The world is in the middle of geopolitical upheaval. The invasion of Ukraine by Russia has displaced millions of people and threatens global food security. Elsewhere, refugees have fled for their lives from Syria to Sudan, on perilous journeys to safety or asylum.
In such circumstances, people leave their homes at speed, often without a valid passport or other identity documents. This can soon lead to short-term financial exclusion. To mitigate this, fintech companies are searching for ways to ensure that people can access the information that they need to quickly rebuild their lives.
Kateryna Danylchenko is CEO of the International Bureau of Credit Histories (IBCH) and has experienced both sides of this tough situation. Since war came to Ukraine, she has closed her offices, evacuated staff and taken refuge in France.
She says: “With limited or no documentation and no access to some bank accounts, refugees and migrants were often met by a brick wall when they were trying to find employment, accommodation or make payments in their host country.
“Since the start of the conflict in Ukraine, rapid advances in fintech over the past few years have allowed me to continue to access basic financial services, whether opening an account at an alternative digital bank, sending money to family and friends, booking temporary accommodation or being able to identify myself to landlords.”
Fintech solutions have also allowed Danylchenko to top up her mobile phone account so that she could communicate with friends and family. It also meant that she could buy aeroplane tickets for a woman and her daughter, whom she met in a Kyiv shelter, enabling them to relocate to Madrid.
But given that IBCH is a Ukrainian subsidiary of fintech firm Creditinfo, a credit rating agency focused on harnessing alternative data in emerging markets, Danylchenko also sees first-hand how this can be used by fintech companies to assist refugees when one big challenge remains identity authentication.
Creditinfo is working with central banks, international monetary organisations, banks and other financial institutions to give refugees in Poland, Moldova and the Baltics access to credit reports that are used as a stand-in for that identity information.
Without careful management, fintech businesses could be used to circumvent sanctions
Danylchenko says that fintech initiatives will continue to play an important role in Ukraine – and beyond – facilitating access to at least basic financial services for refugees. But she argues that while developments such as open banking and open finance have offered better connectivity within regions, financial services and transactions are increasingly international in nature.
Danylchenko says that fintech businesses are well placed to deliver enhanced cross-border compatibility, but she warns this will only happen if governments and central banks keep up with the potential and do more to provide international bridges.
“The war in Ukraine has highlighted how financial connectivity across borders isn’t as strong as it could or should be,” she adds. “If a country is excluded from a global payment infrastructure or if know your customer (KYC) and credit history data cannot be shared across borders, then it’s often the people fleeing war who face difficulties accessing finance while they are resettling.”
Mikkel Velin, co-CEO at embedded finance provider YouLend, also sees KYC as a big problem, given stringent identification requirements that can exclude refugees from the likes of mortgages and business financing. Fintech, he suggests, offers an answer by focusing on more data streams that can be analysed far more quickly.
“The main issue is discrimination and misunderstanding – possibly subconscious – around what data is needed in the 21st century to determine whether someone is eligible to access certain products and services,” he says. “Wider data sources and open banking can allow banks and lenders to make more concrete risk assessments.”
Elsewhere, other companies are solving different problems. For example, cheqd provides a technology for people to take control and ownership of their data, known as self-sovereign identity (SSI) or decentralised identity. A similar SSI solution was previously piloted by Tykn - now a cheqd partner - allowing the government in Turkey to optimise and speed up the issuing of work permits to refugees and then hold the validated documents in a digital wallet.
There is another critical area that fintech companies must consider when it comes to conflict, and that is the enforcement of global financial sanctions, such as those levied against Russia. Many fintech solutions are being deployed to prevent fraud in this area, with start-up SEON recently raising $94m (£77m) in funding for that very purpose. The war in Ukraine is now driving demand for anti-fraud solutions to combat sanctions evasion by politically exposed persons.
SEON CEO Tamas Kadar explains how machine learning democratises fraud prevention and fraud detection, allowing fintech to ensure stringent measures that allow current sanctions to be upheld.
“Fintech companies can do their bit to help cut off some of the resources pouring back into the hands of unsavoury actors,” he explains. “Without careful management, fintech businesses could soon find themselves being used to circumvent these sanctions.
“Without the right strategies and technologies in place, such solutions have the potential to be exploited. The fallout wouldn’t only affect individual fintech businesses but could lead to the industry being seen in a negative light by some moving forward.”
Gabriel Hopkins, chief product officer at Ripjar – which was founded by ex-GCHQ technologists – agrees. The company uses AI to counter financial crime by automatically identifying risks from data and transforming institutions’ approaches to know your customer and anti-money laundering (AML) solutions.
Hopkins admits the implementation of these sanctions is “extremely complex” given the ties between Russian individuals and companies to Europe and the UK. This presents a huge regulatory challenge for the industry, including for fintech businesses such as neobanks, which are 100% digital and use apps and online platforms rather than branches, and others that trade internationally.
He maintains that banks and other financial institutions must have a “balanced sanctions and watchlist management approach” to guarantee “100% adherence” to global sanctions lists while using other supplementary lists for a holistic view of risk.
Part of the puzzle to solving this is through machine learning and advanced analytics to automate the screening process, he says, with next-generation name-matching software ensuring banks and financial players can: “Maximise true positive hits on global sanctions and watchlists and minimise false positives.”
But to achieve this, Hopkins highlights one big advance that will be vital and is needed urgently – fintech companies tapping into a range of language systems.
He adds: “In the future, there will be a greater need to process matches that include Cyrillic, Asian and other character sets with Western or Latin names and vice versa. Being able to distinguish between and draw links between Latinate and non-Latinate language systems is key for names that have alternate spellings.
“For example, Vladimir can appear entirely different and would need to be tracked separately, but also treated as the same name.”
