Thredd SVP Says FinTechs Need a Gut Check as They Safeguard Money Movement  

As the regulatory gaze sharpens on FinTechs, the companies themselves are mindful that they need new tools and a new approach to operations, in order to stay on the right side of the regulators.

“The cost of fraud is high,” Ryan Dew, SVP, Product Solutions for Thredd, noted to PYMNTS in a recent interview, adding that FinTechs are already tasked with defending their business models as they strive to achieve profitability.

The so-called hot button issues right now revolve around know your customer (KYC) and know your business (KYB), said Dew, who added that knowing who’s on the other side of a transaction is critical. Sponsors in financial services want to know as much as possible about the FinTechs with which they are doing business, and need to know that the FinTechs themselves are proving adept at detecting and reporting fraud.

But amid the risks of attacks, “It’s becoming much harder for them to gain sponsorship and support from the wider ecosystem — especially from a regulatory standpoint,” Dew said.

It’s more important than ever, he said, that FinTechs demonstrate their value proposition and assure investors and partners that they are meeting their regulatory obligations, from a transaction processing standpoint all the way through to back office support for chargebacks and disputes.

“If these FinTechs are not taking the right steps now, and upfront, as they craft their business models, it’s really going to hurt them more so now than ever in the past,” Dew said.

Read more: Thredd CEO Counts on Regulators to Address Vulnerabilities of Banking as a Service

Historically, the task of meeting regulatory requirements would fall, depending on the FinTech use case, on program managers. But now, with a mix of stakeholders and complex interactions between those stakeholders, processors such as Thredd and issuer sponsors are “now being held accountable in many ways” for the FinTech businesses and use cases, and must help ensure compliance.

Several Stakeholders

“Everyone has a stake in this game,” Dew said.

The burden is especially high on the FinTechs that might have limited resources to staff up their compliance and regulatory functions, and fraud, as Dew noted, is constantly changing.

From his own vantage point at Thredd, Dew said that several FinTech clients in the push payment or cross-border money movement spaces are seeing fraud proliferate in those use cases — especially in real-time and account-to-account settings, as open banking takes shape here and abroad.

“Many of the FinTechs are struggling to keep pace with and choose the right tools to monitor those types of transactions that fall outside of the norm of what they traditionally have dealt with on the ‘card side’ of their businesses,” Dew said.

Security is not just about validating customer accounts, he added, with a nod to open banking, but about giving customers a regulated and standardized way to transport their money and data as they deem necessary.

Thredd, he said, looks across the transaction lifecycle, spanning KYC and ID verification, with learning models that are embedded in the processes and change as the transactions (and fraud vectors) change too. The company also offers client firms scam detection services for push payments, disputes and chargeback fraud. 

“We see a lot of data, a lot of transactions and various anomalies across all of our portfolio of companies, and we play that back to our customers and help them stitch together solutions that leverage the fact that there are similarities in the ways FinTechs are being attacked,” he said.

We’re headed towards an environment, he said, where FinTechs, formerly competitors, will collaborate to ensure safe data and money transmission, even as there’s some consolidation in the works.

As he told PYMNTS, “Open banking is here to stay, and the types of products and services that will rely on open banking standards will continue to grow. … Fraud and compliance are going to be things that every provider in the space is going to have to take seriously.”