Why Bank/Fintech Partnerships are the Dream Team to Fight Fraud

November 19, 2018         By: Zia Hayat

The financial sector is growing at a shocking rate, as FinTechs push the industry to new limits and redefine the relationship between consumers and their finances.

As new solutions are developed, and industry stalwarts steer their offerings in fresh, new directions and partner with up-and-coming players, we see that the relationship between FinTechs and traditional banks has been one of the most promising in terms of fighting fraud.


Since the Beginning

Security has always been a critical part of the financial system, starting with the vaults and guards present in some of the oldest banks in the world. Remember the age of romanticized bank robbers? It’s clear we’ve come a long way.

Change, of any type, inherently brings risk. In 1995 when financial institutions were just making the big move to more electronic transactions, a Citibank in New York suffered a hack of nearly $400,000. In the more than two decades since, the financial sector has undergone technological disruption nearly incomparable to other industries. Simultaneously, it has fought a constant stream of security threats, adapting to a new ecosystem of cybercrime and fortifying defenses accordingly.


A Symbiotic Relationship

With 82% of financial services companies planning to increase FinTech partnerships in the next three to five years, the goal of deepening innovation in the financial sector seems promising. While the range of solutions and use cases is broad, undermining these efforts is the principle that technology serves an important role in bridging the gap between necessary financial services and populations who’ve been historically excluded from the traditional financial system.

Competition among FinTechs is fierce, but strategic partnerships with trusted names in the industry help bring them forward. At the same time, banks are striving to remain relevant, and can do so by layering fresh technology on top of their traditional services and often, legacy systems. This allows them to avoid a complete overhaul of operations while keeping their seat at the global table. The result is a functional and mutually-beneficial relationship between banks and FinTechs: banks remain competitive with leading-edge services while FinTech companies score market reach and the solid reputations of their bank partners.

The speed at which digital services are evolving today is remarkable, but it has its downside. Banks must be vigilant about protecting their assets, but face an uphill battle as the “what” to protect and “who” to protect it from are constantly, rapidly changing. Fortunately, FinTechs often possess the right mix of agility and scalability to adapt and respond to these changes quickly, thus their bank partners can benefit too.

These partnerships can be extremely complex, especially considering how solutions will integrate into existing operations and infrastructure. Yet, despite these challenges, FinTech is well-positioned to foster one of the most innovative – and secure — ecosystems in the traditional finance industry.


Balancing CX and Fraud

With the rise of mobile banking – an area of the financial ecosystem where bank and FinTech partners are inherently tied – customer experience is absolutely influential in mitigating fraud. In recent years, the online banking interface has been created, evolved and adjusted to satisfy customers, in efforts to maximize migration and participation in this new channel.

Part of what makes FinTech so revolutionary is the injection, and importance, of customer experience in the development of many new solutions. When banks partner with FinTechs, they are often able to benefit from the seamless UI and UX, useful APIs with other trendy and innovative services, and sometimes new methods for authenticating their customers.

Frictionless is the ultimate goal for banks and FinTechs alike, and new FinTech players and banks shifting their approach often appeal to customers by focusing on the ease with which new accounts can be created, payment transactions can be completed and integrations with other important apps in a customer’s daily life.

Requesting customers to create accounts with hefty personal information, enter complicated passwords or answer static questions undoubtedly rises customer frustration. But sometimes in the aim to get smooth out customer identification, fraudsters take their chance to slip through the cracks, too.

The goal, then, for bank and FinTech partnerships should be a balance of friction – not frictionless. Fortunately, each brings to the table their own technologies, experience and data to straddle the line, and apply the right amount of friction in the right place to satisfy the needs of consumers, financial institutions and retailers alike.

Banks: Bring decades of fraud experience, robust insights from a trusted customer base, comprehensive data to pull from.

FinTechs: Offer emerging technologies like IoT, AI, Machine Learning and intelligent authentication methods to incorporate into mobile banking interfaces.


Regulators – the Third Wheel?

The gap between technology and regulation is significant, and problematic. But, the situation is nearly unavoidable considering the rapid pace at which FinTech is evolving, compared to the much slower moving regulatory landscape. The lack of regulation around cryptocurrencies is just one example of this happening in real time.

Adding further complication to this conundrum is the fear that new, quickly-executed regulations could put the brakes on future innovation. However, with fraud adapting to our new age of banking, there’s still a need. That’s why many on both sides – FinTechs, banks and regulators – are calling to spark an ongoing conversation, with the goal of educating regulators on the benefits and risks of the technology, as well as inform FinTechs of the potential consequences of hastily designed systems.

When banks can communicate their security challenges, it opens a door for FinTechs to come in with a solution. At the same time, more major financial players will be inclined to back the startups that are working to address these issues. The Financial Industry Regulatory Authority Inc.  is one organization who is putting weight behind this and requesting its firms to share their experiences and suggestions for better supporting FinTech innovation.


The Potential of the Partnership

Even as the finance sector evolves into new, online spaces, and plays host to a bevy of innovative services, its purpose remains the same: customers need to manage and move money. And it has always been bolstered by the concepts of safety, trust and ultimately convenience.

Like criminals in any industry, greedy fraudsters has adapted to changes in financial services, too. However, bank and FinTech partnerships – a likely match and rising trend – are extremely well-positioned and a promising figure to fight fraud in today’s digital world.

About Zia Hayat

Zia Hayat is CEO of Callsign – a company which specializes in frictionless identification. Zia has a PhD in Information Systems Security from the University of Southampton, and has worked in cybersecurity for both BAE systems and Lloyds Banking Group. He founded Callsign in 2012 with the mission to seamlessly power the identification of every web, mobile and physical interaction.