Source: Finance Derivative

Becky Willan, CEO and Co-Founder of Given

The Challenge

Banks and businesses in the financial services industry are coming under greater scrutiny for not only how they invest their money but, increasingly, who they invest it with.

In June, Barclays came under attack – quite literally, with 20 branches vandalised across the UK – over accusations of links to defence companies supplying Israel. This led to the suspension of their sponsorship of all Live Nation music festivals, and prompted the bank’s chief executive, CS Venkatakrishnan, to write an opinion piece in the Guardian about what he called “a ​​campaign of disinformation against Barclays”.

Lloyds Banking Group is another high profile example after its AGM was disrupted by pro-Palestinian and climate activists in May. Two years ago the bank committed to end direct funding of new oil and gas exploration projects, but for some this does not go far enough, with the protesters demanding Lloyds divest from all fossil fuel and arms companies.

This comes amid growing concerns about the lack of sufficient capital to fund the transition from “grey to green”. As we have seen, financing projects from oil and gas companies, even if there’s a clear decarbonisation agenda, now comes with increasing reputational risk for banks. And yet we can’t achieve a low carbon economy without system-wide transformation.

The banking industry operates in a challenging space when it comes to navigating purpose, but do these institutions deserve the level of criticism we’re seeing in the media?

What we do know is that businesses operating in the sector need to have more clarity and focus around what their purpose is.

Our recent Purpose Gap Report revealed that over a quarter of respondents in the financial services industry (26%) are actively thinking about leaving their current job role due to their company’s failure to deliver on corporate purpose promises. This compares to a 13% average across all sectors looked at in the report. At twice the rate of dissatisfied employees, financial services appears to be lagging behind other industries.

Additionally, over half (56%) of consumers say it is important to them that their bank acts sustainably and/or ethically. It is therefore essential for businesses in the financial services industry to consider carefully their purpose and corporate values and ensure they align with the causes their stakeholders are passionate about.

Making this change, while important to the longevity of the institution, can be complicated to implement and investment decisions are not always clear-cut.

According to the same report, additional blockers cited by those in finance wishing to make positive change were among the following:

• It is too costly
• There is a lack of understanding across the business around potential positive impact
• It is not a business priority
• There is an overall lack of commitment from leadership
• There is a lack of integration of purpose within employees’ roles

A year on from the fallout of the Coutts / Nigel Farage scandal, which saw Dame Alison Rose step down from her position as NatWest’s chief executive, some are fearful of the risks associated with moving away from business as usual.

Widely reported at the time was Coutt’s internal memo that the Reform UK MP’s views were “at odds with our position as an inclusive organisation.” Whether this was about principles, or politics, the scandal brought purpose into the spotlight.

Missteps can happen in any walk of business, but we need to remember that purpose is about good business and strategic focus, not taking a moral high ground.

Adopting a purpose-driven business approach is also not in lieu of profitability – indeed it is essential. Profit without purpose is meaningless and purpose without profit is unsustainable.

The significance of profitability with purpose

The business case for purpose is now truly evident. Financial services organisations that contribute positively to a sustainable and inclusive future are simultaneously driving their own success.

A report by Deloitte last year found that most consumers agreed that a business’s commitment to sustainability affects their level of trust in the company. The study also suggests around a quarter of shoppers are willing to pay more for products that are more sustainable or committed to more ethical practices.

With investors, customers, and wider society increasingly demanding ethical, sustainable and positive actions from businesses, purpose-driven companies not only attract a wider, more impact-conscious group of stakeholders, but also see improved performance and greater resilience.

An Interbrand study found that purposeful brands, set on improving our quality of life, outperform the stock market by 120%.

Additionally, purpose-led brands attract and retain the best and most passionate employees, with EY reporting 84% of staff found it important to work for an organisation that positively impacts society.

A better way to bank

Nationwide is an example of a financial services model flourishing while helping change the world for the better. The building society has experienced year-on-year growth in the number of current accounts held since 2011, with a market share of 10.4% last year.

Boasting over 17 million customers, and a balance sheet of £272 billion, the institution celebrated its £2 billion profits earlier this year by offering a £100 profit share to each of its members under the Fairer Share initiative.

Additionally, the institution also donates 1% of pre-tax profits to charity, as part of its Fairer Futures initiative – a project developed alongside us at Given.

Led by its social purpose, Nationwide donates to partners working to combat homelessness; families living in poverty; and those suffering with dementia. Last year alone, charitable donations came to £15.5 million.

Asking the right questions

In the highly regulated financial services sector, boards of directors play a critical role in ensuring compliance with environmental, social, and governance (ESG) standards.

This extends beyond simple financial oversight to include the integration of ESG principles into the company’s goals and risk management frameworks, along with promoting ethical conduct and sustainability practices.

Board members will not find their questions answered by an aspirational turn of phrase about an organisation’s role in the world. Instead, purpose must be understood as a complete management strategy that is embedded into every part of an organisation. The right questions go beyond the ‘why’ to consider the ‘what’ and the ‘how’ too.

Businesses must create a space for learning, reflection and the idea that they can do better. Most boards regularly evaluate their effectiveness in governing a business. Not many look at this through the lens of purpose.

An annual “purpose stock-take” could ultimately be a valuable exercise ensuring that purpose really is embedded into the company culture and governance structure. It could involve asking the following five big questions:

• Are we satisfied with how much of our balance sheet is aligned with our purpose today?
• What are the biggest opportunities our purpose could unlock for our business?
• Would our different stakeholders recognise our purpose as more than simply words on a page?
• Are we clear on our “red lines” – the purpose promises we won’t break in pursuit of profit?
• When was the last time we challenged a decision on the grounds of our purpose?

Final Thoughts

Financial institutions are now being scrutinised more than ever, but there is more than just reputational risk at stake. There is one final question those in the sector should ask themselves: what risks are we exposed to by not clearly defining and living our purpose?

The repercussions here could be incredibly damaging to the overall health of a business: falling foul of regulation; reduced employee morale and productivity; lack of consumer and investor trust; lack of long-term growth and resilience.

This can be avoided if businesses take the time to define and embed their purpose and values, using them as a management approach to profitably solve problems of people and the planet.

Adopting a purpose-driven approach is a strategy that may seem daunting at first, but asking the right questions and implementing an open and collaborative approach is a step in the right direction.

Source: Finance Derivative

By Barley Laing, the UK Managing Director at Melissa

According to Nasdaq’s 2024 Global Financial Crime Report $3.1 trillion of illicit funds flowed through the global financial system in 2023.

As a result, it’s not surprising that most in financial services are investing heavily in advanced ID verification technology to protect themselves from fraud and meet Know Your Customer (KYC) and Anti-Money Laundering (AML) regulatory standards.

However, to bolster their ID verification efforts they need to do more, and the best way is by improving customer contact data quality from the outset.

Why is contact data quality so important?

From our experience the quality of contact data is key to the effectiveness of ID processes, influencing everything from end-to-end fraud prevention to delivering simple ID checks; meaning more advanced and costly techniques, like biometrics and liveness authentication, may not be necessary.

When a customer’s contact information, such as name, address, email and phone number are accurate the verification process becomes more reliable. With this data ID verification technology can confidently cross-reference the provided information against official databases or other authoritative sources without discrepancies that could lead to false positives or negatives.

A big issue is that fraudsters often exploit inaccuracies in contact data to create false identities and manipulate existing ones. By maintaining clean and accurate contact data ID verification systems can more effectively detect suspicious activity and prevent fraud. For example, discrepancies in a user’s phone or email, or an address linked to multiple identities, could serve as a red flag for additional scrutiny. This basic capability is more important than ever as identity fraud becomes increasingly sophisticated.

Address verification is the foundation of contact data quality

Address verification – having a consistently accurate, standardised address – is usually recognised as the cornerstone of contact data quality. Once you have access to up-to-date customer addresses it makes it much easier to match and verify identities across multiple sources.

Therefore, verifying the accuracy and legitimacy of an individual’s address should be the first step in any identity related process, with any discrepancies between a claimed address and official records highlighting a potential fraudster.

By catching these inconsistencies early ID verification technology can help mitigate risks, ensuring only legitimate users are granted access to services, protecting both their business and customers from fraud. 

Address verification also plays an important role in regulatory compliance, by ensuring that the address information provided meets KYC and AML regulatory standards.

Phone and email verification

As I’ve already touched on it’s not all about having an accurate address, the role of phone and email verification is also vital as part of a comprehensive ID verification process, and therefore in preventing fraud. Particularly when it comes to helping organisations to identify and mitigate possible fraudulent activity early on. Verifying all three contact channels together contributes to enhanced security by filtering out fake or high-risk contact information, improving the accuracy of the ID verification process.

Email verification involves analysing various factors such as the age and history of the email address, the domain and syntax, and whether the email is temporary. After all, new and poorly formatted email addresses are often tell-tale signs of fraudsters. Furthermore, the association of a single email with multiple accounts could highlight criminal activity. It’s only by checking if an email address exists and works, then examining those elements I’ve already mentioned, that organisations can identify possible high-risk indicators.

Phone verification is equally important in fraud detection. By verifying the type and carrier of the phone number, organisations can identify high risk numbers, such as those associated with VoIP services, which are commonly used in fraudulent activities.

Checking the validity, activity and geolocation of a phone number also ensures it’s not only functional, but consistent with the user’s claimed location. And like with email, a single phone number linked to multiple accounts can indicate fraudulent behaviour. 

Deliver contact data accuracy with autocomplete / lookup tools  

The best way to obtain accurate customer contact data is to use autocomplete or lookup services.

With an address autocomplete tool it’s possible to deliver accurate address data in real-time by providing a properly formatted, correct address at the onboarding stage, when the user starts to input theirs. Tools such as these are very important because around 20 per cent of addresses entered online contain errors; these include spelling mistakes, wrong house numbers, and incorrect postcodes, as well as incorrect email addresses and phone numbers, typically due to errors when typing contact information. Another benefit of the service is the number of keystrokes required when entering an address is cut by up to 81 per cent. This speeds up the onboarding process and improves the whole experience.

Similar technology can be used to deliver first point of contact verification across email and phone, so these important contact datasets can also be verified in real-time.

In summary

The success of ID verification technology, and therefore fraud prevention, hinges on the accuracy and quality of customer contact data. Having such data not only enhances fraud detection, but improves the user experience and operational efficiency. Financial institutions must make sure that data verification tools are used across address, email and phone, alongside their ID verification technology.

by Nada Ali Redha, Founder of PLIM Finance

Artificial Intelligence (AI) has transformed countless industries, and fintech is no exception. The evolution of AI technology is revolutionising how financial services operate, particularly in the Buy Now, Pay Later (BNPL) space. As the Founder and CEO of PLIM Finance—a BNPL service that specialises in the medical aesthetics industry—I have witnessed firsthand how AI can be leveraged to enhance both user experience and operational efficiency.

In the BNPL sector, AI and machine learning are essential tools for understanding and predicting consumer behaviour. BNPL providers often face the high-risk challenge of defaults, where consumers fail to make their scheduled payments. This is a critical issue for any BNPL provider, as defaults can impact the company’s profitability and reputation.

At PLIM Finance, we use AI-driven tools to manage defaults and failed payments. The power of AI in this context lies in its ability to learn from historical data and predict payment failures with remarkable accuracy. By analysing patterns in consumer spending, repayment behaviours, and other relevant factors, AI systems can forecast which payments are most likely to default. This predictive capability allows us to take proactive measures to manage and reduce defaults, safeguarding both our customers’ financial health and our own.

While we do not currently use AI to assess creditworthiness at PLIM Finance, AI’s potential in real-time risk assessment is unquestionable. Traditional credit assessment methods rely on static data, such as credit scores and income statements, which may not always reflect a consumer’s current financial situation. AI, however, can offer a more dynamic and holistic approach.

AI-driven systems can continuously analyse a variety of data sources, including transaction histories, spending patterns, and even social behaviours, to build a more comprehensive risk profile for each customer. This enables BNPL providers to make more informed lending decisions, tailoring financing options that align with each user’s ability to repay. Although PLIM has yet to implement AI in creditworthiness assessment, we recognise its potential to improve decision-making processes over traditional methods.

AI has a crucial role in combating fraud within the financial services sector, including BNPL platforms. Fraud detection is a multi-faceted challenge that requires constant vigilance and real-time analysis. AI is uniquely equipped to tackle this problem due to its capacity for processing vast amounts of data quickly and identifying suspicious patterns or anomalies that could indicate fraudulent activity.

At PLIM Finance, we leverage AI’s ability to apply collective data learning to make real-time decisions, thus reducing the likelihood of fraudulent activities going unnoticed. For instance, AI can detect unusual spending patterns or behaviours that deviate from a user’s normal financial activity, triggering alerts for further investigation. This proactive approach has proven to be highly effective in minimising financial losses and ensuring a safer environment for our users.

One of the most impactful benefits of AI in the BNPL space is the enhancement of customer engagement and satisfaction. AI allows companies to offer personalised, tailor-made services that resonate with each consumer’s specific needs. In the context of PLIM Finance, AI helps us recommend financing options based on individual preferences and past behaviours, streamlining the user’s journey.

Higher customer satisfaction often translates into increased loyalty and trust in the brand. By utilising AI to provide relevant recommendations and support, we can meet our customers where they are in their financial journey, helping them make informed decisions. This, in turn, creates a positive user experience that distinguishes our services from those of traditional lending institutions.

Despite its numerous benefits, implementing AI in BNPL services is not without challenges, especially concerning data privacy, algorithmic fairness, and transparency. One of the primary concerns in any AI application is bias in the data. AI systems learn from historical data, which may not be entirely representative of the diverse range of consumers who use BNPL services. Until we can source data from a wide variety of demographic and socioeconomic backgrounds, there is a risk that AI-driven decisions could inadvertently favour certain groups over others.

Transparency in AI decision-making is another ethical consideration. Customers need to trust that their data is being used responsibly and that AI algorithms are making fair, unbiased lending decisions. To address these concerns, it is crucial to maintain transparency about how AI models are built, what data they use, and how decisions are made. Additionally, complying with data privacy regulations, such as the General Data Protection Regulation (GDPR) in Europe, is essential to protect consumer rights.

AI’s role in the BNPL industry will continue to evolve as technology advances and more data becomes available. At PLIM Finance, we are excited about the future possibilities that AI presents, from more accurate risk assessment to enhancing customer satisfaction. By continuously improving our AI-driven tools and addressing the ethical challenges associated with their use, we aim to create a more inclusive, secure, and user-friendly BNPL experience.

In conclusion, the impact of AI in the fintech industry, particularly in the BNPL space, is profound. It offers solutions to key challenges, including managing defaults, fraud detection, and customer engagement, all while providing an opportunity to enhance the overall user experience. However, as we embrace these technological advancements, it is equally important to navigate the ethical concerns thoughtfully, ensuring that AI serves as a tool for positive financial inclusion.