We’re sure by now you have read the countless headlines about the German fintech Wirecard. While there will be more headlines coming up, it will take time until the public gets full transparency on what really happened behind the scenes to keep such a massive accounting fraud going for years.
This post is about what other digital banking providers and fintechs can learn from what happened at Wirecard.
First, establish a compliance culture
It’s important to understand the “fin” in fintech. Most banking or payment related services are regulated by the respective local banking authorities. Compliance, anti-money-laundering, and fraud prevention are therefore essential issues that any company entering financial services needs to take into account. In the past, new entrants have shown that it’s not easy to get this right:
One of the first functions that neobanks have to set up are therefore compliance related. New regtech service providers, such as ComplyAdvantage or Hawk.ai, support small compliance teams with building up efficient, digital compliance processes. However, compliance is more than just reporting frameworks and procedures. It’s mission-critical that fintechs, as regulated entities, embed responsibility into their cultural code. This begins with how the leadership team behaves, down to individual incentive structures.
Second, scale responsibly
Scaling up is an integral part of VC-funded growth models. However, maybe it’s time to rethink this playbook when it comes to fintech or neobank startups. In fintech, you should only grow as fast as your compliance capabilities allow it. Otherwise, it can fire back quickly. For instance, the German financial regulator (BaFin) issued an order on the prevention of money laundering and terrorist financing against N26. Specifically, it instructed the neobank to:
- remove backlogs in IT monitoring,
- establish process descriptions and workflows in writing,
- reidentify a specified number of existing customers.
Sure, everyone wants growth, but you need to make sure that you do it in a way that you can look yourself in the mirror every day.
Third, make sure your KYC process works
The example above also shows the importance of know-your-customer (KYC) procedures. Usually, this is the first step for any user when establishing a relationship with your service. As soon as you offer services directly to end-customers, it’s essential to identify and monitor users according to the applicable regulations and laws. These procedures can become complicated once your service goes international, as different countries currently have adopted their own approaches to meet the requirements of the financial regulatory frameworks related to KYC.
Luckily, there are outsourcing partners that enable fast and efficient online KYC methods, such as IDnow. The Swedish fintech unicorn Klarna also recently launched its own whitelabel global customer authentication platform.
If you want to make sure that this won’t happen to you, feel free to contact us. We are more than happy to help out. In case you’re a fintech company currently looking for a new provider after the Wirecard collapse, check out our initial list here: