How technology is changing customer risk assessments


With innovations in financial technology evolving by the day, the importance placed on effective customer risk assessments grows with it.

In a recent post by Flagright, the company explored how technology is changing the way we approach customer risk assessment in FinTechs and neobanks, and the benefits it brings to these industries.

In the past, financial institutions commonly relied on manual reviews and background checks to evaluate customer risk. These methods often involved gathering and analysing data on customers, their activities and their financial histories. However this process was often time-consuming and inefficient due to reliance on human judgement.

Flagright explained that these traditional methods often did not have the ability to handle the scale of customer data that is now generated by FinTechs and neobanks. This made it even more challenging for traditional methods to keep up with the increasing demands of compliance regulations and fraud prevention measures.

The company explained, “The advancements in technology have transformed customer risk assessment in FinTechs and neobanks. By automating the process, technology has enabled financial institutions to analyse vast amounts of data in real-time, with greater accuracy and efficiency.”

One of the key technologies that has revolutionised customer risk assessment is AI and AML, Flagright claims. AI and ML enable financial institutions to analyse vast amounts of customer data quickly and accurately, providing a more comprehensive risk assessment. These technologies can help identify patterns and anomalies in customer data, enabling financial institutions to detect suspicious activity more efficiently.

Another key technology that has played a key role in revolutionising customer risk assessment is blockchain. Flagright said, “Blockchain technology provides a secure and tamper-proof way to store customer data, making it virtually impossible for anyone to alter or manipulate the information. This technology ensures that customer data is always accurate and up-to-date, providing financial institutions with a reliable source of information for their risk assessment process.”

The real-time monitoring of transactions has also changed risk assessments.  Real-time monitoring enables financial institutions to detect suspicious activity as it happens, rather than after the fact. This technology allows financial institutions to be proactive in their risk assessment, identifying and preventing potential risks before they occur.

What are some of the key benefits of technology in customer risk assessments? In the opinion of Flagright, these include improved accuracy, real-time monitoring, greater efficiency and enhanced customer experience.

Flagright said, “Overall, technology offers a range of benefits in customer risk assessment, enabling financial institutions to improve accuracy, efficiency, and customer experience, while reducing the risk of financial crime. As FinTechs and neobanks continue to grow and evolve, technology will play an increasingly important role in maintaining trust and credibility with customers and regulators alike.”

As for key trends in customer risk assessment, some of the key trends include the use of big data and analytics. With the vast amount of customer data generated by FinTechs and neobanks, big data and analytics can help financial institutions identify patterns and trends that may be indicative of suspicious activity. This technology enables financial institutions to conduct more accurate risk assessments and improve their fraud prevention efforts.

Flagright remarked, “Another emerging trend is the use of biometric data in customer risk assessment. Biometric data, such as fingerprints and facial recognition, can be used to verify customer identities and detect potential fraud. This technology is already being used by some financial institutions to improve their KYC and KYB processes, and it is expected to become more prevalent in the future.”

In addition, there is a growing trend toward collaboration and information sharing between financial institutions. By sharing data and insights, financial institutions can improve their risk assessment processes and better detect potential risks. This collaboration is facilitated by technology, such as APIs and secure data-sharing platforms.

“Overall, the future of customer risk assessment is likely to be characterized by a continued reliance on technology, with a focus on big data analytics, biometric data, collaboration, and blockchain technology. Financial institutions that stay up-to-date with these emerging trends are likely to be better positioned to manage risks and prevent fraud in the future,” said the firm.

Flagright concluded, “In conclusion, technology has transformed customer risk assessment in fintechs and neobanks. Technology has also enabled financial institutions to scale their compliance and fraud prevention efforts, keeping up with the ever-increasing demands of regulatory compliance. In addition, emerging technologies, such as big data analytics, biometric data, and blockchain, offer exciting new opportunities for further improving customer risk assessment.

“As FinTechs and neobanks continue to grow and evolve, it is essential that they prioritize customer risk assessment to maintain trust and credibility with their customers and regulators. By embracing technology and staying up-to-date with emerging trends, financial institutions, including FinTechs and neobanks can improve their risk assessment processes and better prevent fraud.”

Pesawise, a Kenyan FinTech focused on providing seamless and secure payment solutions, recently partnered with Flagright to boost its payment offering.

Read the full post here.

Copyright © 2023 FinTech Global

Enjoying the stories?

Subscribe to our daily FinTech newsletter and get the latest industry news & research


The following investor(s) were tagged in this article.