Mobile Payments’ Anti-Money Laundering To Benefit From “Nudge Theory”

January 7, 2019         By: Steven Anderson

With 2019 only a couple days old, it’s not surprising that predictions are still coming in about what we’ll see with this year’s arrival. Fresh word arrived from Jane Jee, the CEO of Kompli-Global, who took a stab at the future of one of mobile payments’ biggest protective devices: anti-money laundering (AML).

AML systems are a powerful tool to help protect against fraud in the system, and help big banks better address issues of potential risk. While compliance budgets have been on the rise, as have the levels of other resources involved in the system, the overall level of “dirty money” seen by the system really haven’t been reduced at all.

That’s a problem, but one that Jee believes may be addressed by what’s called the “nudge theory.” Nudge, a concept derived from behavioral psychology, turns to positive reinforcement. Indirect suggestions form the basis of nudge, rather than punishments and penalties. For instance, a nudge might come around when a grocery store offers its fresh fruit selection at the checkout counter.

The nudge could actually help at the AML level, Jee notes, by changing the way banks and the like think about risk. Right now, with so much focused on punishment, banks have looked into how to prevent AML failures that might cost them money. But banks don’t want to spend almost as much as the fines might cost, so they just “de-risk”, losing the business that’s most risky.

Nudges, meanwhile, convince the banks to focus on protecting against risk rather than throwing it out altogether. The banks who take this approach get a positive boost to their reputation as well as more business, prompting others to do likewise to get a cut of the action.

The problem in the past was that the risk didn’t meet the reward. The fines for AML violations outweighed the profit the risky business meant, so why pursue the risky business? With the nudge in place, though, the extra business becomes revenue, and the banks prioritize increased gain over reduced loss. There’s extra outlay in beefing up the AML, of course, but that doesn’t mean so much against business that can last years.

Only time will tell how well Jee’s philosophy works here, but the nudge might well be more valuable than anyone expected.