Merchants Get Clarity Around Compliance As Global Payment Regulations Evolve

Compliance with financial regulations market-to-market around the globe is increasingly automated yet relies on the same human emotion that undergirds all forms of exchange: trust.

In other words, banks and financial institutions (FIs) have an obligation to make sure you are who you claim to be. Trust. And it’s gotten much more difficult as remote onboarding spikes and cybercrooks get their hands on the hottest tech underground evildoers have to offer.

PYMNTS’ November 2020 Merchants Guide To Navigating Global Payments Regulations done in collaboration with Ekata examines issues around security and compliance as open banking continues its push across oceans and over legal hurdles and toward eventual ubiquity.

“The open banking ecosystem has continued to grow and develop even as banks, FinTechs and merchants scramble to adjust to the challenges created by the ongoing COVID-19 pandemic,” the Guide states. “Many regulators are still determining what open banking looks like in their markets, debating data privacy and security standards and determining what entities have access to this information.”

The Guide adds, “It is critical for merchants to take note of these trends to compete, but they also must watch what open banking developments mean for the future of digital identity.”

Open Banking Lessons For The U.S.

For clues as to what open banking will look like in the U.S. once it’s going full bore, we look to the European Union (EU), and specifically to the United Kingdom with its advancing ecosystem.

“The ability to smoothly verify consumers’ digital identities is key to persuading them to use online open banking solutions, as too much friction may cause user abandonment,” per the Merchants Guide To Navigating Global Payments Regulations. “One recent survey, for example, showed that 32 percent of consumers in the U.K. will abandon banking apps if required to take action outside of the channel to complete the process, such as verifying their identities in a separate window or with a separate online tool.”

Just the right amount of friction, together with more accurate risk decisions using identity verification data, are keys to open banking’s secure future on this side of the pond.

Here again, trust is the heart of the matter. “The success of open banking hinges on consumers sharing their personal information with trusted sources, making it critical to stay on top of how individuals feel about data privacy,” the Guide states. “Open banking guidelines within the EU are well-established … yet one recent study claims that consumers in this region remain hesitant to share their data with third-party FinTechs. Only 20 percent of these consumers are willing to share sensitive financial in- formation with third parties, according to the study.”

‘Seeing’ Identity More Clearly With AI, ML

Consumer data protection is at the forefront of the open banking rollout, yet merchants need to be certain that the identity they’re dealing with isn’t a scammer setting up a crime.

Many FIs and merchants are turning to systems utilizing the latest advances in machine learning and artificial intelligence to thoroughly test the true identities behind transactions.

“Artificial intelligence (AI) and machine learning (ML) have long been employed for identification purposes, and both provide intriguing opportunities for merchants and their financial partners to speed up their processes,” the Guide states.

“Integrating automation to some degree would enable firms to route through more data quickly — allowing them to confirm consumers’ identities without relying on a backlog of paperwork to make sure the data actually checks out. Approximately 1.1 billion individuals worldwide currently cannot identify themselves through traditional channels, but automation could allow companies to verify these consumers by accessing a greater variety of data points, such as their geolocation, browsing and payment histories.”