For many new business owners, financial crime is something that no one can afford to be complacent about. A world without compliance and control is a world where fraud forces companies to fold, and where money laundering can fund illicit activity like human trafficking. With compliance costs at an all-time high, innovators will naturally be more cautious than ever. But it’s important you have the right controls in place, as without them, your business could lose out financially.
Alex Mifsud is the Co-founder and Chief Executive Officer of Weavr.io, an open cloud-based platform enabling payment flows to be created, deployed and consumed by businesses that are increasingly digitising their supply chains, back-offices as well as user experience. Prior to Weavr, Mifsud founded and ran Ixaris, an innovator in global B2B payments, serving multinationals like Amadeus, Sabre, Axa and Airplus.
Talking to The Fintech Times, Mifsud takes a deeper dive into the importance of being compliant and in control to allow flexibility, autonomy, and help innovations skyrocket:
Budgets need to be efficient
Starting a business is an expensive venture, which is why budgets are critical for start-ups. 56 per cent of small business owners use their personal savings for start-up capital, and if you also account for personal credit cards and other personal assets, this number reaches an incredible 74 per cent.
Controls and budgets are needed in order to ensure systems are not abused and that your customers don’t fall victim to money launderers and fraudsters, but you also don’t want false positives.
Innovators that want to embed financial services into a new product either partner with a Banking as a Service (BaaS) or an embedded finance provider. Most BaaS providers either ask businesses to manage the financial risks themselves, or they’ll set limits and restrictions on your behalf. This can either leave you vulnerable to threats from financial crime you don’t have the expertise to combat, or create unnecessary friction for your good customers through overly stringent restrictions.
Daniel Watson, Head of Compliance at Weavr, said: “Controlling the functionality of any new product is about mitigating risk and reducing friction. At Weavr, we enable the innovator to tightly limit that risk, allowing you to put control mechanisms in place so you can see where people are spending money.
“Being in control is vital for any business that wants financial autonomy. But being in control doesn’t just mean setting the spend limits and then leaving them be. In the fast-paced world in which we currently live, true control is the agility to be able to change the controls you have in place whenever you want to.”
The pandemic gave way to a huge rise in virtual spending, with ATM use declining by over 80 per cent. But with this huge influx of online spending, criminals have produced new ways to defraud online payment systems.
Compared to pre-covid-19 levels, fraud and computer misuse has risen 43 per cent. So what measures can be taken to hinder fraudsters? Let’s say, for example, a criminal steals a credit card. The first thing they are likely to do is to hammer it with multiple purchases until it’s maxed out. This will mean they make lots of successive transactions on the card.
You might think that flagging spurts of rapid transactions is the way to combat this. But the main problem with that approach is that you can also harm some of your best customers – the people using the cards the most. If one of your top customers has used their card four times for legitimate purchases in the past hour, then tries to make a fifth legitimate purchase that is declined, you haven’t provided a premium service – or even a usable one – and you might lose out on future custom.
The risk of not complying
Keeping your head above the water in a world of financial crime is tough, and it leaves a lot of innovators lost at sea. Over the last three years, complaints about platforms to the Financial Conduct Authority (FCA) have risen by 103 per cent, highlighting the growing burden for organisations and services to not only comply but to prove to regulators that they maintain regulatory compliance.
When it comes to providing payment facilities to your customers as an innovator, you have three options to weigh up. Building everything yourself: financial controls, compliance teams, and safeguards, reusing a system built by someone else but you have no control. Or you use a system that has leapt through compliance hoops, taking the risk and responsibility off your shoulders while giving you the competitive advantage of agility and granularity, allowing you to create a flawless experience for those you’re innovating for.
It’s more important than ever before to ensure your business ticks all the boxes on regulatory compliance, so make sure to check out your embedded finance options to help you get to market quicker.