Tapping Into Emerging Tech: HOW WELLS FARGO IS FIGHTING FRAUD FEATURE STORY NEWS & TRENDS DEEP DIVE How Wells Fargo tackles fraud Tesco Bank lets customers check How FIs are upping their games with AI-based06 solutions balances 09with Siri to ward off money14 launderers MARCH 2019 © 2019 PYMNTS.com All Rights Reserved 1 DIGITAL BANKINGTRACKER™ TABLE OF CONTENTS What’s Inside A look at how digital banks are growing, evolving and expanding security measures to protect against 03 money laundering and other fraud types Feature Story Wells Fargo’s head of AI enterprise solutions, Chuck Monroe, discusses how the bank's AML offerings 06 utilize the technology News and Trends 09 The latest digital banking space headlines on how FIs are upgrading security tools, implementing AML measures and adding features to keep customers happy Deep Dive: An in-depth look at how banks are developing new KYC and AML capabilities to protect against money 14 laundering and other illegal activities Top 10 Rankings 18 The highest-ranking B2B and B2C digital banking providers Watch List 19 Three additions to the Digital Banking Tracker™ provider directory Scorecard 20 The results are in See this month’s top scorers and a directory featuring more than 250 digital banking players About 151 Information about PYMNTS.com and Feedzai ACKNOWLEDGEMENT The Digital Banking Tracker™ is done in collaboration with Feedzai, and PYMNTS is grateful for the company’s support and insight. PYMNTS.com retains full editorial control over the report’s methodology and content. © 2019 PYMNTS.com All Rights Reserved 2 What's Inside With features and perks that appeal to digitally The global financial ecosystem becomes even minded consumers, many digital banks are more interconnected daily. As a result, money now standing shoulder to shoulder with legacy laundering scandals can cause ripple effects around institutions in terms of customer service and the world, making regulatory compliance vital. products. Competition is still fierce, however, and Germany's financial regulator BaFin, for instance, customers are less inclined to forgive and forget. A is currently monitoring Deutsche Bank due to its security slip-up could result in more than just lost role in the Danske scandal. The former institution is funds for banks — it could break customers’ trust. questioning its correspondent banking regulations after learning about its part in the latter's breach. As such, many of these banks are implementing security measures like anti-money laundering (AML) Some banks, like Portugal’s Banco CTT, are tools, new banking policies and artificial intelligence partnering with others in the industry to upgrade (AI) and machine learning (ML) to fight a rising tide their AML tools — one of many signs that the gap of fraudsters and competitors. between legacy FIs and challenger banks may be narrowing. Digital challenger banks are young and new at keeping customers' data secure, which can make Around the digital banking world them particularly vulnerable to money laundering. Fraud has been on the rise, but so have digital As a result, they must shoulder the costs of challenger banks. In Thailand, United Overseas bank implementing AML to avoid the damage and loss of recently launched a fully digital brand for the region’s trust that can result from breaches. younger consumers, hoping to keep up with the digital populace's changing needs. Other challenger Several challengers are implementing the necessary banks are starting to grow into new markets. infrastructure changes by taking short-term profit Germany's N26, for one, recently announced plans to cuts to preserve their clients' funds and businesses use its latest funding round to fuel growth in the U.S. in the long-term. ABN Anro, a bank backed by the financial market. Dutch government, saw a decrease in its quarterly profits after it diverted funds to build out AML tools. Digital banking developments extend beyond It made the decision after its competitors Danske Europe and the U.S., too. A new digital challenger Bank, ING and Rabobank were hit with money specifically targeting millennials recentlylaunched laundering schemes. in Thailand with a mobile app that boasts a virtual chat feature and appeals to tech-savvy users. On top As money laundering scandals come to light around of that, Standard Chartered recently opened the first the world, regulators are reviewing their standards fully digital bank in Uganda. to better protect financial institutions (FIs) and consumers against fraud. China’s regulators have For more on these stories and other headlines from released new AML guidance, and U.S. officials are around the digital banking space, check out the closely monitoring the nation’s banks to ensure they Tracker’s News and Trends section (p. 9). are meeting compliance standards. © 2019 PYMNTS.com All Rights Reserved 3 WHAT'S INSIDE How Wells Fargo is fighting fraud with AI, biometrics EXECUTIVE INSIGHT Many banks are looking to better secure their systems against opportunistic fraudsters, as money laundering and other fraud types grow in scale and How can smaller FIs, which lack volume. One such way in which they protect both the resources of larger, established money and data is with technologies like AI and banks, build out robust AML biometrics. Wells Fargo’s head of AI enterprise protection programs? solutions, Chuck Monroe, informed PYMNTS that the FI has been utilizing these tools as digital banking's popularity grows. For this month’s Feature Story (p. 6), Monroe spoke about how Wells Fargo uses AI “Money laundering has always been a hard problem and biometrics to thwart money laundering and stop to solve — even more so as criminals become more sophisticated. Headlines about money laundering fraudsters in their tracks. schemes, and the massive fines imposed on banks and FIs that [play roles in] those schemes — have become Deep Dive: Digital banking and AML increasingly common [during] the last few years. This Money laundering is a growing concern for banks, spotlight on the challenge means the risk isn't just particularly smaller digital challengers, and many of regulatory. The bank’s reputation and the customer’s trust is far more valuable, setting the stakes of them are combating it by spending more to research [implementing] proper AML [tools] higher and higher. and develop AML protection tools. These banks are investing in upgrading their know-your-customer The best AML solutions will allow legitimate … (KYC) measures and how they analyze transactions customers to continue unhindered, while weeding out the criminals through surgical targeting, rather than to catch fraudsters before they make off with funds. broad, sweeping rules or scenario-based interdictions. In this Tracker’s Deep Dive (p. 14), PYMNTS examines how these solutions are using AI, ML and other All banks, traditional or digital, should focus their AML solution efforts on three things. First and most advanced analytical tools to identify illegitimate importantly, [they should] focus on frictionless transactions. customer experience. … Second, industry-leading detection technology [that includes] ML as a foundation, but also tools like graphical link analysis and automated reporting. Last, flexibility, so that the solution can scale both by volume and channel as the FI's needs grow. These are the principles Feedzai [was built] around [to] solve the hard problems for banks across the world.” PHONG Q. ROCK senior vice president at Feedzai © 2019 PYMNTS.com All Rights Reserved 4 WHAT'S INSIDE 5Five Fast Facts 90% 64% 80% Portion of Portion of FinTech Share of banks consumers compliance that believe whose top professionals challengers have online activity is who agree that affected their personal banking 60% AML compliance $2t businesses in should also cover some way adverse media Share of U.S. Estimated amount smartphone users laundered through with at least one banking systems financial services each year app © 2019 PYMNTS.com All Rights Reserved 5 Tapping Into Emerging Tech: HOW WELLS FARGO IS FIGHTING FRAUD © 2019 PYMNTS.com All Rights Reserved 6 What’s Inside “There are a lot of opportunities … to leverage AI to look much [deeper than a] … human could.” CHUCK MONROE, head of AI enterprise solutions at Wells Fargo With fraud attempts continually on the rise around Banks must broaden their approaches when using the world, FIs have their work cut out for them. AI to validate transactions, Monroe said. FIs must They must remain fully compliant with regulatory look at users’ identities, their payment histories and standards and combat fast-learning fraudsters while their previous account behaviors, along with the data maintaining a frictionless customer experience. As attached to the transactions, if they want to protect a result, banks are discovering that AI is becoming customers from fraud and money laundering. useful when it comes to AML and other types of fraud protection — in fact, it is fundamentally How AI is adding to AML tools and techniques changing how FIs verify users’ identities or validate Banks can use AI to more cohesively examine where transactions. and how fraud is happening, particularly when it comes to areas in which banks must adhere to tight “It’s [about] applying advanced technologies regulatory frameworks, as is the case with AML. [throughout a transaction] to continuously look and say, ‘Do you think this is a good transaction?’” “We’re using AI to go through and look across the Chuck Monroe, head of AI enterprise solutions at internet, including the [darknet], to look for signals Wells Fargo, said in a recent interview with PYMNTS. that would apply to a particular AML situation,” he “We used to look at these points of the transaction said. “There are a lot of opportunities … to leverage as individual points — this is the point of purchase, AI to look much [deeper than a] … human could. … AI this is the point of identification.