Author: Ady

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Understanding NFC Payments: The Complete Guide

NFC Payments

Near-field communication (NFC) uses radio waves that are similar to radio frequency identification (RFDI), to read and send information between two NFC devices. NFC technologies are mostly used in warehousing labeling and they’re incredibly helpful in tracking applications for simple inventory scanning of shipments, products, and customer orders. NFC is even used in automated toll booths to collect information from crossing vehicles. 

In the FinTech environment, NFC payments lead to contactless, encrypted, and streamlined payment methods. This payment method removes complexity from the process by eliminating the need of carrying cash, credit, and debit cards. Customers can use their smartphones to make purchases. NFC payments are relevant today with growing health and safety concerns.

While NFC technologies are pretty similar to RFID and Bluetooth technology. However, there are some major differences between how the technology is used in the FinTech environment. NFC payments in the FinTech landscape to ensure a streamlined and highly secure checkout process.

What’s an NFC Payment?

Not a lot of consumers know about NFC payments, chances are that you’ve seen these payments working in real-time. It could be advertisements, in person or for some person waiting in line in a store. With contactless payments becoming more and more famous, NFC payments are becoming a common method among consumers. 

NFC payments are contactless and secure payments that use NFC technologies to exchange data between an NFC reader and an NFC payment device. Some common examples of these NFC payment devices are Apple Pay, Google Pay, eWallets, and EMV cars. NFC readers are the payment processors that you can use to make contactless payments anywhere. For an NFC payment to work, both the devices should be equipped with NFC chips.

Apple introduced Apple Pay with the launch of the iPhone 6 in 2014, and it quickly became a sensation. Some consider Apply Pay to be the birth of NFC payments. Since then, most smartphones come equipped with an NFC chip.  When two devices with NFC chips are in close proximity with each other, radio waves transmit data to and from each other to complete a payment instantly. You have to hold your device close to process the payments because the NFC chips inside each device only work when they’re in close proximity to each other.

RFID can transmit data from up to 100 meters away, but the frequency used for NFC payments ensures you must be close by to communicate between devices. This makes sure that NFC chips nearby are unable to transmit data for secure payment processing.

Are NFC Mobile Payments Secure?

If you compare NFC payments to debit and credit card payments, they’re equally as secure. Here are some factors that will help you understand how secure NFC payments are?

  1. Device Proximity

NFC payments rely on a radio frequency of 13.56 MHz, and NFC payments happen only when two devices are incredibly close to each other. Consumers don’t need to worry about someone intercepting the signal to interrupt payments or steal data. 

  1. User Initiation

A user needs to activate NFC in their device before making a payment. Users can secure this NFC activation process with a passcode, fingerprint, or facial unlock. This makes the NFC payments process extremely secure. 

  1. Secure Element Authentication

This is what makes NFC payments incredibly secure. Once a user approves that they’re making an NFC payment, the data is transmitted and validated via a separate physical chip or cloud element known as the secure element. Secure elements are protected by a unique digital signature that relies on an OTP to move requested data.

  1. Encrypted Information

Any transmitted NFC payment information is encrypted and secured, this means a specific account or amount details can’t be hacked or cloned.

Why Should You Use NFC Payments?

There are several reasons to use NFC payments, the first being convenience. Businesses that use NFC payments are promoting themselves as NFC payments being their primary checkout process. Not just that, they allow customers to make payments without limiting them to cash, and card payments.

  1. Security

As with any electronic payment process, consumer security is the first and foremost concern. NFC payments are highly secure for both consumers and businesses. They leverage an identity verification required to even initiate payments.

  1. Payment Speed

Speeds of NFC payments are almost instantaneous similar to credit or debit cards. It takes just a few seconds for the information to be transmitted. This information is read by a secure element for authorization to process the payment. 

  1. Convenience for Consumers

Consumers can now use smartphones to send and receive money. Most smartphones launched today come equipped with NFC chips, so they can make contactless payments. With NFC payments, consumers can make purchases even if they don’t have cash or cards with them. 

Future of NFC Payments

Once NFC payments became a common practice, several services that revolve around NFC payments popped up in markets. The preference of NFC payments are at an all-time high. It only makes sense for mobile payment options to be available to consumers. There’s no need to carry debit or credit cards when you already have cash with you.

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What Risks Cryptocurrency Holds to Financial Institutions and the Regulatory Landscape?

risks of cryptocurrencies

Cryptocurrency is a digital currency that’s intended to be used in buying or selling goods and services. Cryptocurrency comes in multiple forms, and it can disrupt the financial institution. As the utilization of cryptocurrency increases, so do the risks to the financial industry. The risks may include fraud losses and regulatory compliance. Fortunately, the Anti-Money Laundering act of 2020 (AMLA 2020) requires the Bank Secrecy Act to be implemented throughout the crypto industry. As crypto exchanges are being used for the sale and purchase of goods and services, the crypto businesses are now considered Money Service Businesses (MSBs). As crypto exchanges are being considered as MSBs, it states that crypto exchanges have to follow:

  • The travel rule
  • All the BSA Regulations including CDD, SARs, CTRs

How regulators will implement these regulations will be the next step moving forward. Several methods can be applied to the financial services industry to make sure that compliance is followed as per the regulatory directions.

Crypto’s Risks to Financial Service Industry

There isn’t any way to bring change in the industry without a significant amount of risk. The reason behind the huge amount of risk in the crypto industry can be credited to the widespread adoption of poor AML, KYC, and other fraud prevention methods. The reasons for this are multiple:

  • Enhanced Due Diligence (EDD) isn’t required on crypto exchanges or ATMs at this time. 
  • Regulators have to build new regulatory guidelines within the AMLA 2020 that requires crypto exchanges to operate as MSBs, although crypto exchanges don’t fit perfectly into the current framework. Additionally, crypto exchanges/ATMs being categorized as MSBs allow anonymous transactions of up to $1,000. Unless these customers exceed the $1,000 limit, then the only information required is limited to a phone number or email address. 
  • Crypto exchanges don’t fit into the definitions of MSB because they’re more like a financial institution in the way they operate.
  • Financial compliance professionals and crypto ATMs/exchanges have limited knowledge of each other. Crypto operators aren’t incentivized to monitor and report AML and fraud policies, that’s the primary reason why the need for compliance is weak in the industry. 
  • Lack of FinCEN enforcement of crypto exchanges.

It’s not only in the U.S, but illegal crypto exchanges are operational throughout the globe.

Risks to Crypto Consumers

Consumers face the most risk when it comes to the crypto industry. Crypto is a volatile industry and it exists in a non-regulated 24-hour financial market and is uninsured by any authority. Trending schemes and scams in the crypto industry are:

  • Money laundering through crypto exchanges
  • Romance scams 
  • Fake investment scams
  • Crypto for human trafficking, organ trafficking, and adult services
  • Crypto for art and antiquities money laundering 
  • Fake crypto exchanges
  • Crypto pump and dump
  • Blackmailing scams
  • Ransomware

What to Do to Eliminate Risks?

To prevent money laundering using crypto exchanges and ATMs, as well as to assist law enforcement, there are multiple detections and compliance strategies that can be used to reduce the risk from the crypto industry.

The first step to reducing risk from the crypto industry is to thoroughly screen your customers, and authenticate whether they are who they claim to be. Regulatory bodies have to pay extra attention to sanction lists, PEP lists, and high-risk countries. Complete due diligence should also be done on all clients that are onboarded to the institution. Complete due diligence also includes:

  1. Conduction through KYC/KYC checks
  2. Collecting beneficial ownership information for businesses (including parent and intermediary companies)
  3. Conducting risk analysis on politically exposed people
  4. Monitoring transactional activities
  5. Adverse media screening

All these tactics from onboarding to investigations can significantly improve the potential risk in your organization allowing you to improve compliance and reduce fraud losses. One of the major issues with the crypto industry is the lack of education in the regulatory industry. To reduce the risk of fraud, educating the crypto exchanges and businesses is essential in eliminating the risk of fraud. Investing in technologies like online document verification software and online KYC verification software is vital to reduce the risk of fraud and screen customers thoroughly.

As of right now, crypto regulations are not perfect, but changes in future regulations will help in the betterment of the industry. There are currently crypto compliance working groups that are being formed to fight fraud in the crypto industry.

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ID Verification and Optical Character Recognition

Optical Character Recognition

There’s a major change going on in the industry, DIY online identification, and efforts by companies to combine OCR technology, facial recognition software, and low-cost manual review teams. On its face, using DIY online identity verification makes sense, but it’s vital to understand the major limitations of ID verification solutions. Optical character recognition is a commonly used method for online identity verification. OCR extracts important data from ID documents such as driver’s license or passport. This will generally include a person’s name, address, date of birth, and ID number. The data extraction process is incredibly fast and removes the need for manual data input.

OCR is a great method to verify customer ID but it does have its fair share of challenges. OCR technology was first intended for reading black text against a white background using a flatbread scanner, not for extracting key data fields from ID documents using small fonts and different colored backgrounds that may include holograms, watermarks, and printing on glossy surfaces.

Common Limitations of OCR

1. Structuring Data Involves More than Just OCR

Whenever users take a picture of their ID document with their smartphone or webcam, several steps are required to extract the information. The first is to recognize the type of ID document that the user is submitting. This allows the technology to properly structure the information to read the OCR, which requires figuring out the first name, last name, DOB, and other important data. Straight OCR without AI or any technology built to specifically recognize ID types will lack the required accuracy you need to fight fraud and deliver a good user experience. 

2. OCR Have to be Combined with Image Rectification

When a user clicks a photo of their ID documents, the image needs to be de-skewed if the image wasn’t aligned properly and reoriented for the OCR technology to properly authenticate the ID data for online ID data. 

3. Colored Background ID Documents Can Be Challenging for OCR

OCR usually takes color/grayscale photos and converts them to plain black and white to reduce blurred texts and better separate black and white texts from their background. 

4. Glare & Blur Leads to Mistake

It’s extremely common for customers to click photos of ID documents with glare and blur. Whenever there’s a glare or blurriness in the ID image, the probability of data extraction and authentication mistakes becomes significantly higher. 

5. Webcams are a Challenge for Traditional OCR 

OCR poses another challenge for businesses operating in the financial industry and trying to offer an Omnichannel experience by allowing customers to click the photo of ID documents using a couple of technologies. While most smartphone cameras right now offer high picture quality, the same can’t be said for webcams built into laptops and tablets. If a business allows customers to click photos for customer onboarding using webcams, then it can impact the picture quality of the document. This can increase the risk of mistakes caused by OCR technologies.

6. OCR May be Challenged by Some ID Subtypes

Optical Character Recognition (OCR) is based on extensive learning of the patterns that characterize a specific ID type, and this can make it challenging for solutions based on numerous ID subtypes. OCR is only usable if the ID data is collected and authenticated correctly as it requires the software to understand all nuances and minor features of different ID types around the globe.

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Electronic Signatures and Digital Signatures: All You Need to Know

Electronic Signatures vs Digital Signature

Individuals and businesses use the terms electronic signature and digital signature interchangeably, and there are some key differences and specific reasons for why you may have to choose one over another. In this guide, we aim to clarify the difference between electronic and digital signatures. You’ll also learn which type of signature should determine the document signing workflow.

What Is an Electronic Signature?

According to the US Federal ESIGN Act, electronic signatures are:

“Electronic sound, symbol or process, attached to or logically associated with a contact or other record and executed or adopted by a person with the intent to sign the record.”

To put it in simple words, e-signatures are used to refer to any signature that is added electronically as opposed to a physical paper document. Electronic signatures are most commonly used to verify the content of a document, however not all electronic signatures offer assurance to law and order. If your business operates in an industry that’s highly regulated while dealing with personal or customer information, then using a more secure option is the key. 

What is a Digital Signature?

Digital signatures are a type of electronic signature and both of them are used to sign a document. There are some key factors that make both of them unique from each other. 

Paper-based documents and workflows are full of security concerns. The most common concerns customers and businesses face while dealing with paper-based documents are:

  • Is the person who provided the document real? How can businesses verify if the signature is valid and hasn’t been forged?
  • How can businesses safeguard that the content within the document hasn’t been tampered with?

Notaries came into existence to help businesses to support those concerns. Notaries of today play a vital role in ensuring that the parties of a transaction that the document is authentic and can be trusted. 

However, the same problem exists in electronic document workflows. Digital signatures were developed to help to solve this problem. They are essentially the digital equivalent of adding a notarized signature to your paperwork. In the case of digital signatures, a third party known as the Certificate Authority (CA) is responsible for verifying customer identity.

Certificate Authorities tie your identity to a PKI-Based digital certificate that allows the users to use their certificate to create digital signatures locally using a token or remote using any of the cloud-based signing platforms. 

When you add a digital signature to a document, cryptography ties your digital certificate with the data being signed into a unique digital fingerprint. This is what makes the digital signature secure and compliant, thus making it more secure and powerful for law enforcement agencies. To summarize, a carefully thought-out and secure cryptographic operation allows digital signatures to assure:

  • The document is authentic and comes from a verified source
  • Identities have been verified by a certified authority
  • The document is authentic and hasn’t been tampered with

What Types of Signatures are Legally Binding?

The majority of the regulatory bodies now demand digital signatures over electronic signatures because digital signature provides authenticity and integrity. Deciding what type of signature you want to implement should be dictated by the type of documents you need to sign. These are the type of digital signatures that are binding:

  • US ESIGN
  • FDA CFR 21 Part 11
  • US UETA
  • US State Professional Engineering Seals
  • UN Model Electronic Signature Law
  • Sarbanes-Oxley (SOX)
  • eIDAS 
  • CNCA

Which Document Signing Platforms Support Digital Signatures?

Fortunately, most of the document signing and workflow platforms enable users to apply secure digital signatures. Here is a list of platforms that support digital signatures:

  • DocuSign: Supports digital signatures and electronic seals by integration with GlobalSign
  • Adobe Sign: Two types of digital signatures, certified and approved.
  • Microsoft Word: Microsoft also supports two types of digital signatures using a token certificate visible and non-visible. 
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5 Biggest Challenges of Digital ID Verification

digital id

Now that everything is going digital, businesses need to verify more and more consumers who they say they are. Digital ID verification is the process of verifying a customer’s identity electronically. This includes authenticating the attributes of a person and then verifying that these attributes belong to a real person. This allows the company to create a digital credential for a person, thus allowing them access to anything from banking apps to borrowing institutions, and more.

ID verification has three different types:

  • Biographical information: User’s name or age
  • A trusted ID document: a user’s passport or driver’s license
  • Biometric data: User’s fingerprint or facial image

Online ID verification services use a combination of these services to build a legit user profile for a person. The number of people who want and are currently using digital services is increasing rapidly. So, it makes sense that businesses need to invest in online ID verification technologies. 

Challenges Faced in Digital ID Verification

1. Variety of Documents

On average, there are over 6,000 types of documents globally that can be used for ID verification. Each document type has its own unique protection against fraud, but some documents are easier to forge than other documents. 

To verify an ID document and authenticate a user’s identity, an image of the ID, the visible data on the ID, and any additional information stored within the document. Once the data is extracted, it is analyzed for authenticity.

Even if you limit the type of ID documents a student can use to verify themselves, complex algorithms are required to identify which document type the ID is. 

2. Evolving Biometric Forgery

Once the ID document has been verified, the next step is to confirm the validity of the applicant, but are the customers who they say they are. This is done by comparing the facial image with the photo on the ID document. Some companies can even choose to ask for face liveness detection.

This step of ID validation also has its issues. It is more than common for a legit user to fail a facial matching exercise due to bad lighting conditions. Additionally, instances of biometric data forging are becoming common. 

3. Building for Everyone

According to some reports, over 1.1 billion people globally don’t have any sort of official ID document. It is impossible for a business to verify a person with ID documents if they don’t have any documents, to begin with. When developing a digital identity verification service for the public, it is important to think about the potential users who:

  • Are not digitally literate
  • Don’t have clear migration status
  • Cannot provide biometrics due to physical appearances or features
  • Have opposing religious or personal beliefs to the capture of biometrics.

4. Finding Balance between Compliance and User Experience

Financial institutions, banks, and other firms have to follow through on strict regulations. These regulations differ company by company. For these businesses, they need to have a strong online ID verification process. Additionally, they need to focus on seamless customer experience. Most customers care more about a smooth experience while onboarding instead of a strict, and secure process. 

When developing ID verification services, businesses need to carefully plan acceptable thresholds for rejection, which balances out the risk of potentially accepting fraudulent identities.

5. Privacy, Data Security & Trust

Privacy controls are essential for services that rely completely on personal, biographic, or biometric data. Legally, users need to stay informed about how their data is being managed, stored, and maintained. Banks and financial institutions should also provide a certain degree of control over the consumer’s data. 

The introduction of the European GDPR has helped in protecting the data of the consumers, but governments and businesses need to build their frameworks for data management. This can include providing control over data. 

Reducing the risk of security breaches and improving how a business handles the data is crucial for all kinds of business. 

Final Take: Challenges for Digital ID Verification

It doesn’t matter how big or small the business is, every step in digitization needs some challenges to be addressed. The key to building a successful digital ID verification is finding the perfect mid-point between the user’s experience and security. Companies should also focus on handling all the privacy and security needs. Maintaining all this, and still keeping a high customer onboarding rate is the perfect strategy for fraud deterring.