Matilda Kloiber/ August 14, 2019/ Uncategorized

Financial crime is still an omnipresent topic for many companies. Sophisticated systems using artificial intelligence and machine learning are already in place to support the prevention of money laundering. However, the increasing popularity of so-called direct banks poses a new challenge for compliance officers. Headlines about money laundering scandals at Fintechs are heating up. Are the existing systems overwhelmed by the digitization of the financial sector?

A direct bank specializes in account management via smartphones. Instead of a cashier, a checking account is offered, which can be completely operated by an app. This affects the way of online banking. Due to the almost complete digitization, branches are unnecessary. Costs are reduced, as hardly any rent must be paid and fewer employees are needed. Therefore, accounts at the so-called smartphone banks are free for customers. Even interests on credit accounts are offered frequently. So, consumers no longer need savings accounts. Another special feature is that money can be sent in real time via ‘Money Beam’ if sender and recipient are both customers of the same bank. This seems to be very well received, especially among the younger population. Start-ups may count over 2.5 million customers.

Despite the great success, online banks are heavily criticized. With identity theft fraudsters have opened hundreds of accounts at mobile banks to collect payments from counterfeit online stores.

The Federal Financial Supervisory Authority BaFin had already warned of the scam, which only became possible with the Video Identification. To open an account, customers are identified in a video chat and don’t need to visit a bank. Scammers tricking consumers to participate in video-identification processes to release their personal information. They are often lured by fake job offers or as presumed testers for the Video Identification. The information is then used to open real accounts.

But how can this happen? This is mostly due to the lack of monitoring of suspicious transactions and incomplete risk management. Up to date AML (Anti Money Laundering) and KYC (Know Your Customer) systems are necessary to effectively prevent and fight financial crime, especially for digital banks. Otherwise, criminals have an easy time to use accounts for money laundering over a longer period. The Financial Action Task Force (FATF) rates online banking as a particularly attractive platform for criminals. Accounts can be opened without direct face-to-face contact. Actually, transactions are not the main problem, but three features of the internet: it can be accessed anytime, anywhere; It executes transactions with incredible speed and anonymity, which makes it very difficult to locate contacts between customers and institutions.


Read more about banking with your phone in our blog: P2P Payments Are Booming – How To Use Them Safely

Photo by Pierre Amerlynck from FreeImages