The emerging role of fintech in times of conflict and displacement
The world is in geopolitical upheaval. Russia’s invasion of Ukraine has displaced millions of people and threatens global food security. Elsewhere, refugees have fled Syria for their lives to Sudan, on perilous journeys to safety or asylum.
In such circumstances, people quickly leave their homes, often without valid passports or other identification documents. This can quickly lead to short-term financial exclusion. To mitigate this, fintech companies are looking for ways to ensure people can access the information they need to quickly rebuild their lives.
Kateryna Danylchenko is CEO of the International Bureau of Credit History (IBCH) and has experienced both sides of this difficult situation. Since the arrival of the war in Ukraine, it has closed its offices, evacuated the staff and took refuge in France.
She says: “With limited or no documentation and no access to certain bank accounts, refugees and migrants often faced a brick wall when trying to find employment, accommodation or make payments in their host country.
“Since the start of the conflict in Ukraine, the rapid progress of fintech over the past few years has allowed me to continue to access basic financial services, whether it’s opening an account in 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 cell phone account so she can communicate with friends and family. It also meant she could buy plane tickets for a woman and her daughter, whom she had met in a Kyiv shelter, allowing them to move to Madrid.
But given that IBCH is a Ukrainian subsidiary of fintech company Creditinfo, a credit rating agency focused on mining alternative data in emerging markets, Danylchenko also sees firsthand how it can be used by fintech companies. to help refugees when a big challenge remains identity authentication.
Creditinfo works with central banks, international monetary organizations, banks and other financial institutions to give refugees in Poland, Moldova and the Baltics access to credit reports that replace this identity information.
Danylchenko says fintech initiatives will continue to play an important role in Ukraine – and beyond – in facilitating access to 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 fintech companies are well positioned to provide better cross-border compatibility, but she warns this will only happen if governments and central banks follow the potential and do more to provide international bridges.
“The war in Ukraine has highlighted how cross-border financial connectivity is not as strong as it could or should be,” she adds. “If a country is locked out of a global payments infrastructure or if KYC and credit history data can’t be shared across borders, it’s often the people fleeing war who have difficulty accessing funding during their resettlement”.
Mikkel Velin, co-CEO of integrated finance provider YouLend, also sees KYC as a big deal, given strict identification requirements that can exclude refugees from mortgages and business finance. Fintech, he suggests, offers an answer by focusing on more streams of data that can be analyzed much faster.
“The main problem is discrimination and misunderstanding – perhaps unconscious – regarding the data needed in the 21st century to determine whether someone is eligible to access certain products and services,” he says. “Broader data sources and an open banking system can allow banks and lenders to make more concrete risk assessments.”
Elsewhere, other companies are solving different problems. For example, cheqd provides a technology that allows people to take control and ownership of their data, known as self-sovereign identity (SSI) or decentralized identity. A similar SSI solution was previously piloted by Tykn – now a cheqd partner – enabling the Turkish government to optimize and speed up the issuance of work permits to refugees and then store validated documents in a digital wallet.
Another critical area that fintech companies need to consider in the event of a conflict is the enforcement of global financial sanctions, such as those imposed on Russia. Many fintech solutions are being deployed to prevent fraud in this area, with start-up SEON recently raising $94m (£77m) in funding for this purpose. The war in Ukraine is now driving demand for anti-fraud solutions to counter sanctions evasion by politically exposed persons.
SEON CEO Tamas Kadar discusses how machine learning is democratizing fraud prevention and detection, enabling the fintech to ensure stringent measures enable compliance with current sanctions.
“Fintech companies can do their part to help cut off some of the resources that are going back into the hands of unsavory players,” he explains. “Without careful management, fintech companies could soon find themselves used to circumvent these sanctions.
“Without the right strategies and technologies in place, such solutions have the potential to be exploited. The fallout would not only affect individual fintech companies, but could lead to the industry being viewed in a negative light by some.
Gabriel Hopkins, chief product officer at Ripjar – which was founded by former GCHQ technologists – agrees. The company uses AI to fight financial crime by automatically identifying risks from data and transforming institutions’ approaches to know your customers and anti-money laundering (AML) solutions.
Hopkins admits that the implementation of these sanctions is “extremely complex” given the links between Russian individuals and companies with Europe and the United Kingdom. This presents a huge regulatory challenge for the industry, including for fintech companies such as neobanks, which are 100% digital and use online apps and platforms rather than branches, and others that trade across borders. international.
He argues that banks and other financial institutions must have a “balanced sanctions and watchlist management approach” to ensure “100% adherence” to global sanctions lists while using other supplemental lists for insight. risk holistic.
Part of the puzzle to solving this problem involves machine learning and advanced analytics to automate the screening process, he says, with next-generation name-matching software ensuring that banks and financial players can: “Maximize true positives on global sanctions and watchlists and minimize false positives.”
But to get there, Hopkins highlights a big breakthrough that will be vital and urgently needed: Fintech companies are operating 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 and make connections between Latin and non-Latin linguistic systems is essential for names that have alternate spellings.
“For example, Vladimir may appear completely different and should be tracked separately, but also treated as the same name.”