It will be no great revelation to hear that with any payment system there is a risk of financial crime – from money laundering and fraud to internal abuse of company cards.
For an innovator looking to embed financial systems in a product or business, it’s a complex and sometimes insurmountable problem. It’s not just that you need to spin many plates to protect yourself. It’s that the plates each weigh a metric tonne, and the cost of broken crockery doesn’t bear thinking about.
The risk of financial tools
Financial crime that can seriously harm businesses is happening every day in a multitude of different ways. And it can be difficult for innovators to stay ahead of the latest scam.
Anyone who’s refilled their tank recently will know that paying at the pump is becoming the norm at petrol stations. Card transactions have a pre-authorisation feature that takes a pound from the purchasing card first to ensure there is money on the card to pay for the petrol.
When this system was first implemented, hordes of people armed with cards that only had one pound on them took to petrol stations, got pre-authorisation on their card, and then filled up cars and jerry cans with petrol without paying.
In response to this, many e-money providers have blocked the MCC code for pay at pump which restricted users from purchasing fuel – this was obviously a poor customer experience so now many have already increased the pre-auth to £100.
Any tool that has a potential for financial spending needs to have some sort of controls in place – whether it’s a paypoint, an online portal, or a company benefits card. Otherwise, even if you have the best intentions, the worst can still slip through your system.
Companies folding twofold
The less diligent a company is financially, the more susceptible it is to money laundering – leaving you liable to hefty fines and leaving criminals with money that can fund illicit activity. As a startup – or indeed an innovator at any stage of your company’s journey – this is a major setback you can’t afford.
Organised crime groups launder money through the easiest systems they can, so you need to ensure you have appropriate controls in place, while ensuring the controls aren’t so stringent that they impede legitimate use of your system.
In one sense stopping fraud is easy, you just need to stop taking payments. But this isn’t a real option, so what can innovators do instead? How can a business mitigate financial crime while still turning a profit?
Putting protections in place
To stand a chance, you need a robust system. But building or accessing such a system is one hell of an obstacle course. One that asks you to run longer and jump higher than many innovators are able to, at least not without shedding an exorbitant amount of their funding.
An option available to innovators who want to take payments and implement financial controls is to get an e-money license. But this takes huge amounts of time, effort and money that could be better spent focussing on growing your business.
Alternatively, you could become an agent and operate under someone else’s license. But even then, the bar to pass to become an agent is exceptionally high. For a start, you need to keep a reserve of funds that matches the money moving through your system pound for pound so that your customers have a parachute if anything goes amiss.
And that’s only the first hurdle, you also need to become PCI DSS (Payment and Card Industry Digital Security Standards) level one compliant – which in itself is an extremely arduous and long process. You’d need to employ a compliance team, invest much of your resources, and by the time you finally get set up, the market may have moved on and your business’s window of opportunity could be lost.
It’s what you know and who you know
But the obstacles don’t stop there. Any company that wants to bank their customers needs to undergo rigorous KYC (Know Your Customer) and KYB (Know Your Business) checks.
It’s the equivalent of taking a utility bill to the bank to prove identification. Except in this case, the bills aren’t yours and you might not know how to find the people who have them.
Financial institutions have reams of names to check against PEPs (politically exposed people) and sanctions lists – and false positives are extremely common. As an innovator, having to check these lists yourself to ensure you are screening the correct “John Smith” can be immensely laborious.
Making light work of heavy lifting
It’s not difficult to see why so many innovators feel like giving up. Many end up settling for systems that give them little control and do not serve their original vision. But there is an alternative.
Weavr cuts through the painful red tape that has emerged in this industry. PCI DSS compliance is stitched into our system, meaning you’re already covered and can focus your valuable time and money elsewhere. We also have our own service providers on hand to carry out KYB and KYC checks for you and take any associated liabilities off your hands.
Our system takes on this back-breaking task without breaking your bank. We take the risk and responsibility of compliance away from you, while giving you complete control of your own system. This leaves you to do what you do best – innovate.
To further understand how Weavr can help you navigate the minefield of financial crime without compromising innovation, keep your eyes peeled for our followup article: Why compliance and innovation shouldn’t be enemies.
Interested in becoming a financially integrated digital business? When it comes to true white-labelled solutions, Weavr makes the process easier, more affordable and faster than any other embedded finance provider. Get in touch with us to discover just how quickly you could be generating revenue and going to market.