Bankloch

  The financial industry is undergoing a significant transformation. Banks are evolving from mere repositories of money and providers of loans and investments into facilitators of our financial journeys and personal assistants in financial well-being. This shift marks the beginning of an   era characterized by embedded banking and deproductization . Traditionally, banking has focused on facilitating transactions, managing money, and mitigating risks. Our interactions with banks typically occur when we need to deposit or withdraw money, apply for a loan, or manage investments. Unfortunately, these interactions often feel disconnected from our everyday lives and objectives. Embedded banking   represents a paradigm shift in our engagement with banks. With this model, banking activities become seamlessly integrated into our daily routines, often without explicit engagement. For example, Buy Now, Pay Later (BNPL) services embed financing options directly into the online shopping experience,

Financial crime   continues to be a major issue, undermining the trust and safety of global financial systems. The United Nations estimates that a staggering 2 to 5% of global GDP, or between EUR 715 billion and 1.87 trillion, is laundered each year. Moreover, about 50% of companies worldwide have experienced fraud in the last two years, underscoring the urgent need for effective measures against financial wrongdoing. Financial crimes fall into three main categories:   money laundering, financial fraud, and sanctions evasion , each with its own implications. However, sanctions evasion stands out for its direct threat to global economic stability and security. Sanctions   are punitive measures imposed on entities or individuals to restrict their trade or financial transactions. Sanction evasion aims to bypass these restrictions, often through methods like using shell companies or exploiting legal loopholes, making detection and prevention challenging for financial institutions. Sanction

Following our previous blog ' Rethinking AML: A Call for Innovation and Efficiency ' ("https://bankloch.blogspot.com/2024/02/rethinking-aml-call-for-innovation-and.html"), where we navigated the complex world of AML and pinpointed three primary   categories of malicious financial activities : Money laundering : Transforming proceeds from illicit activities into seemingly legitimate funds. Sanction bypassing : Circumventing governmental sanctions. Payment Fraud : Exploiting stolen or fake payment details to illicitly acquire goods or funds. Focusing on Payment Fraud, we discern two principal categories:   insider (internal) fraud , conducted from inside an organization by its own staff, and   external fraud , perpetrated by outsiders like customers or suppliers. This blog delves into   external fraud within the financial sector , particularly the unauthorized extraction of customer funds. This subset of "Payment Fraud" can be further split-up in several types

In the financial services sector,   Anti-Money Laundering (AML)  continues to be a topic of intense debate. Discussions oscillate between advocating for stricter regulations and questioning the extent of banks' responsibilities in overseeing (policing) financial transactions. AML regulations are pivotal in preventing the use of financial institutions for facilitating crimes such as money laundering and terrorist financing. However, the effectiveness of these measures is often under scrutiny, especially considering their impact on legitimate customers and banks' financial models. Despite rigorous AML frameworks, a significant gap persists between their intended outcomes and actual results, i.e. The United Nations estimates that around $2 trillion, equivalent to the GDP of a major economy like France, circulates annually through money laundering channels. Alarmingly   the detection and interception rates are disconcertingly low , with only about 2% of this amount being detected,

Just over a year ago, I wrote a blog describing how merchants struggle with an efficient refund process (cfr. " Refunds - A bigger problem than you would imagine " -   https://bankloch.blogspot.com/2022/07/refunds-bigger-problem-than-you-would.html ). The traditional method of refunding is by sending funds back to the original payment method, but this method is not just costly and complex; at times, it is downright impossible. This issue was also identified by Jeremy Balkin, a former executive of JP Morgan and now founder and CEO of TodayPay, which offers “ Refunds as a Service ”, enabling merchants to offer customers instant refunds via multiple payment methods. Examples of their services are " Refund Now, Pay Later ", in which TodayPay issues the refund and the merchant has up to 90 days to refund the funds or " Better Refund ", offering consumers a cash back in exchange for a refund. This unique service underscores a significant gap in the evolution of