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Blockchain Technology, and how does it work?

You must have heard about “blockchains” in the context of Bitcoin, Ethereum, and other cryptocurrencies. You probably must have also seen how many people have been raving about this technology. But why, what exactly is so special about this technology? Its link with cryptocurrencies has also led to many people believing that blockchain is Bitcoin. So they think that they’re getting excited about cryptocurrency. But nope, blockchain is a technology that is used in the implementation of these cryptocurrencies.

So, if you’re a newbie to this amazing new technology, read ahead and know about blockchain and its development process better.

What is blockchain technology?

Blockchain technology, also called Distributed Ledger Technology (DLT), is a decentralized digital ledger. It is a system of recording information so that it is difficult, if not impossible, to change, hack or cheat the system.

Primarily, it is a digital ledger of transactions distributed across the entire network on computer systems on the blockchain. Each block in the chain holds information on the transactions. Every time there’s a new transaction, it is recorded on the ledger of every participant. So, it is a decentralized database that is managed by the participants and hence the name, distributed ledger system.

This technology has three main ideas: unalterable history of transactions, transparency in use, and cryptographic signature. An analogy to understand this technology better is Google Docs. Suppose you create a document and share it with your friends. Here, the document is distributed and not copied and transferred. So, this way, you’ve created a decentralized distribution chain where everyone is accessing the document simultaneously.

There’s no waiting for a person to finish making changes so that others could start. All the modifications in the document are recorded in real-time, so all the changes are transparent. Blockchain is, of course, more complex, but the analogy explains the three main ideas of the technology.

Key Elements of a Blockchain:

  • Distributed ledger technology: All the blockchain participants have access to the distributed ledger and its records. The transactions are recorded only once with the shared ledger, so there are no efforts wasted in duplication.
  • Immutable records: once a transaction is recorded, no participant can make any changes in the ledger. Even in the case of an erroneous trade, a reverse transaction is made, and both are recorded.
  • Smart contracts: A set of rules are auto-implemented for speedy transactions.

How does blockchain technology work?

  • Each transaction is recorded as a “Block”:

A transaction implies a movement of a tangible (product) or intangible (intellectual) asset. So the block holds all the transaction data and answers everything- who, what, when, where, amount, and even the condition (temperature).

  • Each and every block is connected to the block before and after it

The blocks form a chain of data as the ownership of the asset changes. The blocks are securely linked together & record the exact time and sequence of transactions. There’s no scope for any alteration or any new block inserted between two linked blocks.

  • Transactions are chained together: blockchain

Each new block strengthens and verifies the previous block and hence, the entire blockchain. So, the blockchain shows its key strength, immutability, and brings forth a trustworthy ledger.

What are the types of consensus protocols?

Consensus protocols are used to validate transactions in a blockchain. A few are mentioned as follows:

  • Proof of Work (PoW): it is the original consensus algorithm in the blockchain network. It is used for a transaction’s confirmation and creation of a new block to the chain.
  • Proof of stake (PoS): it is used to reach distributed consensus and validate transactions. There are several other forms of Proof of Stake protocols like Delegated PoS, which improves the speed of block creation and leased PoS, which consumes less energy. 
  • Proof of elapsed time (PoET): this algorithm works on permissioned blockchain, and you need permission to access the chain. It covers transparency with a specific technique and assures secure login.
  • Byzantine Fault Tolerance (BFT): as per this algorithm, two nodes in a network can securely interact knowing that they display the same data. There are several other forms of BFT, like Practical BFT, Delegated BFT, simplified BFT and Asynchronous BFT.

What are the applications of blockchain technology?

Applications of a blockchain are as follows:

  • Smart Contracts: it is a code that is auto-executed when specific conditions are met during a transaction.
  • Sharing economy: you can directly engage in a transaction without the involvement of a third party (e.g., banks).
  • Supply chain audits: you can easily cross-check the claims made by the companies about their products. With the help of distributed ledgers, you can easily & quickly trace the products within the supply chain in real-time.
  • Intellectual property protection: with the help of smart contracts, you can protect copyrights & automate content sales. Thereby protecting your intellectual property.

What are the types of blockchain platforms?

Many types of blockchain platforms are available, each satisfying a particular development need. Some of the major blockchain platforms are:

  • Ethereum: open-source blockchain platform on which you can run smart contracts on a custom blockchain.
  • EOS: with EOS, you can design vertical & horizontal scaling of decentralized apps (DApps).
  • Stellar: it is an open-source distributed payment ledger that allows you to connect with payment systems.

What value does blockchain add to your platform?

  • More Transparency: the history of transactions is always transparent with blockchain. It is a distributed ledger, and all the members share the same updates in a ledger. The consensus on the network validates all the updates. Thereby, the data is secure & accurate.
  • Enhanced Traceability: you can easily track and manage your supply chain.
  • Increased Speed: the current processes are paper-based and time-consuming as they involve third parties & duplication of efforts. All these problems are eliminated with blockchain, and processes pick up speed. 
  • Reduced Costs: with blockchains, third-party involvement is eliminated. You also don’t have to engage in making documentation or checking them before transactions. And that results in cost elimination.

What is the blockchain development process?


You can refer to a custom software development company that can help you through the development process. The blockchain development process involves 9 stages:

  • Goal identification

Make a problem statement listing all the issues you wish to resolve with your proposed solution. The solution should be beneficial and improve your business. Analyze whether you should switch to blockchain technology or make a new application from scratch.

  • Select the right blockchain platform

Once you’re sure you need a blockchain solution, you need to select the right blockchain platform. The chosen platform should meet your business requirements. The choice should be driven by the problems you want to resolve, like consensus mechanisms.

  • Brainstorming ideas

The next step involves drafting business requirements and brainstorming ideas. Decide which technology components should be added as on-chain or off-chain entities on the proposed blockchain system. Create a roadmap to build the project in time. Create DFDs, conceptual workflows, and other documents to create your blockchain application.

You should decide on the language you’re going to use to develop the frontend, backend, and servers as well. For example, you can choose angular development or React Js web development services for the frontend.

  • Proof of concept

With proof-of-concept, you decide the practical applications and viability of a project. You can do that by either developing a prototype or via theoretical buildup. In the theoretical build-up, you theoretically make up different use cases to understand the feasibility of the application and explain the project’s scope and parameters.

  • Visual & technical designs

This step involves designing the look & feel of your application and making technical designs to understand the application’s technology architecture. So, you’ll create a user interface for each component of your application. You will also design APIs to integrate the UI to run an application in the back-end.

  • Development

At this stage, the actual development of your application will start. The developer needs to stick to the decided design and blueprint of the application.

The development of blockchain technology is a challenging task which is why it takes a lot of time to build it. Since blockchains are immutable ledgers, it is almost impossible to correct any corrupted data. Even to deliver a fix, you need to coordinate with all the parties in the blockchain.

So this step needs to be executed with extreme care.

  • Testing

At this stage, you’ll test whether the developed application does exactly what it is expected to do—nothing more and nothing less. Testing blockchain applications is similar to testing normal applications with a few more metrics added. For example:

  • Chain size: longer chain implies more data in it, and that implies more space requirement in the datastore. We need to determine how much space a blockchain can take after a period of time.
  • Throughput: what is the number of transactions per second (TPS). A high TPS is good, but that also means a more network load and the inability of every node to catch up.
  • Security & cryptography: code needs to be checked regularly to ensure its flawless.
  • Data integrity: all the data on the blockchain should be consistent.
  • Data propagation: distribution of data from one node to another without disruption.

Multiple software testing methods can be employed, like manual and automation testing. 

  • Deployment

The deployment phase refers to deploying the final developed blockchain application to the customer.

  • Maintenance

The maintenance stage involves providing training, customer support, and launching updates.

Blockchain technology offers a myriad of benefits, it is secure, reliable, speeds up business transaction processes, and so much more. The idea of incorporating blockchain technology in your business is appealing and indeed good. But you should know that it takes a lot of time to build an application and for everyone to warm up with it. Building blockchain software is an extensive process, and so you need to clearly define your requirements and then start with the process.

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Global Anti Money Laundering Regulations: New AML/CTF Laws & Regulations in European Union

CFT regulations in the EU

The United Nations Office on Drugs & Crime reports that the estimated amount of money laundered annually is 2-5% of the global GDP. To put that in number, the losses due to money laundering are $800 billion – $2 trillion. Following the Anti-Money Laundering Act 2020 being signed into law in the US, the EU and its member states are enacting the same legislation to combat money laundering and terrorist funding. In this article, we will go over the requirements for banks and financial institutions to conduct identity checks for money laundering and terrorist financing and the Know Your Customer process.

Identity Checks for Money Laundering & Fraud Prevention in EU

Identity checks are crucial for banks and financial institutions to screen for money laundering, fraud and uncover illegal financial activities. KYC (Know Your Customer) is the process of verifying a customer’s identity to ensure the customer provides personally identifiable information. KYC is also needed to understand the past financial behavior of customers with previous institutions or other money service providers. 

The Know Your Customer regulation helps in ensuring that the financial institution’s services aren’t misused for money laundering. Compliance with KYC ensures that customers with a suspicious financial background aren’t approved for an account at the bank or other institutions.

KYC Obligations in the EU 

There is a major push to develop identity documents across the EU because most Member States have their own independent regulations regarding KYC and ID verification.

ID Tampering & Fraud: Security Features & Common Criminal Typologies

One of the biggest challenges with identity document verification is forgery and document tampering. EU passports, national IDs, and other identity documents are targets for regular ID thieves and criminals. A strong AML compliance program includes ID tampering and fraud prevention strategies. 

Regulators and law enforcement authorities face threats every day such as:

  • Falsification of documents by overprint
  • Adding a laser-engraved personalization
  • Simulating optical variable devices (OVD)
  • Grinding to access the core of a document
  • Facial spoofing during remote eKYC activities

Common methods used in document tampering are:

  • Scratching
  • Dissolving
  • Cutting
  • Opening using heat, solvents, and tools

It is crucial for banks and financial institutions to keep their eye out for these threats and illegal activities during KYC verification processes. Banks and other institutions should focus on detecting the fraudsters in the manual and remote onboarding process.

eKYC Challenges That Banks Face

eKYC comes with a number of challenges not just in the sense of applying numerous regulations and obligations from regulators and preventing tampering of ID cards. Banks have to be able to use anti-fraud technology such as liveness detection to prevent bad actors before they access the bank’s resources for their gain. 

Ever since the beginning of the Covid-19 Pandemic, banks had to switch to digital technologies. Banks all over the world are now facing challenges with online financial services.

Anti-Money Laundering & Counter-Terrorist Financing Laws and Regulations in EU

The European Union has forced a number of regulations and laws in the past two years including:

  • Sixth Anti-Money Laundering Directive (AMLD6)
  • Markets in Crypto Assets Regulation (MICA)
  • Second Payment Services Directives (PSD2)
  • General Data Protection Regulations (GDPR)

According to industry experts, financial institutions and authorities do even more in their fight against money laundering and terrorist financing. The aim should be to close gaps and loopholes in the current legislation, clarifying regulatory details and toughening criminal penalties across the EU.

The new directive brought better insights and clarification and transparency in regards to some areas:

  • List of offense
  • Money laundering
  • Scope expanded
  • Stricter persecution and punishment (4-year sentences instead of 1 year)

According to some experts, the EU Second Payment Services Directive is bringing in change and innovation in the online payment industry. The directive consists of two main elements of popular importance for e-commerce merchants: strong customer authentication and the emergence of two types of new regulated payment providers. Privacy and customer experience are among the most critical aspects that push new bank customers to complete the onboarding process.

General Data Protection Regulation (GDPR)

General Data Protection Regulation (GDPR) is a number of directives for the European Union (EU) that enhance the protection of the personal data of EU citizens. It also requires companies to comply with the latest rules and regulations that enhance the data privacy and security of every individual within the EU. These rules are strict and include many rules that increase the rights of data subjects. 

Three concepts are important under the GDPR:

  • Consent
  • Security
  • Legitimate interest
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Open Source Financial Services: What They Are, What They Offer?

open financial services

Open source has the capability to transform the financial services industry. This evolution will shift the power in the $25 trillion industry from business executives to state-of-the-art developers, not just for FinTechs, but for old-style banks as well.

Before the evolution of digital transformation in the banking industry, building and offering financial services was a tough task. FinTechs and Startups combined with the latest tools and services, inflexible core systems, complex payment architectures, compliance challenges, fraud prevention, and more.

Just imagine, you have financial institutions that rely completely on software that can be arranged and rearranged to build new financial services. These software-based services can be reassembled to support different use cases. This is what Open Source finance has to offer for the banking industry. Open Source offers services for multiple people, isn’t restricted to geographical location, and is freely available for all to use.

FinTechs will have access to the best technologies from all over the world which they can leverage to build an endless series of financial products and services that weren’t possible earlier.

Shifting from Traditional to Banking-as-a-Service

Due to the major challenges and traditional policies of the banking industry, the banking systems have had an expensive infrastructure by relying on an expensive data center. With the help of technology, banking systems are becoming better and less expensive to manage.

Embracing cloud services, online document verification software, online KYC verification software, open banking APIs and others can assist in building a better banking industry. Banking-as-a-service has helped in building and adding financial services significantly simpler and easier. This allows any company in the world to offer financial services without having a financial background.

Encouragement for Future Innovation

While software as a service (SaaS) has helped significantly in rebuilding existing financial products and services, there’s an enormous need for modernization in the digital banking industry.

Financial services used to be just limited to banks, but now any company has the capability of adding financial services in terms of embedded finance. As consumers and enterprise companies have started becoming ambitious in their approach to finance, they will also require more customization to develop innovative solutions for the customers.

FinTechs are more than often locally based, most banks on the other hand are country-specific and they have to operate based on the country’s regulations, infrastructure, and consumer payment preferences. As global companies look forward to boosting their financial services, they’ll need to build global banking applications.

Furthermore, almost 3 billion people across the globe are underbanked and unbanked. Big entrepreneurs understand the need for spreading financial services globally. Immediately accessible open-source financial services library would enhance the process.

The Open Source Evolution

The huge availability of Open Source financial services would help in building products and services that aren’t yet available. For instance, it will be easy to combine crypto and fiat currencies, which will certainly improve digital payments and money transfers. Digital transformation of financial services like Open banking will help in better managing of finance. Flexible, open-source financial services will unleash a plethora of digital products and services.

Change Industry Standards to Increase Reliability

The payments industry has several standards, but most of the services are old and tedious to build. In 2020 over $55 trillion were moved via the ACH payment network. Open-source software libraries will help developers utilize existing services instead of having to spend time from scratch.

Payments usually have thousands of problems, too many for even sizable teams to keep up with. Modern open-source libraries have been made more robust by contributors who run payment through them.

Open Connectivity

Several countries including the UK and Brazil are leveraging open banking regulation in which banks are obligated to create and maintain APIs that enable customers to give third-party applications access to their financial data. Allowing access to financial data will lead to open finance which allows FinTechs to build custom financial services based on customer preferences.

Developers at banks around the world are developing technologies and open banking APIs that can push the banking industry to whole new heights. If banks used a series of open-source software for building open banking APIs, underbanked and unbanked can have better access to the financial service.

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Adopting Digital Assets in Financial Services

digital assets

Any technology that shows any type of promise is always met with hype. Cryptocurrencies and other digital assets in the financial industry feel the same way, but over the last few months, the developments in the industry show all the signs of digital assets becoming a mainstream service. Needless to say that there are several challenges to overcome before that happens. This is the primary reason why digital assets in financial services are being surveyed thoroughly to gain a better understanding of the adoption of digital assets. 

The inspection of digital assets will analyze the industry attitude towards cryptocurrencies, stablecoins, central bank digital currencies, tokenized securities, and non-fungible tokens from executives in banking, asset management, FinTechs, and future digital asset companies. The timing to put digital assets under a microscope is ideal as there have been some developments to push digital assets into financial services. With increased customer interest and several advances made by banks, it is high time to determine the future of cryptocurrencies and other digital assets. But most customers don’t even know what are digital assets cryptocurrency.

Almost 90% of global central banks are taking steps towards launching their digital assets cryptocurrencies. The biggest example of this in the USA can be the CITI bank, which started to be looking into the crypto markets to keep up with customer demands. In May 2021, Goldman Sachs introduced their first-ever crypto trades, after announcing that they were entering the bitcoin market.

Not just cryptocurrencies, this year also brought non-fungible tokens, NFTs came to public attention. Theoretically, anything that can be represented digitally is issued as NFT for sale and purchase. Digital art, tweets, and soundbites are a few top examples of NFTs. The familiarization of NFTs has opened up new revenue models for artists, sports companies, and video game developers.

The rising customer interest suggests positive growth, but the market is volatile and unpredictable and it can go down at any given moment. China’s recent stoppage of Bitcoin mining led to a significant price collapse in the market.

Does the Financial Industry See Digital Services as Long-Term Services?

The financial industry can make all the announcements and plans, but it won’t make a difference for customers until some solid actions are taken. The primary concern at the moment is “Do banks and other financial institutions consider digital assets worthy of a long-term investment?” 

Top banks from all over the globe have been working and experimenting with digital assets for several years, even before the hype. However, the transition from research and experimentation to investment and execution can be a difficult step to take. As the experimentation phase is over, most banks are now focusing on launching services that will fulfill the customer demands for cryptocurrencies. Other banks are investing in building better digital infrastructure, while the rest are focusing on building digital assets of their own like stablecoins and tokenized securities. 

This states that there is a divide in the financial industry regarding the future of digital assets. Some players in the industry are investing significantly in crypto while others are unsure. Firms operating in the financial industry are unsure of whether or not to invest in crypto or to adopt a ‘wait and see’ methodology. 

Another reason why some banks and institutions are adopting digital assets and cryptocurrencies is because of the rising customer demand. By sitting back to analyze the market, banks are afraid to lose customers.

What’s the Biggest Challenge to Mainstream Adoption of Digital Assets?

As mentioned above, a lot of development is being made in the digital asset in the financial industry, so what’s stopping crypto and other digital assets from becoming mainstream? The lack of regulations in the industry makes it susceptible to fraud, but over-regulation can stop the momentum of the industry altogether. So it’ll be interesting to analyze the next step of the industries. 

Regulators are trying their best to make sure the digital asset in financial services is available to customers without over regulations. The UK Financial Conduct Authority issued a warning to consumers about the dangers of betting on digital assets. The Central Bank of Ireland stated that Bitcoin can’t be treated as a currency as it doesn’t meet the requirements of a functional standard currency, it’s more like a high-risk asset.

The European Union issues a regulation for markets in crypto assets to help in regulating the currency and the service providers in the EU and provide a licensing regime for all member states by 2024. This update in regulation will cover all the digital assets that don’t fall under any regulation.

Impact of Tokenization of Financial Assets

Tokenization simply means a representation of a digital assets cryptocurrency, which can be any physical asset. However, in this situation, tokenization is required for digital assets such as equity or share. While traditional payments take up to 3 days to reflect in the banks, the sale and purchase of token assets offer almost real-time transfers. This fast-paced transfer of funds can increase demands and change the current financial infrastructure.

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How Cryptocurrencies are Disrupting Money Transfers?

cryptocurrencies

Using traditional methods for money transfers can be monotonous and slow. Sending or receiving money using regular bank services can take 3-5 business days. Innovative technologies such as digital wallets, third-party payment apps can transfer money faster. New banking infrastructure is disrupting the current financial landscape to improve the financial lives of millions all over the globe. The rise of cryptocurrencies has had a similar impact on the financial industry.

What are Cryptocurrencies?

In simple words, a cryptocurrency is a digital or virtual currency that’s secured by cryptography. Cryptography makes sure that the currency can’t be counterfeited or spent twice. Almost all cryptocurrencies are decentralized networks powered by blockchain technology, a distributed ledger protected by several networks of computers. One of the reasons behind the popularity of cryptocurrencies is that they aren’t issued by a central or regulated entity like banks and other financial institutions. This lack of centralization protects them from manipulation and government interference. 

Cryptocurrencies are frameworks that allow users to make faster and extremely secure payments online that are denominated in terms of “tokens”. The first-ever blockchain-based crypto was Bitcoin, which is still one of the biggest cryptos in the market currently. 

Cryptocurrencies can enhance digital payments without the need to have an intermediary like a bank or credit card company. Payments made by cryptocurrencies are more secure than payments made by banks and financial institutions. 

Cryptocurrency apps and platforms provide the user with virtual currencies and users can send these currencies to whosoever they wish to. Fund transfers are completed with minimal processing fees, thus allowing users to avoid the huge amounts charged by banks and other financial institutions for wire transfers. 

While they sound great in theory, the semi-anonymous nature of cryptocurrencies makes them a hub for illegal activities such as money laundering and tax evasion. But one of the primary reasons behind crypto’s popularity is the anonymity offered, ensuring privacy and security. Some cryptocurrency platforms offer better security and protection than others. 

Bitcoin, for instance, is an incredibly poor choice for conducting illegal activities as the Bitcoin analysis department has helped authorities in prosecuting criminals.

Blockchain and Banking: Role of Decentralized Currency in Financial Services

Blockchain technology allows untrusted parties to come together without using a middleman. By offering a ledger that belongs to no one, blockchain technology has the capability of providing unique technologies. Use cases that don’t require a high degree of decentralization can benefit by leveraging ‘distributed ledger technology (DLT).” Businesses can establish better customer monitoring by using data sharing and collaboration methods. 

Blockchain technology can disrupt the banking industry massively by providing better key banking technologies such as:

  • Payments: By using cryptocurrency for payments, customers can experience faster and better digital payments with low fees. 
  • Securities: By tokenizing the traditional securities such as stocks, bonds, and alternative assets and placing them on public blockchains.
  • Loans and Credit: By eliminating the need for intermediaries from the loans and credit industry, blockchain technology can make it possible to provide better lending options and lower interest rates. 

Customer KYC and Fraud Prevention: By collecting and storing customer information on decentralized channels, banks and other financial institutions can make it easier to verify customer information during onboarding. This can even enhance the level of security in sharing information between financial institutions.

Beyond the Hype: Cryptocurrencies and Blockchain Technologies

While it’s true that cryptocurrencies and blockchain have the capability of disrupting financial institutions, these disruptions don’t happen overnight. The cryptocurrency industry has a long way to go before becoming a streamlined service that can be used in enhancing the workflow of the financial industry. 

It may be possible for cryptocurrencies and blockchain to shift the tides of a few key services provided by banks, but this will require significant improvement in the current landscape. The future remains unclear to what degree the banks will embrace these technologies. One thing remains clear though, cryptocurrencies will have a huge impact on how the digital payment framework runs in the financial industry. 

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Identity Verification in The Financial Services Industry

id verification need

Identity verification is becoming more and more essential in the growing digital financial landscape. It has two different benefits, helps in preventing fraud and prevents fines for non-compliance with KYC and AML regulations.

The new and improved financial industry that we experience today has taken so much time and effort to happen. While the concept of finance existed since ancient times, the use of the term “financial services” became widely popular in the late 1990s.

Today, we have a completely different financial industry compared to a decade ago. Customer demands and technological advancements have changed the financial industry into a seamless experience. 

Though things are more comfortable for consumers now, the risk of digital financial fraud has gone through the roof. Regulatory bodies, authorities, banks, and businesses need to take strict steps in order to maintain the integrity of the financial workflow. Technological solutions such as online document verification software, and online KYC verification software can improve financial technologies.

Problems in The Financial Services Industry

The financial industry includes banks, credit unions, insurance firms, credit card providers, and others. Digitization is helping businesses improve their overall customer experience and productivity. Fraudsters are also leveraging technologies to break into the internal systems of the financial institution. 

1. Cybercrime

In 2019, 62% of all data breaches came from the financial services industry. Hacking and malware attacks for the primary source for data breaches. As of right now, fraudsters are focusing all their attention on the online financial service platform. 

2. Regulations

Online investment and financial platforms such as crypto exchange, online banking, and other platforms are being used for money laundering and tax evasion. That’s why, regulatory bodies keep evolving and amending the KYC, KYB, and AML regulations. Unfortunately, most businesses fail to comply with these regulations by using ineffective technologies.

3. ID Theft

Identity theft is one of the biggest challenges faced by the financial industry. Fraudsters use various methods to steal or create fake ID to trick banks and financial institutions. One of the most common types of ID theft is fraudsters stealing credit card information and buying things without user consent. There are instances where fraudsters steal “personally identifiable information (PII)” to open new accounts and apply for credit cards and loans. 

Need for ID Verification in the Financial Industry

ID verification plays a huge role in reducing the risk of financial fraud. Proper ID verification software can assist in preventing ID theft, money laundering, account takeover fraud, and other types of financial fraud. Combine ID verification with online document verification software and banks have a completely digital onboarding solution. 

The ID verification solutions make sure that a customer’s ID matches the physical person. ID verification is part of the KYC verification process during customer onboarding. As KYC has become obligatory for financial institutions, the need for ID verification in the financial industry has soared.

Here are some stats to signify the importance of ID verification solutions:

  • According to the FTC, around 9 million Americans report ID theft annually. 
  • Credit cards, loans and leases, and phone frauds are the three top types of ID theft fraud. 
  • The UK, Denmark, and Ireland had the highest rate of ID theft in 2018 and 2019.
  • In 2018 and 2019, more than 55% of Europeans experienced at least one type of ID fraud. 

How ID Verification Solutions Can Enhance the Financial Industry?

1. AML & KYC Compliance

Banks, credit unions, credit card providers, and other businesses operating in the financial industry are obligated to comply with AML & KYC regulations. To comply with ever-changing KYC and AML directives, firms have to know who they are doing business with. Robust ID verification procedures reduce the risks of businesses running into fraud, avoid huge fines and improve their brand reputation.

2. Reduce Fraud

Needless to say, the biggest use of having an ID verification procedure for your business is protection against fraud. During onboarding, banks can verify if a customer is who he/she claims to be. Moreover, ID verification improves user experience as users feel safer using your platform.

3. Minimizing Operational Costs

Manually verifying documents and cross-verifying customers with ID documents take too much time, effort, and resources. The worst part about all is that it is highly inefficient, most fraudsters tend to make documents that are too perfect to be determined as fake documents. Using online document verification software can enhance online ID verification and digital customer onboarding.

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FinTechs and the Financial Industry Revolution

Financial Industry Revolution

FinTech is a word combined by mixing two words, “financial and technology.” FinTech stands for financial startups that develop technologies to assist banks, and financial institutions in enhancing common day-to-day activities such as online money transfers, mobile payments, and online customer onboarding, and so on.

New technologies are constantly disrupting the financial industry. From peer-to-peer lending to Robo-advisors, customer screening, and onboarding, old business models are slowly moving towards technologies. FinTech companies can fit into any of the three main models of the financial institution, such as lending, asset and wealth management, and payments.

This growth of FinTech is pushing high-end banks to reconsider the way they interact with their consumers and potential customers. In the last few years, technology has transformed the way banks operate and the way consumers invest, make payments and apply for a loan. This is possible because banks partner with FinTechs to provide better services to banks, which in turn helps in providing better services to the customers. 

The emergence of technology has changed the way the financial industry operates, it changes the structure of the industry and brings in unseen opportunities. Below we have listed how FinTechs have changed the financial industry.

How FinTechs Enhance the Financial Industry?

1. Virtual Revolution

Traditional banks with their traditional service offerings are becoming monotonous for the newer tech-savvy generation. Gone are the days that banks had to deal with the risks of loss of physical data such as guarding servers and material documents filled with personal customer information. With the help of FinTechs, banks can have computerized tellers, e-payments, digital records, and much more. All this digital data can be accessed and leveraged with simple buttons. 

2. Need for IT in the Industry

IT in financial services is just as important as any other industry. The need for technology is more than vital in the financial industry and is increasing day by day. Mobile apps are quickly becoming the biggest asset in the financial industry as more and more customers are utilizing smartphones for everything. This applies to firms that largely deal with cloud data. Having an agile technological framework is essential for banks in this technology fuelled world.

3. Everything is Global

Technologies allow banks to enhance their customer base and operate globally. With online customer onboarding technologies and online document verification software, banks can reach out to customers everywhere on the globe and onboard them seamlessly. As more and more players are entering the market, the need for technologies is growing at an incredible rate and this demand is pushing forward the need for digital transformation in the industry.

4. Data Encryption

It’s essential to protect customer data because of the growing amount of data breaches. Because of this, security has become a major concern for financial institutions. The vulnerability greatly exists because of the amount of data that’s existed in the cloud which can be shared or hacked. FinTechs have helped banks and financial institutions to secure their data, ensure that the customer data is secure and build better customer-business relationships. 

Conclusion 

FinTech solutions like online document verification software, online bank account verification software, and online AML and KYC verification solutions can help banks to push their services further.

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Preventing Account Takeover & Transaction Fraud in eCommerce Marketplaces

eCommerce marketplaces

eCommerce marketplaces and their use during and post-pandemic have grown significantly. More than 150 million people used online shopping for the first time during the COVID-19 pandemic. Also fraud increases regarding online fraud, organizations are losing $4.5 million per year as a result of online transaction fraud. 

Consumers put their trust in companies, online marketplaces, and apps whose services they choose to use. Online services such as rideshares, vacation rentals, P2P payment platforms, delivery services, and more. As the rate of fraud rises, companies that use ineffective or weak identity proofing measures will find themselves facing financial losses, loss of brand reputation, and regulatory fines. In some cases, they might also be endangering their customers, if they have unauthorized drivers and couriers with stolen identifications. Fraudsters use fake documents as they may not be eligible for employment. It may take a long time since that kind of fraud is detected by the eCommerce marketplace.

Growing Threats for eCommerce Marketplace

Trust is the primary factor in any business building a long-lasting relationship. Especially when a company operates globally and when they want to build a loyal customer base. With the rapid acceleration of digital shopping and transactions comes a growing fraud landscape. With a sudden rise of people wanting to transact online, marketplaces and apps need to have the ideal strategies in place to protect themselves and customers from fraudulent activities.

There are numerous fraud types that fraudsters use. As the industry picks up after the global pandemic, marketplaces and apps are finding that their customers are being targeted. Without ideal risk mitigation or comprehensive identity proofing strategies, companies may find themselves facing the following:

  • Unverified Vendors, Hosts & Drivers: Vendors, hosts, and drivers who use false/stolen documents and other fake ID techniques to exploit both the platform and consumers for monetary gain.
  • Falsified Listings & Fake Accounts: Unauthorized vendors that create a fake account and publish fake listings and product reviews is another threat faced by eCommerce marketplaces. 
  • Buy Now, Pay Later Muling: consumers either for themselves or on behalf of others use a payment service when purchasing a product or service while planning not to pay for the services. It is also known as chargeback fraud, consumers will make a purchase but later claim that their transaction was unauthorized. Thus, merchants have to issue a refund without getting the product back.
  •  Card-not-present (CNP) Fraud: As online shopping increases, customers can’t provide a credit card directly to the merchant. That’s why fraudsters can use stolen credit card information to make unauthorized transactions. And in most cases, card owners are unaware of being compromised. 
  • P2P Payment Scams: online peer-to-peer payments for products and services that go through bank portals give users a false sense of security. In a lot of cases, this ends up being a scam where people are defrauded and unable to receive protections or refunds from the banks. 

These types of fraud happen when large eCommerce fraud with a huge customer base leverage minimal ID verification services. Being unable to monitor transactions constantly for consumers, partners, and contractors increases the risk of fraud. By not focusing on establishing trust, firms often find themselves with serious monetary, reputational, and security issues.

Building Trust Without Hurting Customer Experience

Organizations that want to build and maintain trust with their vendors and consumers need to have a multifold approach to the detection, and prevention of fraud. Using bad technological solutions or improper regulations can result in noncompliance and friction during customer onboarding. Also, constant fraud leads to higher operational costs and also hurts brand reputation.

Fraudsters use similar tactics against eCommerce platforms that they do for financial institutions. Marketplaces and apps are later seeing significant growth in different types of fraud. According to a report, account takeover fraud grew by 54% in 2020. Identity-related fraud for financial institutions grew by 69% for eCommerce in mid-to-large size retailers.

By following up with Anti-money laundering (AML) compliance, companies will have to follow KYC for customer verification. eCommerce marketplaces also have to follow KYB compliance for detecting and preventing vendor-related fraud. By following all the compliances, eCommerce marketplaces, and apps will be able to verify the identities of vendors and consumers alike effectively. This also improves customer experience, prevents fraud, and ensures happy and loyal customers.

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Is Real-Time Payment the future of payments?

real-time payment

The “Real-Time Payments (RTP)” system from the US Clearing House is expected to disrupt the financial landscape in 2021. While the latest payment system was launched in 2017, it may seem like that it can change the financial industry. As of right now, the network reaches 56% of US direct deposit accounts. So why do financial institutions think that RTP can change payments in 2021?

What Is Real-Time Payment?

There’s a lot to understand about real-time payments. Real-Time Payments or “RTP” refers to payment networks or a network that is used to make the payment. The hint is in the name, the payments happen in real-time, unlike ACH Payment processing time. These payments are initiated, cleared, and settled within seconds, thus causing the payments to be instantaneous. Real-time payment networks operate 24x7x365, this allows users to initiate the payment anytime and the payment will be cleared within seconds. For payments to happen 24×7, banks and credit unions will need to have a 24×7 backend system. 

“Open-Loop” is an important part of real-time payments, which allows the payment to go directly into the person’s bank instead of relying on a prepaid balance. Without a clear and nuanced data-rich method, it’ll be tough to reduce payment errors.

How Does Real-Time Payment Work?

Real-time payment is the first new payment system in the U.S in the last 40 years. And it enhances the payment method dramatically, including initiating, settling, and reconciliation. All the process of payment processing happens within seconds. 

What makes real-time payment so fast is that it combines immediate fund availability, settlement finality, instant confirmation, and integrated information flows that ensure payments are made within seconds. This is the simple way of how does real-time payment works?

What’s Special about RTP?

The RTP is the only payment system in the US that offers instant and cheap money transfers. In short, currently, businesses operating under the financial industry have to choose between speed and cost in providing payments. Fast payments are possible with credit/debit cards or wire transfers but customers have to pay the huge fee by choosing those options. Cheaper methods like ACH transactions and paper checks are slow and inefficient. 

RTP is a payment system that allows businesses to separate themselves from the current catch-22. The fee for RTP is pretty low, at $0.045 per transfer, and transactions are completed in seconds 24/7. This is significantly faster than credit card payments or wire transfers at a fraction of the cost for financial institutions. 

What’s even more important is that RTP comes with an increased level of security, thus improving the fraud prevention techniques. Merchants also get the benefit of guaranteed payments without worrying about chargebacks.

The Real-Time payment systems support all types of transactions (P2P, B2B, B2C, C2B), consumers, businesses, governments, and all other entities can use RTP. Finally, RTP offers better communication during transactions, which means real-time messaging between the receiver and sender, which can be helpful in reducing fraud in the internet age.

Why is RTP Not Widely Used?

So, even after these features why is RTP not the standard practice in the industry? While there are complex reasons for this, there are two major factors. 

Firstly, it’s the lack of incentives. Up until 2020, there weren’t many incentives to use alternative payment methods to paper checks and cash. However, the pandemic has increased the demand for new contactless payment methods. The most popular methods currently are debit and credit cards, however, after months of continuous use, financial institutions have understood that card fees aren’t worth the convenience. Because of this, financial institutions will focus more on trying out new payment methods like RTP.

Secondly, it is difficult to integrate. While businesses can integrate payments directly into their systems, they need to integrate with each bank individually. As the US has more than 4,000 banks, RTP integration is almost impossible for small to medium-sized banks. For RTP to become standard in the industry, there needs to be a simpler and more unified solution. Thoroughly understanding real-time payments is the way to make the payment system standard.

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Embedded Finance: What It Is? Can it Change the Future of the Financial Industry?

finance industry

Over the last decade, the definition of financial institutions has been changing. We are used to thinking of financial services as the domain of banks and specialized firms. But recently, that has been changing. Embedded finance is the concept that financial services can be offered by all kinds of traditional non-financial software and applications. FinTechs recently have been offering digital banking services that are significantly better than traditional banking services. 

One of the best examples of embedded finance is Uber, as it allows its customers to pay for their rides within the application, instead of having to use their physical card or having to take out their wallet and pay with cash. Some e-commerce vendors are also offering the option of “Buy Now Pay Later,” which also signifies automatic loans from the store rather than getting a loan from the third-party provider.

The concept behind this is that extra products and services related to primary products can be bundled together. This eliminates third parties from financial transactions. Finance is no longer a separate domain, instead, they’re becoming part of product offerings. 

 There’s a wide variety of applications for embedded finance, these include:

  • E-commerce service providers offering loans and payment processing
  • Ridesharing companies offering digital wallets and debit cards
  • FinTechs offering loans and debit/credit cards
  • Tech companies offering online payment options (PayPal, Payoneer, etc), P2P payments, and cards
  • Car dealerships offering embedded insurance.

Embedded finance offers improvements for both businesses and customers. Businesses of all kinds can generate revenue from different models. Modern financial technologies are also inexpensive and allow for lower profit margins. Embedded finance is also better for user experience since these applications can create a more unified customer journey and use big data to provide personalized products and services. 

If tackled right, embedded finance can become the future of the financial industry. Traditional financial institutes such as banks, credit card providers, and insurance providers will need to implement digital transformation or join with FinTechs to provide the perfect combination of human touch and technology.