The AML Shop’s Co-Founder Matt McGuire Talks Digital Identity, Compliance and Virtual Prepaid

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Across the payments and financial services ecosystem, having the capabilities to navigate compliance and regulatory issues is table stakes. Especially in recent months as FINTRAC announced dozens of new pieces of guidance.

Of course, the pandemic has drastically accelerated conversations around the rise of fintech, digital payment acceptance, and how the government, retailers and businesses can navigate the “new normal” as it relates to how consumers transact. This includes tackling the fraud and security risks that come with the rapid shift from in-store to online shopping.

“More than ever before it’s a movement toward online acceptance and the customers. It’s the question of ‘how do we serve people that are stuck in their homes?’ — that has really changed the pace of things. The pace of innovation has been drastically sped up. There are a lot of new entrants,” said Matt McGuire, Co-Founder and Practice Director of The AML Shop, which aims to empower businesses with practical, informed and strategic regulatory support services.

The AML Shop serves anti-money laundering professionals across a number of sectors by providing guidance on how to analyze money laundering threats and risks. This includes evaluating programs like digital identification software to help these professionals monitor clients and ensure that everything is working up to par to stay ahead of regulatory and compliance challenges.

The AML shop serves as advisors on governance, risk and compliance by providing informed, practical and tailored solutions to their compliance challenges through a multi-disciplinary team that have embedded themselves deep into the industry. The AML Shop is equipped with experts who can actually go in and perform the functions in order to ensure their systems are stable and compliant.

Innovation, Compliance and Security Across the Payments and Prepaid Ecosystem

As for what’s driving innovation in this space, McGuire highlighted a key component of financial security: digital identities. McGuire said: “The acceleration of digital IDs has been the most heartening. It’s all about who you are doing business with; it’s hard to regulate if you don’t know who you are dealing with, or if you’re just looking at a piece of plastic.”

McGuire noted that conversations around biometrics, financial identity and KYC as it relates to regulation and consumer privacy laws remains an interesting topic to follow. With an escalation of regulations, there is a greater focus on how financial crime technology is managed across the payments market, including the prepaid industry that remains somewhat fragmented.

A change in how financial crime technology is managed also relates to visibility shifts across the payments market. This opens up questions about how companies can manage the entire relationship as it relates to risk management. For example, if a prepaid card acts as a substitute for a business account, this changes the bank’s visibility into how a client interacts across the various financial channels.

With new entrants disrupting this space, and conversations on open banking evolving, there may eventually be greater visibility into the entire financial ecosystem, which can be beneficial from a security and risk perspective. Understanding the entire customer relationship is a key piece to understanding the full financial risks of any transaction.

Financial Visibility, Open Banking and the Rise of Digital Identities 

The question over greater visibility across the financial ecosystem has been a prominent discussion point in the open banking conversations. Open banking is a great mechanism for discussions about how to use digital identities to enhance financial security, McGuire said.

Fintech players have dominated that conversation as companies look to drive innovation faster across financial services, he noted. Of course, the same interest in open banking isn’t always there for the traditional financial institutions. This matters when considering the AML impact.

“We have the right players at the table, but delays [from lack of visibility] can cause opportunities to be missed,” McGuire said. “When everyone has a niche slice of a wallet, it’s hard to understand the entire financial crime picture.

As for the prepaid market, McGuire sees immense potential in the open-loop prepaid market for digital payments, and said the rise of non-bank issuers is where he’s seen real innovation. As challenger banks reduce their reliance on the traditional financial services infrastructure, this allows for greater innovation across the entire ecosystem, he said. This is particularly true with challenger banks like Mogo that are innovating on both sides of the payments pendulum — from crypto to prepaid and everything in between.

As for the future of the payments and prepaid market, McGuire is seeing some key trends escalating, including the rise of crypto and prepaid being merged to better navigate regulatory hurdles. McGuire noted that managing the convergence of multiple moving targets, including a rise in cross-border transactions, privacy compliance and financial crime regulations are important concepts for fintechs to consider as they look to gain a greater market share in the financial ecosystem.

“The interplay is becoming seamless across borders. Smart fintechs know they have to get compliance right,” McGuire said, pointing toward the rise of the virtual card market as a key product in solving the digital identity problems. “The evolution of virtual cards can make the substitute of a virtual identity a reality.”

Learn more about The AML Shop and its mission here.

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