Today’s challenging climate has businesses prioritizing investments in systems deemed crucial for the long haul.
This, as research in PYMNTS’ 2023 “B2B Payments Fraud Tracker” found that 71% of businesses report needing additional digital fraud solutions.
“It’s time for FinTechs to kind of grow up,” SendFriend CEO and cofounder David Lighton said in a recent discussion with PYMNTS. “In a post-FTX environment with higher regulatory scrutiny, we need to get really serious about compliance if we want to make it.”
Those organizations that still rely on manual and reactive anti-fraud tools experience slower growth than those using proactive and automated solutions, per PYMNTS data.
“A lot of FinTechs outsource compliance to third-party vendors,” Lighton says, adding that in his view, this approach is similar to going on dialysis — it’s really risky. “You’re taking part of the central nervous system of your company and giving it to a third party to run your sanction screening, your transaction monitoring and anti-money-laundering (AML) solutions, and that is a massive vendor risk because you’re not getting an indemnity, you’re not getting a guarantee. And so if something goes wrong, you’re completely out of luck.”
In order to stand out relative to peers, Lighton’s company recently acquired compliance provider DigiPli in order to, as the CEO says, “get ahead of the curve on having proprietary tools for compliance automation.”
Lighton added that even late-stage FinTechs with great revenue stories often have compliance departments that are “just a disaster area.”
The move combines DigiPli’s anti-money laundering (AML) model with SendFriend’s cross-border payments solution for financial institutions (FIs) needing access to the U.S. market, among other synergies.
“We were looking at it very opportunistically, we knew we wanted to build this workflow anyway,” Lighton says. “FinTech and payment organizations basically have two paths — they can stay a regulated entity and be held responsible for what they do, or they can come out of the flow of funds and just act as a software or data processing product.”
For Lighton, adding DigiPli to SendFriend’s proprietary toolkit offered a way for the business to double down on being a regulated entity and give greater comfort to banks and other partner entities by updating its own infrastructure proactively.
“If you don’t have the bedrock of a really strict and airtight compliance program, don’t hold your breath to get good banks to work with you,” he says. “It’s important for us to become an integrated payment company that has RegTech solutions as part of our flow — I think it will really differentiate us in the longer term as part of the company’s DNA.”
Lighton recalls that SendFriend started its journey as a fully blockchain-enabled consumer company, but recently pivoted to B2B payment services to operationalize “very large” winnings from a grant competition held by the EU.
“We intend to redeploy the blockchain settlement within 2023, it’s in our roadmap,” he says. “It seems very clear that the on-chain settlement is the future for domestic and cross-border payments. If you could snap your fingers and have a distributed database to settle transactions in an immutable, compliant, instantaneous and zero-friction way — that’s great. But it’s still years away from the mainstream.”
There’s a lot of mud to walk through before getting to that future, Lighton adds.
“We need an environment where, one, you have responsible and innovative companies trying to honor the spirit of the rule; and where, two, we need the rule makers to make this stuff pretty clear. So I think the future is very bright for settling payments on-chain — but blockchain needs to have its ChatGPT moment first, where everyone starts to understand what it is, and what it’s capable of doing.”
As for what the SendFriend CEO is looking forward to most?
“Offering a FinTech solution to the traditional problems in correspondent banking,” Lighton says. He explains that many upstanding and detail-oriented organizations around the globe have become victims of the “de-risking trend,” leaving them unable to get access to U.S. dollars. “Our top priority is to provide U.S. dollar solutions to banks that have been a victim of de-risking and prove to the sponsoring banks that we can do this in a compliant way.”
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