Written by Vivek Porwal, Sr. VP & Delivery Head – Banking, QualityKiosk
Perceived to be used only for the trading of cryptocurrencies initially, the decentralised electronic ledger technology, popularly known as blockchain, is being employed for multiple purposes by organisations world-over. From insurers (and hospitals) sharing patient health records to consumers sharing excess electricity with each other and with the power grid, to the casting of votes in an election—blockchain offers limitless possibilities to transferring information (or money) securely and transparently.
According to a report published by Grand View Research, the global blockchain technology market is predicted to touch $7.59 billion by 2024, growing by 37.2% year-on-year. The industries driving growth in adoption of blockchain technology include banking and financial services, consumer or industrial products companies, information technology, media and telecom, healthcare, transportation, and public sector undertakings. As per a study conducted by 6Wresearch, India’s blockchain technology market is predicted to grow by 58 per cent annually from 2018 to 2024.
Blockchain in banking
One of the key sectors that can leverage blockchain technology to its fullest advantage is banking. According to a study by Juniper Research, blockchain deployments will help banks realise savings on cross-border settlement transactions of more than $27 billion by the end of 2030.
While multiple use cases are available in banking, as per a Reserve Bank of India report by the Working Group on FinTech and Digital Banking, the banks in India are permitted to set up permissioned blockchains for centralized KYC, cross-border payments, Trade finance and syndication of loans, besides for their internal purposes.
Starting with ICICI Bank, Kotak Bank and Axis Bank in 2016, more and more banks are looking at examining blockchain’s potential. Given this scenario, as a technology, blockchain is here to stay. For example, in an industry-wide private blockchain deployment, multiple banks can be the participating members. Using such a network, customer KYC documents can be safely shared with each other for cross-validation and to avoid duplication of document processing. Similarly, a blockchain network can be deployed at a global level with participating member banks using it for executing cross-border payment transactions securely. Quality assurance (QA) testing becomes essential in each of these applications of blockchain to ensure that the technology works smoothly delivering the desired benefits.
Consider centralised KYC as a hypothetical use case example to examine the role played by QA. In an industry-wide permissioned blockchain in which several banks are participants, the process begins with a bank registering itself as a participant. Upon registration, it starts onboarding its customers by uploading their KYC documents to the blockchain network. This data gets converted from images to Hex format at the blockchain level. The bank also whitelists a few other banks on the network it is willing to share its customer KYC data with. Functional and workflow testing become crucial to ensure that the entire process is followed methodically and without errors.
When a whitelisted bank requests for another bank’s customer KYC data, the requester bank is then provided access to that data for a consideration in a currency accepted by all participating banks which could be a virtual currency. The system also needs to be tested for access rights, data privacy, authentication, and transaction consideration.
The data access request and retrieval involve data conversion (to Hex format) and reconversion (back to images) for retrieval, making checks for data sanctity and fidelity (accuracy, protection from loss or tampering, etc.) essential. Auditability, authenticity, data ownership, and Blockchain security controls are other important areas QA testing addresses. As the process is driven by API integration between blockchain framework and application and hence API testing, business rules & workflow at applications layer and data conversion at blockchain layer are important functions fulfilled by QA.
A few other areas where QA testing plays a major role include usability / Compatibility testing, privileged access management testing, ensuring low response time (performance testing), data encryption, storage and retrieval testing, and security testing.
Blockchain adoption considerations
Even as banks look at investing in the permissioned blockchain model, there are a few critical elements they will need to consider to keep risks under control. Examining a few critical aspects beforehand may help a bank conduct quality assurance for any permissioned blockchain implementation successfully.
- Architecture assessment: Examine the technology architecture and design to be used for the Application presentation layer, API layer to integrate with blockchain framework and the blockchain platform (like Hyperledger Fabric, R3 Corda, Ethereum, Mutlichain, etc). Consider whether nodes are to be hosted on public or on-premise (private) cloud which consensus mechanism are used.
- Use Led QA: Consider the end user of application from the perspective of Bank to cover the Bank end QA of app and from Consumer perspective cover the User Experience led QA to ensure that no compromise of quality, Speed of delivery and end User Experience due to technology stack. It is expected to be even better experience then having traditional multi-hand shacking apps.
- Process flow and integrations: Examine how the existing interfacing systems are connected with blockchain framework. Assess whether the solution is geared to work seamlessly with the bank’s internal systems.
- Data encryption: Ensure the data and images are encrypted and stored in blockchain and decrypted &retrieved in an error-free manner. The privilege controls within the network and the access provided to other participants nodes need to be clearly defined and tested.
- Compliance testing: Ensure the regulations related to customer data privacy and other aspects such as storage, authentication and verification are being complied with.
An ongoing process
Software quality proves essential not just at the beginning of a blockchain-based centralised KYC, remittances, clearing and settlement, trade finance, loan syndication, etc., but even afterwards. The use of blockchain by banks may be limited in the initial days. However, as the technology matures, banks will expand the scope of blockchain projects, further making quality engineering an essential component of these initiatives.
Mastercard Delivers Greater Transparency in Digital Banking Applications
- Mastercard collaborates with merchants and financial institutions to include logos in digital banking applications
- Research shows that ~25% of disputes could be prevented with more details
As more businesses turn to digital payments, and the number of connected devices grows, one thing is becoming increasingly clear: consumers are demanding more clarity around what they bought and who they bought it from.
Most everyone has experienced the frustration of trying to decipher confusing and brief purchase descriptions when reviewing online statements. This confusion forces cardholders to contact their banks unnecessarily to dispute unrecognized transactions, adding extra steps for consumers and generating an array of costs for merchants and banks.
A new initiative from Mastercard and managed by Ethoca, the company’s collaborative fraud and dispute resolution technology, aims to eliminate this confusion and improve the customer experience. All merchants are encouraged to visit www.logo.ethoca.com and upload their logos for inclusion in online banking and payment apps. The merchant logos will be linked to corresponding transactions, adding clear visual cues to help cardholders quickly identify legitimate purchases. Participating merchants are provided an opportunity to simultaneously extend their brand presence as well as eliminate expensive and time-consuming chargebacks. This program is also available to all financial institutions.
A recent Ethoca-commissioned Aite Group study of the US market revealed that 96% of consumers want more details that help them easily recognize purchases, and nearly 25% of all transaction disputes could be avoided by delivering these details – including logos. It’s estimated that global chargeback volume will reach 615 million by 2021, fueled in large part by frustrated consumers turning to the dispute process unintentionally.
“With greater digital dependency, having real-time purchase details is critical for consumers, merchants and card issuers alike,” said Johan Gerber, executive vice president, Cyber and Security Products at Mastercard. “We continue to collaborate with industry partners to bring clarity and simplicity before, during, and after transactions. By enriching transaction details, merchants can alleviate friendly fraud, reduce chargebacks and improve the customer experience.”
This endeavour is part of comprehensive efforts to deliver the most efficient, safe, and simple payment experience from the minute a consumer begins browsing to once they’ve made the purchase. This includes Click to Pay, Mastercard’s one-click checkout experience, to the integration of biometrics to secure both digital and physical transactions, and Ethoca’s full suite of consumer digital experience solutions.
AML and the FINCEN files: Do banks have the tools to do enough?
By Gudmundur Kristjansson, CEO of Lucinity and former compliance technology officer
Says AML systems are outdated and compliance teams need better controls and oversight
The FinCEN files have shown that it’s time for a change in AML. We must take a completely new approach in order to catch up with the speed of innovation in financial crime.
Despite what you’ll read in news headlines, we can’t lay all of the blame for anti-money laundering failures at the doors of the banks. The majority of compliance teams are doing what they can, and what they are being asked to do.
Historically, AML has, in large part been a box-checking exercise. Banks have weaved through mountains of false alerts, investigated cases, sent SARs, and then got on with business as usual. In some jurisdictions, banks can‘t even interfere with customers under investigation, in fear of jeopardizing cases.
But the sentiment towards banks’ responsibility in AML is changing. They are increasingly looking at AML as a corporate social responsibility issue and even a competitive advantage. Banks are looking to protect their brands from the horrors of an AML scandal, and as such are taking a more proactive approach.
They are also throwing a lot of money at the problem. Deutsche Bank claims to have invested close to $1 billion in improved AML procedures and increased its anti-financial crime teams to over 1,500 people. Most big-brand banks have a similar story to tell.
With reputation on the line, better AML controls can become good business.
So where does the problem lie?
From the thousands of SARs discovered in the FinCEN files, lack of customer oversight is evident. Banks need to establish a method of knowing their customers through their actions across the organization and beyond the organizational walls. By doing so, banks can better understand AML and compliance risk, which gives them the necessary tools to bar customers from doing business or limiting their activity.
While banks are striving to better enforce regulations by pouring money and resources into CDD and transaction monitoring, forming this type of intelligent customer overview might be the real solution. Proper Customer Due Diligence and customer risk monitoring can only be achieved by continuously tracking customer behaviour and transactional networks. With the latest developments in Artificial Intelligence – that is now possible.
But, the reality for compliance teams is they are hindered by outdated technology in their risk assessment and transaction monitoring systems and because of this, banks are fighting a steep, uphill battle against serious organised crime.
In 2019, the Bank of England issued a statement that claimed: “existing (money laundering) risks may be amplified if governance controls do not keep pace with current advancements in technological innovation.”
I know from my time working as a senior compliance technology officer that many traditional AML systems are inefficient, slow and labour intensive, and often lead to inaccurate outcomes. In fact, most of the systems pre-date the iPhone, so they are using last-generation technology and techniques to detect criminal activity.
In short, legacy AML systems are not fit-for-purpose. Legacy vendors built them for the box-checking world of the past, and they are focused on one suspicious transaction at a time – rather than looking at ‘bad actors’ in the financial system, and patterns in their behaviour.
As launderers constantly evolve their techniques to circumvent rule-based or simple statistical detection, the AML systems market has not kept up. There is a dire need for innovation.
Unless systems are updated, banks can continue to file suspicious activity reports (SAR), but if bad actors can conduct their business ‘as usual’ and shuffle money around the globe to hide its malicious origin, the effectiveness of a SAR is significantly diminished.
What’s the solution?
I believe we need to rethink our entire approach to AML. We need to empower compliance departments with better controls and oversight, and move away from outdated, traditionally rule-based systems and towards a modern, AI-enabled, behavioural approach.
While the bad guys have learnt how to evade rule-based systems, they find it extremely difficult to get around AI algorithms that search for anomalies in behaviour. The advancement of AI algorithms, especially in the field of deep learning, provide an opportunity for banks to detect more complex and evasive money laundering networks.
So the answer is to establish continuous automated risk monitoring and implement a workflow system that provides money laundering risk scores for customers.
The latest AI software could kickstart a new age of customer AML risk-based overview. Instead of relying on static and self-reported KYC data, AI systems can analyse behaviour over a period of time and compare it with peer-groups and past actions. It provides compliance teams with a continuous risk-rating of their customers, actor insights and summaries to facilitate efficient and thorough investigations, and an organizational-wide overview.
Recent advancements in AI have not only made the above possible, but also practical. Our latest Human AI models contextualize and explain the appropriate data, making it easier for banks to spot sophisticated crime.
By looking at AML not simply as a box-ticking exercise, but as a competitive advantage that can increase customers’ trust in their financial institutions, banks have a lot to gain. Moving towards behaviour-based AML systems is a move towards making money good.
Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild
- 23% of UK’s top performing businesses have been supported by local enterprise partnerships and growth hubs
- Similarly, 30% of Britain’s strongest businesses have obtained external finance in the last 3 years
- New findings come as part of an independent, holistic study into small business success, commissioned by Allica Bank to support British businesses
A new study, commissioned by business bank, Allica Bank, shows that a high level of engagement and interaction with external institutions and resources, is central to SMEs’ prospects of success.
The study analysed data from over 1,000 companies and ranked their success on a scale that evaluated factors including productivity, growth, consistency and outlook. To measure SMEs’ external engagement, survey respondents were asked whether or not they had engaged with local enterprise partnerships, growth hubs, or external financial advisers, as well as whether they had obtained credit or sought re-financing advice, in the last three years.
The benefit to small businesses in making the most of external resources are clear to see, with a quarter (23%) of the UK’s top performing SMEs – those in the top tenth percentile – actively engaging their local enterprise partnership or growth hub in the last three years. This compares to just 16% of all other small businesses. With such a clear benefit to businesses, these external networks must not only be protected but prioritised by any Government plans to rebuild the economy post-COVID.
Similarly, of the top performing SMEs in the country, 30% have obtained external credit in the past three years, compared to less than a quarter (24%) of all other businesses. This figure drops even further for the weakest performing businesses – those in the ninetieth percentile – where just 12% of businesses have obtained external financial support in recent years.
Chris Weller, Chief Commercial Officer, Allica Bank, said:
“At Allica Bank we understand that no two businesses are the same. We also know that no-one knows a business as well as its owners and managers. But they can’t be expected to be experts on everything.
“In the UK there is a wealth of external advice and support for small businesses and we urge each and every business out there to tap in to the external resources around them. Third-parties, such as business clubs, chambers of commerce, local enterprise partnerships and trade bodies, can be invaluable sources of advice and further resources. And although they have excelled in their given field, business owners may still lack knowledge in many other areas of running and growing a business. Therefore, engaging with third parties can give business owners the kinds of insight – and fresh perspectives – they need to succeed.
“As the economy and the country comes to terms with the impact of the COVID-19 pandemic, it is important these vital SME resources are protected and given the funding they need to continue providing invaluable insight and support to small businesses up and down the country.”
Allica Bank’s SME Guide to Success identified six ‘rules to success’ that were more likely to be displayed by top-performing SMEs compared to their counterparts. The full report contains a wealth of additional data and insight into each of these topics.
As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.
Mastercard Delivers Greater Transparency in Digital Banking Applications
Mastercard collaborates with merchants and financial institutions to include logos in digital banking applications Research shows that ~25% of disputes...
Success beyond voice: Contact centres supporting retail shift online
As the nation continues to overcome the challenges presented by COVID-19, customers have shifted their channel preferences, and contact centres have demonstrated...
7 Ways to Grow a Profitable Hospitality Business
Hospitality requires charisma and innovation The hospitality industry is a multibillion-dollar industry with lots of career opportunities in hotels, theme...
AML and the FINCEN files: Do banks have the tools to do enough?
By Gudmundur Kristjansson, CEO of Lucinity and former compliance technology officer Says AML systems are outdated and compliance teams need better...
Finding and following your website’s ‘North Star Metric’
By Andy Woods, Design Director of Rouge Media The ‘North Star Metric’ (NSM) is one of many seemingly confusing terms...
Taking control of compliance: how FS institutions can keep up with the ever-changing regulatory landscape
By Charles Southwood, Regional VP – Northern Europe and MEA at Denodo The wide-spread digital transformation that has swept the financial...
Risk assessment: How to plan and execute a security audit as a small business
By Izzy Schulman, Director at Keys 4 U Despite the current global coronavirus pandemic and the uncertainty it has placed...
Buying enterprise professional services: Five considerations for business leaders in turbulent times
By James Sandoval, Founder and CEO, MeasureMatch The platformization of professional services provides businesses with direct, seamless access to the skills...
Wireless Connectivity Lights the Path to Bank Branch Innovation
By Graham Brooks, Strategic Account Director, Cradlepoint EMEA As consumers cautiously return to the UK high street in the past...
Financial Regulations: How do they impact your cloud strategy?
By Michael Chalmers, MD EMEA at Contino How exactly do financial regulations affect your cloud strategy? It’s a question many of...