Alloy CFO: Know-Your-Business Focus Aligns Banks and FinTechs in 2023

2022 was a year filled with crypto meltdowns, international sanctions, synthetic IDs and fraud attacks.

But Kiran Hebbar, CFO at Alloy, told PYMNTs that 2023 will be the year where regulators ramp up their scrutiny of financial services firms.

“Fraud has exploded,” he said — but looking ahead to 2023, first-, second-, and third-party fraud has increased, so “there will be stringent oversight on bank/FinTech relationships,” he added.

The fraud explosion demands special attention to all forms of money movement. While in the past, enterprises might have thought of fraud as the cost of doing business — and were able to pass those costs on to consumers — that’s no longer possible.

Rules-based detection (and prevention) of fraud is simply outmatched by the sheer volume and creativity of various schemes and scams.  The FTX implosion — and the negative ripple effects that have brought down other crypto-related firms — demands a closer look at how traditional FIs and digital upstarts are participating in that arena. Card-not-present transactions are, of course, on an upward trajectory.  Various B2B scams are proving successful.

Add the fact that FinTechs are often not used to operating in a rigorous regulatory environments, and it’s no surprise that regulators will take a more proactive approach to monitoring compliance and anti-fraud efforts.

“What’s needed in this modern world,” he said, “is a holistic approach to solving fraud,” aided by advanced technologies.  “The old approaches don’t work anymore,” he said.

Addressing Compliance Needs

He noted that Alloy’s “bread and butter” is to work with banks and their FinTech partners in order to address their compliance.

He offered up the example where bad actors create fake online profiles that have transaction histories behind them.  Alloy’s approach, he said, is to use AI and machine learning, along with 170 different data partners, to set up better decisioning on a transaction-by-transaction, company-by-company basis (in a no-code approach, too).

The customizable approach, he said, allows firms undertaking KYC (or, in the case of corporate customers, KYB) efforts to step up authentication and demand documents or liveness checks as the situation demands, from onboarding to an ongoing monitoring of transactions.

“There are multiple lines of defense here,” said Hebbar, as the Alloy platform pulls in multiple solutions from its data partners, stitches those solutions into a decisioning workflow, and banks can decide the level of automation they desire. “It’s an easy digital experience for our customers as they seek to solve the problem of fraud and catch bad actors and entities,” he said.

There’s a positive knock-on effect of taking a holistic approach to fraud, digesting hundreds of data points and boosting ID verification: financial inclusion.  Hebbar noted that that many individuals — and even companies — in the U.S. and across the globe have been excluded from accessing traditional banking services because they have thin credit files.

Robust data flows gleaned from multiple sources, said Hebbar, mean that FinTechs and banks can make better decisions on whether applicants are good risks and “good actors.”  With a nod to expanding financial inclusion to SMBs, he said that as many as 30% to 40% of Alloy’s “use cases” involve smaller firms making their way through the platform’s identity and verification processes.

“Increasingly, we’re working with data partners that have good information from state registration and business registration systems,” said Hebbar, “and it becomes easier to verify the identities of SMBs and give them the same level of exposure to credit products that a bank might offer to a consumer.”

Looking ahead into 2023 and beyond, “there’ll be a new operating environment for many companies,” said Hebbar. “Because of the macro environment, there’ll be a focus on improving efficiency and profitability….and prioritizing solving fraud and compliance.  Compliance needs to be built into the fabric of every company.”