Two experts at payments advisory firm, RedCompass Labs, recently made some comments on payments and financial crime that might work for any 2023 review/2024 predictions articles that you may be working on. Read on to view a summary with the inclusion of the full commentary.
Instant payments – Kjeld Herreman, Head of Strategy Advisory at RedCompass Labs
“The move to instant payments in Europe took a huge step forward in 2023 with the European Parliament and the European Council reaching a political agreement regarding the instant payment legislative proposal. This effectively mandates that payment service providers, such as banks, offer the sending and receiving of instant payments in euros at no extra charge. This is great news for European consumers and businesses but the technical implementation within a very ambitious timeline is set to be an enormous challenge for banks.
“We have also seen huge progress in emerging markets with the likes of India and Brazil which have embraced digital payments as part of their financial inclusion efforts. However, much of the rest of the world, and in particular the US, has much to do on the instant payments front. There are a lot of issues to be tackled, such as changing legacy, batch-based systems to support a 24/7 market which requires a high number of transactions at low latency. That said, in 2024, we can expect the drive towards instant payments to pick up pace. As there is no cookie-cutter solution that will work for all banks, we can expect to see them explore alternative approaches which don’t require them to change their core banking systems.”
Digital payments – Kjeld Herreman,
“2024 will be a year of evolution, not revolution. We will continue to see a shift towards the cloud as scalability and keeping the total cost of ownership under control become increasingly important. The most innovative changes that we see are related to the use of AI and machine learning, which can help banks increase their straight-through processing rates, increase their insights into their clients’ transactions, and deliver on changes more cost-efficiently.
“As fraudsters start to use artificial intelligence for nefarious purposes such as deep fakes, banks will quickly need to address these threats in order to protect their customers through the development of their own AI systems. 2024 will be a year of experimentation, with the most promising AI initiatives coming to fruition in 2025.
“In the near future, payments will be instantaneous, cheap, frictionless and interoperable, able to move along and across different payment rails without human intervention. However, as was the case in the telecommunications industry, innovation doesn’t come to an end because a product becomes commoditized. Payment service providers will need to find ways of monetising the data generated by payments and creating value-added services that elevate payments beyond a simple transfer of funds.
“The biggest trend will be payment service providers reducing the costs associated with their payment operations whilst simultaneously upgrading their real-time capabilities and looking for ways to connect the various payments rails and closed loop wallets. As the industry continues on the path towards commoditisation, it will become essential for payment service providers to leverage artificial intelligence in order to service their clients efficiently. Experimentation with machine learning, and more particularly with generative AI, along with interoperability, will be all the buzz in 2024.”
Financial crimes – Silvija Krupena, Head of Financial Crime at RedCompass Labs
“The financial industry is facing increasingly challenging times, with budget and resource constraints impacting everything from training to staffing. Many banks are already feeling the pinch, and there’s a growing concern that these cuts, especially in compliance, might be too deep. Such reductions could potentially lead to enforcement actions in the future, highlighting the need for a balanced approach in resource allocation.
“The Basel AML Index for 2023 revealed a regressive trend in the fight against financial crime. Risks have increased, the quality of AML and CTF frameworks are getting worse, transparency, legal and political risks are increasing and compliance with new tech such as AI and virtual assets including crypto is plummeting. The industry is losing the fight against financial crime and needs to take a new approach.
“There’s a strong hope within the industry that technology, particularly AI, will help address the current budget and resource challenges. However, despite the growing sophistication of technology, a major hurdle remains: many institutions are finding that their data infrastructure isn’t yet capable of fully harnessing these technological advancements. Addressing this may require multi-year projects, but it’s a necessary step to fully realize the potential of these technologies in tackling financial crime.”
“The recent FATF, INTERPOL, and Egmont Group report highlights the growing challenge faced by the financial sector, where rapid digitalisation is inadvertently aiding criminals, enabling them to boost their illicit activities, especially in money laundering. This digital shift, coupled with the acceleration of financial transactions speed and sophisticated anonymising techniques, poses significant hurdles in tracing financial crimes. These challenges underscore the urgency of implementing enhanced AML measures to address emerging risks, such as the misuse of deepfake technology and criminal exploitation of digital tools and social media.”
Human trafficking and exploitation – Silvija Krupena,
Criminal techniques are becoming increasingly sophisticated, which makes it challenging for banks to spot and stop the transfer of illegal profits or ‘bad payments’. In fact, 75% of employees within financial institutions are not confident in their ability to identify human trafficking signs in transactions. The current approach to tackling human trafficking is not working. The regulatory pressure on banks and financial institutions is building. Human trafficking is one of FinCEN’s national anti-money laundering priorities while credit and financial institutions were fined almost USD 5bn in 2022 due to AML, KYC and sanctions breaches.
“Reflecting on the progress made this year, it’s evident that the fight against human trafficking in the financial industry is gaining traction. By adopting innovative methodology and building strong partnerships we can make significant strides in identifying and disrupting these heinous crimes. Looking ahead, we need to keep improving these strategies and fully utilise the latest advancements in technology, such as AI, to effectively combat traffickers. We must work together make sure our financial systems stand strong against exploitation and abuse. “
“If banks embrace a data-driven, persona-based approach they can reduce cost and increase investigation productivity and be more effective in their efforts to unmask perpetrators, strengthen prevention measures, and lead the charge in the fight against human trafficking.”
