#NeoCryptoTrust | “The next major Financial Crisis in less than 5 years will be due to massive penetration of a major Bank by cyber criminals”

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Posted by Cybertonica on 08/10/2018

Cybertonica, an award-winning fraud prevention and payment risk management company, hosted their 3rd London Level39 event #NeoCryptoTrust, bringing together leading FinTech, crypto and neobank experts on the topic of building trust using Machine Learning and AI. The primary theme was how to use these technologies to provide risk-free operations to neobanks and cryptocurrency markets while improving the anti-fraud and cybersecurity of these future FinTechs. Like the 2 events organised by Cybertonica in 2017 and spring 2018, this high-profile evening was sold out!

Joshua Bower-Saul, CEO and Co-Founder of Cybertonica, chaired #NeoCryptoTrust. In an introductory talk, he noted that the key to success in implementing a new architecture of trust would be technology designed and aligned with the products of the neobank and crypto markets and that incumbent brands had earned trust for 200 years using technology which fit that time. He kicked off his presentation by asking the audience:

“How many of the 120 people in this room used digital payments today more than once?”

75% raised their hands. Only a small number had used cash and most of these were among visitors spending only a few days in London.

“Five years ago, this would have been the opposite. It gives us the idea of the pace of change.”

But the sophistication of cyber and financial criminals is also growing, and this challenge relates to the FinTech industry. Risk increases with the spread of new technologies and regulations as more open access is given. The biggest problem that fraud generates is not only the millions of pounds that businesses, customers and institutions lose each week, but also the slowdown of the process of building trust in e-payments and therefore in this industry. The problem is even deeper in emerging markets, and that probably conditions the very slow growth of digital payments there.

“The constant increase of hacks and breaches is also putting a pressure on the public, regulators and institutions. If the new banks and crypto platforms and wallets want to overcome fraud, they need to realise that their reputation depends on technology. Without reliability costumers and businesses can’t build trusted relations within the e-payments world, never mind crypto.”

Joshua Bower-Saul then focused on how AI and ML can help banks and e-payments companies recognise the patterns and take automated decisions when faced with risk that indicates fraud, discover potential threats and apply a systematic decision making environment using all channels.

Joshua Bower-Saul, CEO and Co-Founder of Cybertonica, delivering his keynote speech

After the introductory talk, the expert panel began debating:

  • Andrei Kirilenko, Director of the Centre for Global Finance and Technology and Professor of Finance, Imperial College Business School
  • David Divitt, Vice President Product Management, Vocalink Analytics – a Mastercard Company
  • James Skelton, Money Laundering Reporting Officer, Monese
  • Nigel Verdon, CEO and Co-Founder, Railsbank (Also Founder Currency Cloud)
  • Chris du Toit, Fraud Manager, Luno

The panel addressed issues such as trust and the incumbent financial services sector, cybercrime and the relation to miss-use of digital currencies and accounts, money-laundering and the broader theme of big data applied to the payments and card markets. Recently, some major names in neobanking discovered they had permitted money-launderers to abuse their platforms and there is widespread anxiety about this kind of situation as it destroys the reputation of the sector and creates havens for the millions of stolen cards and IDs that recent breaches have permitted.

Panel discussion on how AI can provide risk-free operations to neo-banks and cryptocurrency markets

Dr. Andrei Kirilenko, Director of the Centre for Global Finance and Technology at Imperial College Business School, had a strong view on the impact of the 2008 financial crisis on the FinTech world:

“For a long time, customers had trust in traditional financial institutions because they thought that bigger institutions were safer. However, that trust was shattered by the global financial crisis of 2008 and the massive bank bailouts that followed. While dealing with the crisis and its regulatory aftermath, financial institutions were too busy trying to survive and failed to internalise three paradigm-changing digital technologies. These three digital technologies — cloud computing, mobile phones, and blockchain — were all released during 2006-2008 and made it possible for FinTech startups to offer modern, cost-effective, and secure solutions across the whole spectrum of financial services. By now, however, the window of opportunity for the startups has largely closed as incumbent financial institutions have been re-establishing trust. FinTech companies that got big enough during the ten-year window are now keener to work together with the big players rather than to compete with them.”

David Divitt, Vice President Product Management at Vocalink Analytics (a Mastercard Company), said the big issue going forward is how do we implement security while protecting the end-user experience and how can we be sure that we are winning:

“These people are often using robots and sophisticated rule-parsing technology. We have to build the defences and react to them by using strong datasets and applications that can beat them. A big part of the equation is whether the new platforms and services use in-house teams or vendors and how data can be shared to make everyone more secure while ensuring end-users get the experience they expect.”

Chris du Toit, Fraud Manager at Luno, turned the discussion upside down by stating that as many customers still don’t understand the payments world and therefore it is difficult to create trust without a lot of pedagogy around products and methods, so adoption is slow:

“Part of the issue is purely user penetration, after all a lot of people still have little understanding of what bitcoin can and can’t do. I can’t really go into any bar and buy a beer with it, so how does it help me?”

Nigel Verdon, CEO of Railsbank, mentioned two difficult challenges the new FinTech industry is facing:

“Firstly, regulators are not able to absorb quick technological developments, which means that the regulation produced is not at the same pace as the innovation. This obviously slows down the process of legislation for businesses and therefore gives an advantage to criminals who can use blind spots of legislation to carry out fraud and of course new forms of moving funds are going to be a favourite target. Bitcoin is of course a great thing to steal even though it is traceable it can be moved quickly and anonymously. Still, the environment is getting more regulated, and it’s no longer the case as it was when we founded Currency Cloud that you just applied and got an HMRC Money Services Business licence for a few hundred pounds within 2 weeks. FinTech is mainstream and has regulators behind it, and that is a good thing.”

James Skelton, Money Laundering Reporting Officer at Monese, a leading neobank that was founded to help the unbanked get an account, sees that there are many businesses aiming to build their own analytics to tackle fraud and hacking by criminals:

“It happens that they go after the weak link in a sector, so we have to be vigilant and make ourselves a harder target than the next guy. Back in the days tracking money was easier because humans were responsible for the movements. Nowadays it is a challenge to track them because machines are behind it. The system becomes more difficult to be detected and we have to be reacting all the time, and having that capacity in house is part of our competitiveness.”

The expert panel also discussed about data breaches and how to protect personal data and privacy. Dr. Andrei Kirilenko said that there might be a moment when a democratic state could get consent from its citizens to step in to maintain trust in the safety of their financial data akin to having a bank deposit protection scheme. Dr. Kirilenko then brought the deep experience of his time as a regulator working to rectify the consequences of the crisis of 2008. He focused on the issue of cyber-security in the banking world and for the future:

“The reality is that we are not far from a global crisis caused by a cyber penetration of a global financial institution or critical financial infrastructure like the payments network. If as a result of a predatory cyber-attack, a large financial institution collapses, it will probably trigger a real global confidence crisis as hundreds of billions of dollars are deemed to be lost or stolen and millions of customer identities are considered compromised.”

The panel was asked if the next financial crisis would come from FinTech or from incumbents. They agreed that the chances of a massive cyber breach and bank collapse were higher than 80% in the next decade. The recent lapses in social media accounts, breaches of major banks’ security were the first symptoms of this danger.

“Unless the right technologies are adopted at the right time, or we improve security to a much different level.” commented Joshua Bower-Saul.

The event finished with 3 security and compliance startups pitching their unique solutions to the audience. These companies specialised in protecting customers against fraud, cyber-attacks and data breaches while helping industry players to increase revenues and become compliant. The startups pitched on the day were:

  • Cybertonica – A thriving Artificial Intelligence technology partner committed to grow e/m-commerce businesses by optimising their risk and reducing fraud while creating friction-free consumer experiences and building their customers’ trust.
  • Konsentus – Provides consent & preference management services to financial institutions so that they can comply with PSD2 and open banking.
  • Westgate Cyber Security – Attackers are constantly aiming cyber-weapons at your organisation’s digital footprint, use Enclave to safely connect your private systems, critical infrastructure and supply chain together – without creating a footprint.

Cybersecurity and compliance startups pitching their solutions (From left to right: Olaf Hofmann of Cybertonica, Brendan Jones of Konsentus and Marc Barry of Westgate Cyber Security)

You can read the Tweets at #NeoCryptoTrust and follow Cybertonica on Twitter and LinkedIn to hear about our upcoming events.

As the world of payments, digital currency, digital identity and authentication expand, Cybertonica has a vision to lead innovation and create a space where industry leaders can get together to discuss the hot topics in banking, payments and FinTech. If you would like to sponsor our next event, please contact our Market Development Manager Melike Belli at melikebelli@cybertonica.com.