As fintechs strive to realise the benefits of fraud and financial crime risk orchestration, there’s a noticeable trend of firms opting to build their own platforms in-house. Edward Vaughan, senior director at LexisNexis Risk Solutions, looks at why this approach isn’t always the most cost effective, or the path of least resistance.
Also read: The Biggest Fintech Scandals That Shook the Industry.
Risk orchestration explained
Regulated businesses in the fintech space require multiple sources of data and screening and monitoring tools to fulfil their AML obligations and protect customers against criminal threats. These countermeasures will often operate in siloes and evolve independently of one another as technology advances and screening requirements change in the face of shifting global threats. If a firm’s technology and processes lack the flexibility to adapt to this constantly changing picture, the result will be a progressively disjointed customer onboarding and screening journey, characterised by delay, friction and ultimately frustration on the part of customers, who may eventually vote with their feet.
Prolonged and disjointed customer authentication and transaction verification processes that are not synced invite not only friction, but also the threat of conflicting outputs and duplication of effort. Remediation of false positives are necessary but an unfortunate resource drain for fintechs, that would otherwise rather be concentrating on proposition enhancements and excelling at customer experience.
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Risk orchestration technology is a welcome solution to these challenges. It can bring a fintech’s entire customer onboarding and ongoing risk management activities together into a single, easily configurable and scalable platform. Disparate processes are synchronised to unify outputs and risk scores, meaning decisions can be made quickly and with a reassuring consistency.
Keen to realise these benefits, some fintechs are determined to build their own risk orchestration platforms, the belief being that it’s the smart business decision. Our own recent analysis, however, suggests otherwise.
Expensive self-build
We looked at the typical self-build orchestration costs for a mid-tier UK bank onboarding around 100,000 customers and processing an average of two million transactions per year.
For a bank of this size, build costs would be around £3.1 million in the first year, with about a third spent on a team of developers to build and test software. Creating an API that can bring together multiple different data sources and systems can be complex and time-consuming. Remaining budget will go on annual licence costs and data fees, covering Identity and Verification (IDV), document verification, transaction monitoring, application fraud and AML screening.
Also read: KYC Verification: How it is Done?
In years two and three, self-build calculations include annual license renewal costs and data fees, as well as the not insignificant costs of maintaining and developing a platform to grow and adapt with a business.
So, even conservative estimates will put costs for year two and beyond at over £1.3 million per annum for a self-built platform. That’s an approximate investment of almost £6 million in the first three years.
Risk Orchestration – the cost-effective approach
Given that specialist software developers are typically the most expensive part of a self-build approach, the alternative could be to work with an expert partner to integrate a plug-and-play risk orchestration platform via a no-code API.
A specialist partner can draw on industry-wide insight and experience to help develop a solution that evolves with an organisation’s growth and can adapt to changing financial crime threats. Such solutions are also scalable, meaning a small-to-midsize firm can procure an affordable, yet high-performing platform, without it weighing heavily on the balance sheet. Economies of scale across licence and data fee costs can also be realised.
Also read: Financial Services Firms Want Fraud Prevention Taught in Schools to Help People Better Protect their Money.
Specialist orchestration platforms provide an automated, end-to-end solution for customer onboarding and ongoing monitoring, incorporating anti-money laundering screening, transaction monitoring and case management. With support for multiple data source providers, firms are free to stick with the vendors they know and trust, or swap them out for others, at the same time as benefitting from simplified vendor management.
The easy set-up and integration of a risk orchestration platform like LexisNexis® RiskNarrative™ is complemented by an intuitive interface and the ability to drag and drop services and apps. It eliminates the need for costly IT-led operations and interventions, saving firms both time and money.
Best of all, our analysis suggests all this is achievable at around a third of the cost of a self-built solution over the first three years, freeing up more than £3.5 million to invest back into a business.
All financial services firms want to prevent more fraud. At the same time, most firms are also under pressure to reduce compliance costs. Risk orchestration is the perfect tool to achieve both these opposing goals – the only question remaining is whether to buy or build a platform?
Join a free webinar on Tuesday 28th November at 2pm, when leading industry analysts and experts will explore the build versus buy dilemma and the many benefits of a risk orchestration platform. Click here to register now.
