international business payments, it is vital that you determine if your money is in good hands or not. Wire Transfers are complicated and the more you know about them, the more your business will be safe from the risk of fraud. Businesses need to follow the best practices for wire transfers.

What Is a Wire Transfer?

To put it in simple words, a wire transfer is an electronic method of sending money from one person or business to another business. Using wire transfer, money is transferred from one bank to another one by filling out some basic documents. There are different types of wire transfers and you need to know what are the different types of wire transfers for most efficiency.

How To Send a Wire Transfer?

The easiest way to send a wire transfer is to visit your bank and fill out a form for a wire transfer.

  • The recipient’s name and full address
  • Branch name of the recipient and full address
  • Bank account number of the recipient
  • Recipient bank’s BIC/Swift Code
  • ABA or routing number if the money is being sent to the USA
  • IBAN (International Bank Account Number) if money is being sent to Europe.

What Are The Different Types Of Wire Transfers?

Wire transfers can be of two main types:

  1. Domestic Wire transfer: Where money is sent from one bank to another one within the same country.
  2. International Wire transfer: Money is sent to a bank account that is based out of another country.

Domestic and international wire transfers can further be broken down into two categories:

  1. Intra Bank: In which money is transferred from one account to another one within the same bank.
  2. Inter-Bank: Money is transferred from an account in one bank to an account in another bank. 

How do Wire Transfers Work?

Wire transfers are sent via networks that connect different banks or the same banks. You can think of the network as a middle man between the banks in an electronic money-sending transaction.

They don’t personally handle any money, but instead, they help in sending the international money order from one bank to another one. 

Domestic Wire Transfers:

  1. Intra-Bank: Both the money sender and the receiver belong to the same bank. The bank’s software is instructed to transfer the funds between its accounts or branches. The money is debited from one account and credited to another one. 
  2. InterBank: The one who sends the money and the one who receives the money belong to different banks. The banks are members of a secure, closed network that collects the money and completes the wire transfer by sending it to the desired location. One of the most famous examples of a wire transfer is ACH transactions. 

International Wire Transfers:

  • Intra-Bank: Some big banks have branches in several countries, and smaller banks have accounts of their own in foreign banks. So even in international wire transfers, both the senders and the receivers can have accounts in the same bank.

The SWIFT network is the network that most banks use for these transactions. This means transactions can be completed without needing any intermediary bank.

  • Inter-Bank: Not all banks have their accounts overseas, in this situation, an intermediary bank is used as a middle man. The payment must pass through compliance regulations in the country of the sender, the intermediary bank’s compliance, and the recipient’s compliance. This means inter-bank transactions can take much longer. 

Different types of networks can be used for international inter-bank wire transfers. Some common examples based on the region are Canada & U.S (ACH). Europe (SEPA). India (NEFT/IMPS/RTGS).

What is the Cost of Wire Transfers?

It is common knowledge that wire transfers are expensive, on average the domestic wire transfers cost $25 per transfer but the cost can reach up to $35. 

International wire transfers are even more expensive, they can cost anywhere from $30-$80, at times can cost even more. The worst part is that the person who is receiving money will also have to pay a fee of $10-$15. Wire Transfers are so expensive because of multiple hidden fees that add up throughout the completion of the process.

What’s The Time Taken by Wire Transfers?

Wire Transfers are slowly becoming obsolete, because of the time taken to complete the process. Now that online transfers have become a norm, there’s no real need for wire transfers. 

Domestic wire transfers are said to take just one day, however, they can take more than one business day. When it comes to international wire transfers, it can take 3-5 business days but there have been multiple cases of it taking more than a week. There is a difference in time because wire transfer goes through a domestic network as opposed to international networks that have to clear multiple compliances which adds more time to the process. 

Add in the time difference and different opening times of banks in the destination country, it adds up extra hours/days until the transaction is completed.

Are Wire Transfers Secure?

Wire transfers are secure, but not completely secure. As wire transfers need the recipient’s bank account number and a network (SWIFT) code, any errors in entering this information can send the money to some other account. 

It can take weeks to recover the money or you may never get it back. If your wire transfer has gone through multiple intermediaries, it may be almost impossible to get the money back. Fraudsters have made their way inside wire transfers, fraudsters can pretend to be a legitimate business and once you transfer money to them, it’s impossible to get the money back. There are some practices that you need to learn how to avoid wire transfer fraud.

Can Only Banks Send Wire Transfers?

Some companies that aren’t banks offer wire transfer services, one of the most used services is Western Union. Some people may think that just because they aren’t using a wire transfer, they’re using a better option, in most situations that’s not the case. 

A non-bank-based wire transfer may complete faster, but it will surely cost much more. To make things worse, if you wire a payment to be collected in cash, fraudsters can use identity theft techniques to claim the money.

There are some non-banks or e-wallets that offer digital services where you set up your account which acts as an intermediary between the banks for your wire transfer. PayPal is a common experience that charges a very high percentage of currency conversion while making international payments. 

Best Practices for Preventing Wire Transfer Fraud

Companies that rely on wire transfer fraud need to employ best practices to increase company-wide policies designed to increase employee awareness and prevent wire transfer fraud. Here are some of the wire transfer best practices:

  • Education is vital, learning about email scams and educating your employees is needed to protect your financial assets. 
  • Requests for changes, immediate action, or lack of availability by phone should be handled strictly. Employees need to follow the company process. 
  • Always verify the authenticity of each wire transfer request by using two-factor or multi-factor authentication. Call the person who’s receiving the money, using the same number you used to call before. 
  • Don’t use email for wiring instructions, use physical methods instead like mail, fax, or a phone call. 
  • Carefully verify all the emails that request wire transfers. Emails are one of the most common methods of fraud. Before sending the money, you need to verify who is asking for money and why?
  • Businesses should use encrypted emails that contain sensitive information.
  • If your business insurance policies don’t cover cybercrime fraud, then it’s time to change the policies. 
  • Following KYC compliance is one way to reduce fraud. While it may take time, if you can conduct KYC on new wire transfers, it can lead to fraud reduction for your business. 

AML Technologies: Helping Businesses Stay Compliant

For most people, money laundering is a crime that just happens in movies, TV shows as it doesn’t have anything to do with them. Unfortunately, money laundering is a huge problem for businesses all over the globe. Other types of financial fraud are also common for businesses, especially financial services and FinTechs that allow users to exchange funds. With the use of proper AML technologies, organizations can stop the flow of money laundering. 

These businesses and institutions can be used to finance criminal empires and support terrorist funding without being aware. This opens the business to legal actions and huge fines by a regulatory body for not complying properly with AML regulations. Banks, financial institutions, credit unions, and others must stay compliant with AML technologies, by utilizing the latest technologies and by training employees.

Below we have listed some of the best and modern sophisticated technologies to keep an eye out for as AML continues to evolve.

Sophisticated AML Technologies for Developing Effective AML Compliance Programs

Developing effective AML compliance programs isn’t a choice for businesses, financial institutions are legally obligated to comply with AML regulation. Financial institutions of all kinds must utilize new AML technologies as it is one of the best ways to stay compliant. 

AML regulations state that banks collect customer information and monitor all suspicious transactions and activities. Suspicious activities of all kinds must be reported to financial regulatory authorities like FATF. Here’s our pick for technologies that help financial institutions comply with existing AML regulations.

1. Automated AML Screening Solutions

Financial institutions and other money-related businesses have millions of clients. Monitoring every single of these customers is almost impossible without using automated AML screening solutions. 

AML technologies automatically check the clients of a business against national and international checklists. These lists can be made up of global and regional lists, watchlists, PEP lists, and other lists. With automated screening, businesses will be able to identify high-risk individuals and complete a fair and complete risk assessment. These actions fall under the term “RPA (Robotic Process Automation)”, which means the technology uses AI to screen and monitor accounts for potential money laundering. 

The best AML screening solutions use AI-powered automated AML screening to assess all the risks and perform monitoring.

2. Transaction Monitoring Tools

Suspicious activities according to the government can be a single transaction or a pattern of unusual high-risk transactions. For example, the Bank Secrecy Act (BSA) states that any transaction in the US for more than $10,000 should be reported. 

However, financial criminals are also aware of these regulations so they use several transactions of less than $10,000 to stay out of suspicion. To detect all suspicious financial transactions, a business should look for complex patterns. 

Monitoring every single transaction is without a doubt one of the best ways to stay compliant with AML regulations, but using automated software will make this a much easier task. Tools such as DIRO online bank account verification can help in reducing financial fraud by verifying if the person using the account is legit or not.

3. AI-Based Solutions

Artificial Intelligence has already infiltrated almost every part of our lives. It can instantaneously analyze a huge amount of data and use specifically designed algorithms and detect anomalies that humans can’t.

AI can have countless implementations in a spectrum of industries, ranging from cybersecurity to fraud prevention to data management. Artificial intelligence is not exactly a tool, if used properly it has characteristics of an AML screening and transaction monitoring solution. 

4. Machine Learning Solutions

Machine learning is a small part of AI and it is a type of software program that utilizes data and algorithms to recognize patterns in transactions that can be deemed suspicious. Over time, the machine learning program detects changes in customer behavior, which makes it easy to identify suspicious activities.

These machine learning solutions are built to analyze data and anticipate the behavior of a customer. If a client’s transaction habits suddenly change, then these solutions will notify the businesses of any suspicious transactions. Thus sudden changes in a customer’s financial habits may include unusually large deposits and withdrawals, change in frequency of transactions, and so on. 

Need for Effective AML Technologies

Non-compliance with the AML regulation can cause you to pay huge fines imposed by regulatory bodies. The total amount as fines imposed in 2020 surpassed 14 billion dollars, with Goldman Sachs and Westpac the largest organizations being fined. Non-compliance won’t just lead to fines, it can also make it harder to detect and prevent criminals from entering the financial institution’s internal systems. 

Each country has its own regulatory body and law enforcement specialists whose only aim is to protect the financial system. In the U.S FinCEN is the regulatory body that watches over all the financial institutions and ensures that the regulations are being followed. 

With the rapid increase of money laundering and digital transformation in the banking industry, complying with AML regulation has become even more important for regulators and businesses. While businesses are legally obligated to comply, doing so will help in preventing money laundering.


API zur Verifizierung des Bankkontos: Welche Möglichkeiten hat Ihr Unternehmen?

Der Online-Zahlungs- und ACH-Branche fehlt die Autorisierungskomponente, die normalerweise bei Kreditkarten verfügbar ist. Im Gegensatz zu Kreditkarten, bei denen Benutzer autorisieren können, während sie die Zahlung der Kunden über ihre Karten vornehmen, kann die ACH- und Scheckverarbeitung die Bankkontoverifizierungs-API erfordern, um das Zahlungsrisiko zu mindern.

Wenn wir über das Onboarding neuer Kunden sprechen, kann ein fehlendes Verifizierungssystem ein großer Reibungspunkt sein, wenn die Unternehmen wiederkehrende Zahlungen leisten müssen. Die erfolgreiche Überprüfung des Bankkontobesitzes kann sogar die unzähligen Risiken von Finanzbetrug reduzieren. Die meisten Fälle von Geldwäsche passieren, weil Finanzinstitute Strategien und Due-Diligence-Modelle entwickeln müssen, um Fake- und Kontoübernahmebetrug während des Onboardings auszumerzen.

In der Finanzdienstleistungsbranche helfen die Schritte der Kontoverifizierung Unternehmen dabei, zu überprüfen, wem das Konto gehört und ob ein Betrüger das Konto für illegale Zwecke verwendet. Während regulatorische Anforderungen die Banken dazu zwingen, kann das Einhalten von Vorschriften dazu beitragen, das Betrugsrisiko zu verringern und die Kunden-Geschäftsbeziehungen zu verbessern.

Was ist die Bankkontoverifizierung?

Seit der Pandemie ist die Betrugsrate exponentiell gestiegen. Der Grund? Millionen Menschen verlieren ihren Arbeitsplatz und stehen nun vor einer Finanzkrise. Unternehmen, die ständig Online-Transaktionen mit ihren Kunden oder Händlern haben, müssen sich vor Betrügern hüten, die die Identität der Kunden annehmen können. Früher verließen sich Unternehmen, Banken und Finanzinstitute darauf, dass Kunden genaue Bankdaten angeben, und es gab keine Möglichkeit zu überprüfen, ob die bereitgestellten Informationen der Person gehörten, die sie bereitstellte. Manchmal machen Menschen Fehler und geben die falschen Details preis, oder manchmal versuchen sie, Betrug zu begehen, indem sie absichtlich die richtigen Informationen weitergeben.

Aus diesem Grund ist die Überprüfung des Bankkontos von entscheidender Bedeutung. Organisationen, Banken und andere Unternehmen, die in der Finanzbranche tätig sind, müssen die Kontoinhaberschaft überprüfen, bevor sie eine Transaktion abschließen. Die Überprüfung des Bankkontos hilft ihnen zu verstehen, ob die Informationen gültig sind und wem das Konto gehört. Die Überprüfung von Bankkonten hilft sowohl dem Sender als auch dem Empfänger, sicherzustellen, dass das Geld am richtigen Ort gesendet und empfangen wird.

Warum benötigen Unternehmen eine Konto Verifizierung?

Die Beseitigung von Betrug ist der Hauptgrund, warum Banken einen Kontoverifizierungsprozess verlangen. Die meisten Unternehmen, die in der Finanzbranche tätig sind, sind auch an regulatorische Anforderungen gebunden (Unternehmen müssen möglicherweise die Kontoinhaberschaft überprüfen, um die AML-Richtlinie einzuhalten). Die Kontoüberprüfung kann Unternehmen auch davor bewahren, Millionenverluste in Form von Betrugsverlusten und Bußgeldern bei Nichteinhaltung von Regulierungsbehörden zu vermeiden.

Die Überprüfung der Kontoinhaberschaft verhindert das Risiko menschlicher Fehler und reduziert die Zeit- und Ressourcenverschwendung beim Bereinigen der gemachten Fehler. Darüber hinaus hilft es Unternehmen, sich vor bösartigen Akteuren zu schützen, die Betrug wie Geldwäsche, Terrorismusfinanzierung und Rechnungshinterziehung begehen wollen. Die Überprüfung, ob die bereitgestellten Kontoinformationen gültig sind und im Besitz der Person sind, die die Informationen bereitstellt, kann zu reibungsloseren Arbeitsabläufen führen, Zeit und Geld sparen und die Sicherheit vor Betrug gewährleisten.

Verwenden der Kontobestätigungs-API

Die Kontoverifizierung kann auf verschiedene Weise erfolgen, aber nicht alle Methoden sind großartig und so effizient, wie Unternehmen es sich wünschen. Durch die Integration eines API-Schlüssels in die Website können Unternehmen den Verifizierungsprozess verbessern.

Die Online-Bankkonto-Überprüfungs-API von DIRO bietet eine sofortige Dokumentenüberprüfung, die von Unternehmen verwendet werden kann, um die Kontoinhaberschaft zu überprüfen. Mit über 7000 Dokumententypen weltweit können Unternehmen ihren Kampf gegen Online-Betrug verstärken. DIRO bietet eine API, die in die Website integriert werden kann und bei der Überprüfung der Kontoinhaberschaft, des Adressnachweises, der Stromrechnungen und vielem mehr helfen kann.


Avoiding Money Laundering Risks in Cryptocurrency Industry

In a couple of years, cryptocurrencies have exploded and are being used for transactions around the world. Due to its core nature of anonymity and lack of regulation, the cryptocurrency industry soon became the hub for illegal activities, the majority of which consisted of money laundering.

Since the industry was being targeted heavily, crypto businesses, regulators, and FIs adopted stringent security measures to reduce the rate of fraud. As of today, less than 1% of all Bitcoin transactions are made up of illegal activities. The same number was 35% back in 2012.

Bitcoin may be the biggest name in the crypto industry, it surely isn’t the only currency being used to launder money and destabilize the global economy. Regulatory bodies are skeptical about the unregulated nature of cryptocurrencies and want to put them under some kind of regulation moving forward. In the latest Anti Money Laundering Directive (AMLD6), some guidelines were released for crypto businesses operating in the EU. For crypto businesses to keep growing while establishing trust, it is vital to take some measures to reduce the risk of money laundering in the industry.

Cryptocurrency and Money Laundering

Back in 2019, criminal organizations and individuals laundered more than $2.8 billion using unregulated crypto exchanges. There are both advantages and disadvantages to using crypto to transact funds. Criminals are always deriving new ways to take advantage of the loopholes in the system to launder as much money as possible. To keep this in check, regulators have been working around the clock to identify the shortcomings and take preventive measures.

Every crypto exchange currently has the ability to identify potential risks that can be taken advantage of by fraudsters. Most of the cryptocurrency markets rely on the anonymous nature to grow their business, fraudsters on the other hand take advantage of this fact to convert their illegal money into legal funds. Being able to provide a certain degree of anonymity while reducing the risks of money laundering is facing up to be the biggest challenge for the industry. 

When financial institutions like banks and credit unions are heavily regulated and are legally obligated to follow a series of regulations, the lack of the same in the crypto industry makes it harder for regulatory bodies to allow crypto to be a mainstream form of transaction. The risk of money laundering in cryptocurrencies can be broken into the following categories:

1. Source of Funds

Sources of digital assets like cryptocurrencies can be tied to any number of illicit activities. For example, any funds transacted from a platform with little to no KYC/AML checks can be considered a red flag.

In a similar way, a single crypto wallet can be tied to multiple banks and credit cards, stating that a group is using a singular wallet to launder money. 

2. Suspicious Transaction Patterns

In some situations, the risks of money laundering in the crypto industry can be tied to a series of suspicious transactions.

For instance, criminal organizations tend to transfer money multiple times without a believable commercial explanation, which can be considered a red flag. Some common suspicious transaction patterns are:

  • High-frequency transactions, all more than $10,000 from different wallets into a single account.
  • Transactions from crypto wallets that don’t perform customer due diligence (CDD) checks. 

3. Money Laundering Risks Within a Specific Jurisdiction

Different geographical areas have different laws about KYC and AML regulations. Combine this with a lack of preventive measures or no regulatory bodies, and it creates opportunities for individuals and organizations to commit illicit activities. 

In an area that is deemed high-risk, there will be a larger pattern of illegal or suspicious transactions. As there are no laws that protect legit traders, it is better to stay away from high-risk areas. 

4. Frequency & Size of Crypto Transactions

Regulators and crypto exchanges need to thoroughly monitor the frequency and size of a transaction to eliminate the risk of money laundering from the crypto industry. Frequent transactions or high-volume transactions can be a disguise for money being laundered around the system. Some common activities to keep an eye out for are:

  • Clearing transactions below the reporting limit
  • Continuous high-value transactions during a single period into the same account
  • Quick transfer of funds from regulated jurisdictions to unregulated areas

How Regulators Respond to Existing AML Risks?

Legal businesses and organizations are always at the risk of their platform being used to launder money. Some common examples are:

  • Reusable debit cards
  • Initial coin offerings (ICOs)
  • Video game payment portals
  • PEP bribery
  • Money service businesses
  • Securities trading

Regulatory bodies are aware of common threats and risks of money laundering, that’s why they keep on developing regulations to minimize the risk and increase compliance in a vastly growing industry (Cryptocurrency). 

Financial institutions can stay compliant and reduce the risk of money laundering by following the guidelines set forth by the Financial Action Task Force (FATF). National governments are also trying to develop the latest methods to detect potential weak points that allow for money laundering and build methods to prevent it. 

Regardless of the constant changes in regulations and integration of technologies in the workflow, the risk of money laundering in the crypto industry is huge. A lot of work has to be done to ensure that the industry can keep its core value of anonymity while reducing the risks of money laundering. However, the question remains, “how do legit traders keep using cryptocurrencies and stay risk-free?”

Robust Customer Due Diligence Checks to Prevent Money Laundering

Needless to say that the current systems of due diligence aren’t enough to stop or reduce the flow of money laundering in the crypto industry. Crypto exchanges and wallets need to employ strong digital customer due diligence checks that can help them comply with KYC and eliminate the risks of money laundering. 

Being able to verify if a customer is who they claim to be during the initial steps of onboarding can help in slowing down the pace of money laundering. 

DIRO online document verification software provides instantaneous online document verification. With over 7,000 types of documents globally, DIRO can help crypto exchanges perform strong due diligence checks. DIRO verifies documents like address documents, bank statements, income tax return documents, student records, and more by cross-referencing data from an original web source and eliminates the use of fake and forged documents by 100%. If a criminal organization and entity can’t gain access to crypto exchange and wallet during onboarding, the flow of money laundering will automatically slow down. 

DIRO online document verification API key can even help organizations reduce the cost of manual verification and speed up the process while enhancing the onboarding experience for legit customers.


KYC & AML Guide for Crypto Businesses

Money laundering is a huge threat to the global economy and unfortunately, cryptocurrency has become the magnet for fraudsters looking to launder money with minimal friction. Ever since it started growing, the crypto industry has become holy ground for money laundering and terrorist funding.

To disrupt the flow of money laundering and terrorist funding, regulatory bodies all over the world are implementing anti-money laundering measures. These measures can help prevent money laundering using cryptocurrency exchanges and wallets.

Robust internal AML programs include full-proof KYC procedures to identify and verify users. Using this, authorities have to root out suspicious activities in the crypto industry. This will also lead to more expensive customer onboarding for customers in the crypto industries and make the process full of friction. Manual verification processes won’t work for the crypto industry that is slowly getting regulated.

Fortunately for the crypto industry, there are thousands of FinTechs that can help achieve compliance while still offering a positive customer experience.

Importance of KYC & AML Regulations in Crypto Industry

Over time, the financial industry is evolving and cryptocurrencies are rapidly changing the way transactions take place. For international monetary exchanges, virtual currency is taking the place of traditional currency.

However, this comes with its fair share of challenges, a major issue is that criminals launder money using anonymous crypto exchanges. The fifth anti-money laundering directive makes it clear that crypto exchanges and wallets have to operate under anti-money laundering regulations.

This means a robust AML program helps identify and protect against suspicious activities. Crypto exchanges and wallets need to integrate KYC & AML regulations in the onboarding workflow to protect against financial crime.

Currently, most crypto exchanges don’t have proper AML strategies. A recent study states that 69% of crypto exchanges don’t have a complete and transparent KYC procedure in place.

Understanding AML Regulation

The term anti-money laundering or AML dictates a set of rules and legal regulations that are built to identify fraudsters and prevent illegal activities. It includes activities such as trading illegal goods, tax evasion, drug, and human trafficking, and laundering ill-gotten funds. 

To prevent money laundering and other financial fraud, regulatory bodies make it a legal obligation for banks and the financial industry to conduct due diligence checks while onboarding customers. The unregulated nature of the crypto industry has given birth to a whole new type of financial crime, where criminals can launder money and cover their tracks.

This is a huge issue on cryptocurrency gambling websites, money laundering crypto mixer platforms, and exchanges.

How Does KYC & AML Affect Crypto Exchanges?

For businesses operating in the crypto exchange, AML programs are a must, for protection against fraud and to stay compliant with growing regulations. This means the implementation of an effective AML program that includes a customer Acceptance Policy (CAP), Customer Identification Program (CIP), continuous monitoring, and risk management. 

The CAP refers to the identification of new customers using official ID documentation. CIP is the process of verifying a customer from this documentation and against official databases. Ongoing monitoring allows crypto exchanges to identify suspicious transactions and ensure customer details aren’t outdated. 

In the USA, FinCEN puts all types of crypto exchanges the same way. This means that all cryptocurrency exchanges must carry out all KYC and implement effective AML programs, regardless of the type of cryptocurrency. 

Why is KYC Important for Crypto Exchanges?

Money laundering has become a global issue and the losses incurred to the global economy due to money laundering equal almost 5% of the global GDP. These procedures help financial institutions to mitigate and manage fraud. So how is KYC useful for crypto exchanges?

  1. KYC Builds Trust and Transparency

For cryptocurrencies to become a streamlined service, there need to be some regulations set in place to eliminate fraud. By implementing KYC procedures, exchanges can demonstrate that they are trustworthy and have the right regulations set in place to prevent fraud. 

  1. KYC Reduces the Risk of Financial Crime

Proper KYC procedures reduce the chances of financial crime as users are identified and verified. Having robust KYC programs can help weed out criminals and high-risk candidates, which in turn reduces the likelihood of illicit activity occurring through exchange or wallet. 

  1. KYC Will Ensure Stabilization in Crypto Market

AML and KYC regulations are important for stabilizing crypto exchanges for upcoming years. For customers to truly trust a system, they need to know the system in assessing risks to protect the users.

ID Verification

eID Verification Process and Client Onboarding for Financial Institutions

eID verification offers endless benefits for financial institutions, but the biggest thing it helps with is eliminating the risk of financial fraud. To streamline the transactions, customer verification, and client onboarding, eIDAS is vital.

It is almost impossible for individuals or business owners to get time out of their schedule to go to banks and financial institutions to open a new bank account or conduct any other kind of banking activity. The hours that banks operate under are not convenient for most and it is tough to go to the bank every other day to sign new documents for mortgage, vehicle loans or to finance important capital purchases for their businesses.

While limited banking hours can be frustrating, it can also be frustrating for banks as it can disrupt the efficiency of the workflow of financial institutions. Various work processes are delayed while waiting for documentation to be completed.

Having to wait can be extremely costly for banks and financial institutions that are there to make money. This situation has gotten particularly worse since the pandemic, that’s why having a fully digital system can be beneficial for banks and other financial institutions. Financial institutions that deal in cross-border transactions especially need to have digital solutions. It is vital that FIs also use electronic ID verification solutions that can help them verify who their customers claim to be. This is where the need for eIDAS becomes more than crucial.

What Is Required for eIDAS?

All the members of the EU are required to follow the guidelines of regulations regarding cross-border transactions. This regulation outlines the legal requirements and standards for procedures used to assure online identification by using several techniques. Section 2.1.2 of eIDAS states all the requirements for “Identity Proofing and Verification (natural person)” as it is applied to three levels of assurance.

  • Assurance level low
  • Assurance level substantial
  • Assurance level high

Bridging the Gap Between eIDAS and AML-Directives

Apart from complying with eIDAS to confirm the identity of their customers, FIs also have to comply with European Commission’s regulations to tackle threats of money laundering and terror funding. Since the 4th Anti-Money laundering directive, electronic documents qualify as valid documents for customer authentication and verification. With online document verification software, banks can comply with KYC and AML regulations much faster. This helps save time for both organizations and the customers during the onboarding process. Before the standardization of online documents for customer verification, manual verification and onboarding used to take up to 2 weeks. 

eIDAS allows for cross-border validity e-identification, thus allowing banks and financial institutions to sell their products and services across nations within the EU.

A Simple Onboarding Workflow

The process of onboarding a new customer and verifying their identity is simple and can be accomplished by using any device capable of internet connectivity. 

  • First, the customer initiates the enrollment procedure using the bank’s website.
  • Then the customer sends information that contains minimal data, including Current first and last name, DOB, and unique identifier.
  • To reduce the risk of fraud, customers may be required to provide additional data including first and family name, place of birth, current address, and gender.
  • To complete due diligence checks, banks and financial institutions may require additional data according to CDD/KYC rules.
  • If the information is verified during eIDAS, the customer is enrolled, if it isn’t verified banks may consider the person to be illegal and additional actions may be taken by the financial institutions. 

How DIRO Can Assist in eID Verification?

DIRO’s online document verification software helps banks and financial institutions distinguish between fake, stolen, and authentic documents during the onboarding process. DIRO can help authenticate proof of address documents, online bank account verification and so much more. 

DIRO’s technology can verify over 7,000 document types from all over the globe and provides stronger proof of authentication backed by verifiable credentials. With DIRO, banks and finance can enhance the customer onboarding and eID verification process. 

Bank Onboarding

Future of Digital Onboarding, Security and Open Banking

Open banking is perfect for changing the environment of the API economy. For the finance and banking industries, as well as payments, insurance, and marketing, open banking offers a whole new scenario in the digital economy. Open banking can offer innovation, disrupt the traditional banking market and greater efficiency inspires optimism, but still, there are some challenges. Educating customers about new opportunities created by open banking will soon become a priority.

Open banking has all the capabilities of the future, but FinTech companies and their partners have to work hard to see open banking become a mainstream service. Customer onboarding, data privacy, and security of services are the three primary elements that’ll allow open banking to continue changing the world.

Current Situation of Open Banking 

Open banking means that banks have to allow FinTech companies access to individual customer accounts and transaction details when the customer requests it. With this, it is easy to reduce friction, increase customer choice, and improve competition. 

Various use cases are ranging from easier small business lending to new payment options like cryptocurrency to better savings accounts. In the UK, the payment service directive, or PSD2 has jump-started the success of the sector. Similar businesses are working around the world, with countries like Japan, Singapore, and Australia focusing heavily on Open Banking initiatives.

Given that the service is relatively new, countries like the U.S are hesitant in passing the laws that make the service mainstream. The biggest innovation in the space of Open Banking hasn’t happened yet. Open Banking hosts several features but it is new and the lack of education around it makes it suspicious in the eye of customers and businesses. 

The suspicion around open banking is deserved. If you’re giving them access to your bank account to a third party, it is imperative that you trust the entity completely. How is it possible to guarantee security all the while ensuring open banking remains untouched by a regulatory body?

Winning Consumer Trust in Open Banking?

FinTech companies in an open banking environment have to ensure security to potential customers. Open Banking companies will also have to show an original and innovative side while demonstrating that they offer secure data management. For a majority of companies, winning consumer trust will be the biggest challenge. 

But how can FinTech combine innovation with security? In simple words, open banking businesses should follow the lead of traditional banking businesses. Over time, traditional banking has built a huge amount of customer trust by focusing on security and privacy by performing rigorous due diligence. 

Customers must be aware of what steps their financial service providers are taking to keep their data and funds safe. Privacy and security aren’t about following Know Your Customer (KYC) and Anti-Money Laundering regulations. Banks and financial services have to be able to provide the best security and privacy to the people they are offering their services.

Centralization of Identity

Verifying customer identities has always been the core of financial services. It is almost impossible to open a bank account without getting their identity verified. Unfortunately, a majority of the world keeps operating with analog tools in an evolving digital environment. Driver’s licenses or passports were mainly intended to be used for in-person verification and not online verification. So proving the identities of people during the account opening process remains a huge challenge. Another big challenge is that more than 1 billion people globally don’t even have an identification document. These people can’t travel, take part in commerce and receive medical care or government benefits at all without identity documents. 

Things that were industry standard yesterday aren’t the industry standard today. Things are always evolving, banks and financial institutions constantly need new tools to verify customer identity. In some cases, simple verification is more than enough. Other situations require robust identity authentication checks. Numerous circumstances have different circumstances, but the need for digital ID verification will only grow as time passes. 

Future of Digital ID Verification

New technologies and services can enhance the identity verification process and remove friction from the customer onboarding process. The benefits of technologies and services are extraordinary for both customers and firms. 

The customer has to go through a frictionless process, the business on the other hand enhances the ID verification process and reduces the risk of fraud. While opening a brand new account, each customer has to go through a series of steps that takes care of risk and user experience.

The Decade of Open Banking

According to industry experts, the 2020s will be the decade of open banking. Open banking gives birth to new ideas, provides consumers greater and more control of their financial lives, and it also creates new opportunities for small and medium-sized businesses.

However, there are a variety of challenges to overcome to make open banking a mainstream service. They will have to work a lot to enter the market while educating the public about how they maintain the security of the data.


Crypto Regulations 2021: How Digital Currency Providers Can Stay Compliant?

Since cryptocurrency and blockchain technology has become mainstream, a lot of industry patterns have changed. Bitcoin’s sudden success in 2019 became the reason for the development of more than 2,000 cryptocurrencies. There is mixed opinion about the trail of digital funds, most governments are hesitant about the use of cryptocurrencies. Digital assets (cryptocurrencies) offer anonymity, so cryptocurrencies can be used for money laundering, terrorist funding, and so on. As the market value and popularity of crypto are growing, investors worldwide are seeing it as a good investment option. Regulations surrounding the crypto industry are also growing at an exponential rate, if some challenges are met with strict regulations, cryptocurrencies can change the current flow of the banking industry. 

The U.S government has taken stern measures in ensuring cryptocurrency regulations. Individual states in the U.S and the EU can impose their regulatory laws regarding crypto. The U.S government has shown a positive approach towards cryptocurrencies and blockchain technology. In 2019, the SEC launched a platform where brokers can trade Bitcoin, Ethereum, Bitcoin Cash, Ripple coin, and so on. 

Despite the trust in digital currency, the U.S Government has some concerns regarding the protection of the users. Some of the major concerns regarding crypto are:

  • Crypto-asset funds provide users with a huge level of anonymity. This level of anonymity works in the favor of fraudsters, money launderers, and those who fund terrorist organizations. 
  • Digital currency transactions are irreversible. If the funds are transferred to a fraudster or a scammer, there’s no way to get the money back.

National Defense Authorization Act (NDAA) 

Even though there are some concerns, the government knows that there has to be some level of compromise for compliance. Last year, the congress passed the National Defense Authorization Act (NDAA) for the fiscal year 2021. The act is for tackling terrorism and preventing fraud. Some rules enlisted in the act will affect the ownership and usage of crypto-asset funds, ownership, and usage of crypto and other blockchain platforms: 

  • FinCEN is to collect information and create a database of cryptocurrency companies. Organizations that own, operate, or transact using Cryptocurrencies will have to register with FinCEN to keep operating.
  • The cryptocurrency regulations are not just for the big operations. Even smaller companies are required to provide UBO information.
  • The NDAA act prohibits falsifying, concealing, misrepresenting, or attempting to hide and falsify information.
  • Whistleblowers can get up to 30% of the money in cases where the penalties are more than $100,000. Although the information should be about BSA/AML/CFT regulation violations.
  • Cryptocurrency companies have to report cases of suspicious activities using digital assets.
  • FinCEN (Financial Crimes Enforcement Network) has the authority to punish the firms that don’t comply with current cryptocurrency regulations. The penalties will be based on the violation of the rules.

Additional Cryptocurrency Regulations that Firms Have to Follow

The latest NDAA act can be considered just a start for the regulation of cryptocurrencies. Some rules regarding regulation and ownership of crypto assets can be amended.

  • Provision of information on transactions of more than $3,000. This information can include the contact information of the customer, the type of crypto asset funds used, and the time of the transactions. The level of information is not just limited to the above-mentioned factors.
  • Banks and other money service businesses will have to report transactions that are of more than $10,000 to FinCEN. The time duration for reporting is within 15 days from the date of the transaction.

FinCEN also announced that they are planning to amend BSA’s Foreign Bank and Financial Account regulations. Individuals and entities that possess crypto for more than $10,000 will declare it as their asset. Reporting assets without including cryptocurrencies is a clear violation of FinCEN policies. Now that FinCEN can punish the organizations, the best step is to punish them.

How Can Companies Stay Compliant?

The list of laws that cryptocurrency firms have to follow seems endless and excessive. But Cryptocurrency regulations are focused on making sure that compliance standards are met across all providers. Some of the laws in the new act are against the fundamental principle of blockchain and crypto-assets. Blockchain and cryptocurrency provide users with the authority of deciding who has access to their data. But with the government asking for a database defeats the purpose.

There are other concerns regarding cryptocurrency regulations. One of the biggest questions is how does the government regulate platforms when the government can’t verify the information? According to a report, 46% of legislative decision-makers don’t like the automated authentication process of blockchain and cryptocurrencies. And a further 21% don’t trust automated authentication at all.

Digital currency providers are facing a huge issue, as they can’t decide whether to comply with the regulations or stick with the fundamentals of cryptocurrencies and blockchain? Here are the things that digital asset providers can do to stay compliant.

  • Stay up to date with the latest developments in the cryptocurrency regulations
  • Make it a priority to inform stakeholders of minor and major changes in cryptocurrency regulations.
  • Use the US dollar as a unit of conversion while providing reports of suspicious activities.
  • Implement strong user verification procedures and place restrictions that comply with the law. 
  • Report any suspicious cases as demanded by the law.

Bank Blockchain

Top Use Cases of Blockchain Technology in the Banking Industry

Blockchain or DLT (distributed ledger technology) is an open ledger that keeps track of transactions between two parties permanently. A blockchain is made up of multiple individual blocks all tied up to each other in a specific order. All the involved parties can share the online ledger using a computer network without any middlemen or intermediaries. This leads to faster transaction processing. Improved transaction speed is just one of the many benefits blockchain technology has to offer for the banking industry. 

How Banking Can be Improved with Blockchain Technology?

The overall benefits of blockchain technology make it clear that banking should be the first industry to fully implement blockchain. Blockchain can improve almost every single aspect of the banking industry and make it more secure and transparent. 

Blockchain technology has global implications and it can make trade more seamless and efficient by eliminating the need for documentation relied processes. A public blockchain can be of great use as no single person owns it and every involved party can access the information. Just a decade ago, blockchain technology was associated with digital assets like Bitcoin or Ethereum. That has changed now, utilization of blockchain in banking can enhance a lot of aspects.

Use Cases of Blockchain Technology in Banking

  1. Faster Payments

As of now, sending money from one bank to another bank or sending money from one country to another is a huge hassle. By establishing a decentralized channel (cryptocurrencies) for payments, banks can use new technologies to facilitate faster payments. Wire transfers today cost $25-$50 based on the institution and the country you’re sending money to. The use of blockchain can reduce the time taken for payment processing and lower the cost incurred. 

By implementing blockchain, banks will be able to reduce the need for verification from third parties. Back in 2016, 90% of the European payments council believed that blockchain can change the banking industry in the next 10 years. 

  1. Clearance and Settlement Systems

Instead of using existing protocols like SWIFT, banks can use blockchain to settle the transactions directly and keep track of them more efficiently. 

Even the largest banks globally have to face tons of challenges while moving money around. Something as simple as bank transfer has to go through several intermediaries and meet with compliance regulations before finally reaching the destination. 

The centralized payment processing method “SWIFT” processes only payment orders. The money is passed using a series of middlemen. Each of these transactions costs money and takes up a lot of time. Blockchain can allow banks to keep track of all the transactions worldwide. Banks can eliminate the need for intermediaries and regulatory bodies to process and settle the transactions instantly. 

  1. Buying and Selling Assets

By eliminating the middlemen and asset rights transfer, blockchain technology lowers the asset exchange fee. According to studies and reports, using blockchain for moving securities can help in saving more than $20 million annually in global trade process costs.

It is not easy to buy and sell digital assets like stocks as most of the process requires keeping track of which entity owns what. In the earlier days, the purchase and sale of assets were done with a complicated network of middlemen and exchanges. All these transactions revolved around paper documentation. 

Being able to do the same thing electronically is tough and most of the time, buyers and sellers have to rely on a third party to keep track of documentation. Blockchain technology can change the financial industry by keeping decentralized data of digital assets.

  1. Blockchain for Accounting and Auditing

Out of all the aspects of online banking, accounting is one section that has been especially slow to move towards digitization. To digitize the accounting process, a series of regulatory requirements involving data integrity and validity have to be met. Implementation of blockchain can bring drastic changes to the accounting and auditing sector as well. 

Industry experts believe that implication of blockchain technology can simplify compliance and smoothen the bookkeeping systems. Instead of maintaining separate records of transaction receipts, firms can add the information in a joint book. All the entries made will be decentralized and accessible by involved parties. 

Thus, the records will be more visible and secure. Blockchain technology will play the role of digital notary that verifies all the transactions. 

  1. Digital Identity Verification

Most banks, firms, and financial institutions still rely on antique, paper-based manual document verification for customer ID verification. A sluggish process that is full of friction forces customers to switch to another organization. With blockchain integration, both companies and customers will enjoy a faster, more secure, and efficient customer verification process. Blockchain will allow other organizations to reuse the customer data for customer verification for other services. 

Future of Blockchain In Banking

Banking industry experts believe that blockchain technology will improve some banking standards, but only if several conditions are met. To use blockchain to its full extent, banks need to build infrastructure that can support and operate a global network. A thorough implementation of blockchain is enough to bring huge changes in the banking industry.


Know Your Customer Compliance: How Much Does It Cost To Verify Customers?

Trust goes both ways, both the customers and businesses need to trust each other for maintaining a healthy relationship. Even in the digital age, earning trust is crucial. If a brand can offer trust in all its services, customers will stay loyal to the product and services. With the heaps of data breaches and financial fraud, firms have to make their customers believe that they are capable of protecting their information and transaction history.

To maintain a brand reputation, firms have to make sure that fraudsters don’t gain access to the internal systems and harm customer data. As most businesses are moving towards an online environment, the process of verifying customers is changing. 

Financial services are regulated by domestic and international bodies that provide a set of rules around Know-Your-Customer (KYC) regulations. Following up with the KYC compliance is important for reducing fraud, preventing money laundering and other financial frauds. 

Maintaining Balance Between Time & Cost 

The need for complying with KYC requirements has complicated the account opening process. A survey conducted in 2017 stated that the customer onboarding process increased 22% in 2016. The time taken is expected to increase by 18% in 2017. To put a number on that, banks took an average of 24 days to complete the customer onboarding process. Banks and financial firms need to improve their customer onboarding process using online verification methods.

Why Developing a 360-Degree Customer Profile is Crucial?

Building a complete 360-degree customer profile can’t happen if businesses rely on only a single source. A lot of information has to be acquired from a series of sources. Traditional systems can’t handle the data sources, and developing a complex set of integrations is costly and time-consuming. Having a proper customer profile helps banks and financial institutions to assess the risk level. With market dynamics changing constantly, there aren’t just enough tools to build the profiles. Building a comprehensive customer profile relies on three factors. 

  • Access to data from multiple sources
  • Collecting and managing customer data in one place
  • Assessing the information and converting it into actionable insight.

How Much Does KYC Know Your Customer Cost?

According to a report, financial institutions end up spending more than $500 million annually for KYC compliance. If we talk about JPMorgan, in 2013 they added 5,000 employees to their compliance team and spent $1 billion on controls. These trends show that the costs revolving around KYC compliance are growing.

KYC compliance processes have internal and external costs. Internal costs directly affect the verification process. The internal costs of KYC compliance include systems, licensing fees to operate checks, and staff/offices. External costs for KYC compliance include regulatory guidelines that require new training for all staff. 

Depending on the business’s scale, firms can have hundreds to thousands of compliance staff for customer verification and monitoring transactions. 

Steps Included in Know Your Customer Verification

KYC procedures are usually defined by banks and they involve necessary actions to ensure their customers are real, assess and monitor the risks. Strong KYC procedures help in preventing and identifying money laundering, terrorism funding, and other illegal schemes. 

KYC verification includes ID card verification, biometrics verification, document verification (bank statements, utility bills, and more). Banks have to comply with KYC regulations and anti-money laundering regulations to detect and eliminate fraud. To comply with KYC regulation is a responsibility banks have to follow through. Non-compliance with KYC and AML regulation can lead to heavy fines imposed by regulatory bodies. 

In 2008-2018, a total of USD 26 billion in fines have been levied for non-compliance with AML, KYC.

Know Your Customer KYC and Customer Due Diligence Methods

The KYC policy is crucial for banks and financial institutions used for the customer identification process. The regulation is born out of 2001 Title III of the Patriot Act, aimed to provide tools for reducing terrorist activities.

To comply with the domestic and international regulations against money laundering and terrorist funding. The implementation of strict Know Your Customer procedures have to be implemented. Banks build their KYC policies incorporating four main elements including:

  • Customer policy
  • Customer identification procedures (data collection, identification, verification, politically exposed person/sanction lists).
  • Risk assessment and management (due diligence, part of the KYC process)
  • Continuous monitoring and record-keeping

The process includes verifying customer identity using documents, including government-issued documents. 

Keeping information Up-to-date

To be able to verify customers, the data has to be up-to-date. A customer of a bank from 2018 may now be part of some sketchy activities and continuous monitoring helps the bank achieve that. According to surveys, 58% of all businesses rely on outdated data for verifying customer identities. 46% of businesses reference data that is not accurate and comes from different inconsistent sources.

Costs are Going Up For KYC Verification

Until there’s a standardized process available worldwide, the costs incurred by businesses for KYC verification will keep on growing. During the Covid-19 pandemic, the cost of Know Your Customer verification for some companies grew at a rate of 170%.