Know-your-customer and anti-money-laundering’s future in a fintech world

Digital technologies such as cloud computing and AI have enabled the development of innovative fintech services. Using apps like Venmo and PayPal, transferring funds without a teller, and covering a restaurant tab via a digital wallet are all conveniences consumers have come to value — and demand. Business clients also see fintech products as beneficial to their financial operations, particularly access to fast and simple digital transaction systems.

Financial institutions establish internal fintech operations by acquiring startups or developing incubators and teams. For instance, Fifth Third Bank offers Newline, an application programming interface (API) platform that allows its business clients to create their own payment, card, and deposit products.

Another example is U.S. Bancorp’s Elavon Payment Gateway, a cloud-based merchant transaction platform that integrates with digital wallets to enable capabilities such as currency conversion. Many larger institutions have banded together to develop and market online payment systems like Zelle and Paze, while smaller banks are partnering with outside vendors that create fintech services for these banks’ customers.

This combined internal and external focus reflects a trend of traditional financial institutions embracing fintech innovation to create smoother customer experiences and boost operational efficiency.

But these benefits also introduce vulnerabilities that financial criminals can exploit:

• Increased attack surfaces for cyber-criminal activity. Online banking, mobile payments, and other fintech platforms are opportunities for phishing and scams. Both fintechs and their customers can become victims.
• Reduced time spent on proper due diligence. Fintech is about speed — getting customers signed up and using the technology. But this can cause fintechs to be less vigilant about verifying identities. That puts them in danger of noncompliance with KYC and AML regulations — and vulnerable to criminal activity.
• Complicated cross-border transactions. Fast international transactions represent a fintech application that many customers find attractive. However, fintechs may find enabling cross-border transactions difficult, largely because of differences in regulations and enforcement between jurisdictions.

These vulnerabilities require real-time, adaptive solutions that allow fintechs to stay ahead of financial criminals. What do these solutions look like? How can they help fintechs remain competitive, now and in the future?

Traditional KYC and AML processes use the manual KYC checklist and are often painstaking. This approach relies heavily on static data and manual review for customer identity verification, customer due diligence, and risk assessment. Such a time-consuming method puts organizations at a competitive disadvantage, as neither fintechs nor their customers want delays. Furthermore, the largely manual nature of these checklist processes increases the risk of compliance teams missing crucial customer details.

To protect themselves and their customer bases from financial crime, fintechs must move away from checklists. Instead, they need thorough and dependable digital solutions that can:

• Access deep, structured data for identity verification
• Resolve synthetic or layered identities by accessing and connecting multiple data points
• Conduct ongoing customer risk assessment beyond the onboarding period

To remain competitive and meet regulatory expectations, fintechs must implement more reliable, rea-time identity intelligence. They must utilize modern systems that enable thorough analysis of information and manage potential risk. By using tools designed for investigative depth, fintechs can uncover fraud patterns and risk relationships that might otherwise go undetected.

One such platform is Thomson Reuters CLEAR, an online investigative software that allows users to conduct PII validation, assess and monitor risk, screen for adverse media and sanctions, and conduct thorough enhanced due diligence through a vast collection of public and proprietary records. The platform has access to premium data sources and advanced capabilities, allowing compliance teams to conduct efficient and comprehensive searches of information related to account applicants.

CLEAR detects and addresses any information gaps early in the customer journey, helping reduce onboarding risk and maintain the organization’s good standing with federal KYC and AML regulations.

Minimizing friction is a key selling point of fintech services. It’s also a source of vulnerability. Financial criminals constantly seek ways to take advantage of transaction gaps and oversight. These strategies include:

• Setting up complex networks of individuals and shell entities
• Using digital platforms to move money instantly and invisibly
• Exploiting regulatory differences across national boundaries and jurisdictions

Fintechs need to be certain that account applicants are who they say they are. As criminals become more sophisticated, so must compliance programs.

CLEAR compares the data points entered against credit header, phone, vehicle sources, and other records to help validate identities — whether for an individual or a business. Thomson Reuters Risk & Fraud Solutions also provides capabilities to scan the front and back of thousands of document types, including passports and driver’s licenses from more than 190 countries. It can highlight key risk factors such as multiple Social Security numbers and inclusion on the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctions list. Additionally, CLEAR monitors global media sources for any negative coverage regarding an institution’s customers — reports that may require a fintech’s scrutiny.

In-depth identity verification and personally identifiable information (PII) validation can turn onboarding into a chore for either fintech or customers. Various studies have demonstrated that as many as 25% of financial services customers don’t complete online onboarding because they find the process confusing, complicated, and time-consuming.

By combining speed and thoroughness, digital solutions allow fintech compliance teams to conduct investigations that reveal possible threats without bogging down customers’ online experience. To understand the advantages of an intelligence approach to investigations, let’s take a closer look at two particularly problematic red flags.

Hidden affiliations

Fraud involving hidden affiliations can take various forms, including insider fraud, money laundering, and scams where fraudsters pose as bank employees or other trusted figures. These schemes often involve using false documents, diverting assets, or submitting loan application information.

Behavioral changes

These changes may include deviations from a customer’s regular usage patterns. For instance, the sudden appearance of unusual transaction amounts or the use of IP addresses not typically associated with past account logins.

Strategies like these are intentionally not obvious, making them difficult to detect. Traditional investigative methods are not only time-consuming and error-prone but require staffers to dig through unconnected databases to find crucial information. To pursue an intelligence strategy, fintech investigative staff need:

• Real-time access to comprehensive identity and business data
• Link analyses that uncover intentionally hidden relationships and asset trails
• Seamless workflow integrations that keep them focused and efficient

These capabilities support faster, more informed decision-making — essential in an environment where reaction times can mean the difference between prevention and loss. To address these competitive needs, CLEAR’s investigative platform provides investigative depth-linking assets that bring together information about people, businesses, assets, affiliations, and other vital content into a single, user-friendly platform. This consolidation helps fintech compliance teams quickly identify concerns and connections to determine if further analysis is needed.

Oversight shouldn’t end once the account is opened. Fintechs need to keep tabs on customers, particularly those considered high-risk, to identify anomalous activities or new information requiring investigation. If investigation is needed, compliance teams must act quickly — before a potential problem explodes into a full-blown crisis. CLEAR’s Alert Center tool constantly monitors public and proprietary databases. It then immediately informs fintech staff whenever new addresses, phone numbers, death records, assets, financial filings, or adverse media are linked to a customer. Investigators can promptly investigate these changes and determine whether they point to criminal risk.

To see how Thomson Reuters CLEAR can mitigate the risk of financial fraud, consider the experience of Ventura County Credit Union (VCCU). For more than 75 years, VCCU has provided individuals and businesses in its Southern California community with checking and savings accounts, mortgages, credit cards, business accounts, commercial loans, and other financial services. Since its mission is to look after the economic well-being of its members, it needs to be vigilant against all types of fraud. That mandate includes protecting its members from becoming victims of fraud themselves.

As any financial institution knows, implementing a robust fraud prevention program comes with numerous daunting challenges. In VCCU’s case, those have included identifying and stopping money mules — individuals who transfer illegally obtained funds on behalf of criminals. It also battled against the proliferation of synthetic identities, where fraudsters create fictitious IDs to open accounts for perpetrating money laundering and other financial crimes.

Until recently, VCCU’s approach combined technology solutions, search engines, and county and state government databases. With KYC and AML requirements becoming increasingly stringent, the credit union realized it needed deeper intel regarding potential and current account holders. However, the data it could access was often limited, partially because the various data sources couldn’t “talk” to each other. That lack of communication made it harder to identify patterns and connections signaling fraud.

Then VCCU discovered Thomson Reuters Risk & Fraud Solutions. Using this digital toolbox, which combines several fraud prevention capabilities — including CLEAR — onto a single platform, compliance staffers can rapidly and rigorously ascertain all pertinent information regarding an account applicant. They also can uncover mismatches or recent changes in information related to that applicant. This identification helps them stop money mules and bad actors using synthetic identities before they entangle the credit union in money laundering or other criminal activity.

The platform’s speed in handling these tasks allows VCCU to onboard legitimate customers and approve loans to real people with little or no delay — while still protecting itself and its membership from criminal risk. This fintech-like onboarding speed also helps keep VCCU competitive in its marketplace.

KYC and AML focus on protecting your platform, customers, and institution’s future, not just meeting regulatory obligations. Top fintechs over the next decade will address customer needs and potential criminal threats early, intelligently, and at scale.

Fintechs and their financial institution partners are investing in smart, embedded compliance capabilities like CLEAR, which exceed simple box-checking. These fintechs build resilience for their organizations, customers, and partners by proactively preventing fraud and earning regulatory trust. By doing so, they position themselves to thrive and innovate in a competitive, scrutinized industry.

Discover the power of CLEAR and its advanced compliance capabilities and see how they can transform your organization’s strategy.

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