Hello and welcome to our new podcast series. My name is Asia Anwar-Jones and I help run the FinTech team here at TU. TransUnion are a global information and insights company; in simple terms we help businesses such as FS (Financial Services) companies, utility companies and retailers use our consumer data, solutions and software to make more accurate and reliable decisions. These podcasts are produced to help listeners understand the ever-changing data and technology landscape, and with me today is our head of FinTech, Steve Wishart and our head of Fraud Pre-Sales, Josh Gunnell.
Steve, could you start by telling us a bit more about your role at TU?


Yeah sure, hi everyone, my name’s Steve Wishart, I run the FinTech vertical at Trans Union here in the UK, and our definition of FinTech encompasses digital banks, payment players and alternative finance lenders.


And Josh?


Hi everyone, Josh Gunnell. I lead the UK’s Fraud and Identity function here at TU. I’ve got about ten year’s experience working within specified anti-fraud organisations, and generally support clients with their identity and financial crime challenges across all verticals.


Great, thanks both. Let’s get right into it. The past 18 months has brought a lot of challenges, but also opportunities, to the FinTech sector. Businesses have had to cautiously navigate the unknown landscape of the pandemic and consumer behaviour has changed, creating with that new needs and also new risks. Digitisation, the fundamental pillar of Fintech, has become more critical at this time and this can be seen in the rise of demand for online finance. Examples of this are contactless car buying and more varied e-commerce propositions. However, digitisation presents businesses with new challenges, too. Customer management is also more difficult, with the furlough scheme and forbearance potentially distorting the outlook of customer finances, making it harder to identify those that might need help. Competition is also fiercer than ever. Staying at the forefront of consumer needs whilst managing changing risk and building customer loyalty, all the while facing off to economic headwinds, is the new norm for FinTech’s of today. It's tough, but it's also very exciting – especially when it's done right. So, before we dive into some of the detail, it would be great if you could both give me a summary of some key perspectives from yourselves? Let's start with you, Steve.

 
I guess we could look at this through a number of different lenses. The first one’s the market volumes, so we are seeing markets return to pre-Covid levels, so for us that's the market bouncing back, and there’s confidence in the market, and there is certainly demand for credit, as well, from the consumers. From a consumer perspective, the pandemic impact on that landscape has really changed consumer behaviour and preferences have clearly changed. Convenience and speed of service are definitely front of mind and we hear that – in some industries – players have advanced the technical roadmap by 6 to 8 years, which is phenomenal in such a short space of time. From a lender perspective – you know Asia, you mentioned it before – lenders are concerned about the government assistance and how that's potentially masking risk. There are still 4 million people on furlough at the moment, so we need to observe how that risk washes through. 

I guess, from an investor perspective as well, 2020 wasn't the best year: so they are hungry for growth and we see lots of announcements around funding rounds. We've seen one recently for Starling Bank of £270 million, which was secured, and we see similar  announcements on a week to week basis, but that shows that there is a lot of confidence in the market from an investor perspective and they're really keen for growth as well. We've also seen polarisation from a consumer perspective; some consumers have perversely ended up in a more favourable position. So they've been able to benefit from things like payment holidays, furlough and paying down unsecured debt.

Others, unfortunately, have suffered income shock so they’ve not been quite as fortunate. And then, from a traditional lender perspective, it's certainly accelerated the digital roadmap and digital strategy. 
And then, does that mean that the competitive edge that FinTech’s have had over recent years; has that been eroded ? And how are they gonna, sort of, combat that? I guess they are the high-level observations from me.


Great – thanks, Steve. Josh, from your area, what are the key trends that have emerged?


So, specifically for fraud – given the breadth of capabilities and offerings, and financial product diversity that is provided by FinTechs – it’s unsurprising, perhaps, that we see a combination of discrete and more universal issues in different pockets. Some that reflect broader market trends, like those inside financial services, and some outside of it: primarily the rise of identity theft and related typologies. 

To Steve’s points, some in the market have been able to weather the turbulence for the last year better than others; many players were well prepared for digital-only interactions from the off, others had to quite quickly migrate offline processes to online channels and that hasn't always been smooth – even for FinTechs. That was one of the key insights and trends from a piece of market engagement we conducted in 2020 covering the dimensional change and the roles of technology within that.
Lastly, I'd say that the only constant is that trends change. Fraudsters – like most consumers – ideally want to follow a path of least resistance. FinTech can look across their own market to see some great examples of digital transformations to prevent bad actors, but there is no silver bullet. As fraud does evolve, fraudsters will look for the chinks in the armour and even those who were well placed to mitigate the inherent risk which came with the rise of digital, perhaps saw – or will soon see – the typologies are going to be their next cause for concern. 


Fraudsters can be sophisticated and opportunistic, all at once, which creates a whole host of challenges for lenders, I suppose, and lenders have to navigate this whilst also balancing customer experience (CX). As consumers and business people we're all familiar with the concept of customer experience. Have you seen a greater importance placed on CX because of the number of players in this sector, Steve?

 
I think CX is at the top of most lender’s agendas. I think what's changed  though, over time, is fraud has evolved from a loss-saving strategy into a growth enabler, and fraud under-pinning that CX journey is really key. I guess you could also argue that the younger generation was more concerned with CX, pre-pandemic, but with that broader adoption of digital channels CX is just as important, I guess, to all of us at the moment. Clients are super-focused on CX and that, I think, it's where the differentiation lies. They are really keen to make sure that their onboarding journeys or check out transactions are slick and easy, and fast – but at the same time they don't want to open up the risks that that can, potentially, bring to them as well. So, it's about getting that balance of delivering a really slick journey to those consumers, but also mitigating the risks and not inviting those attacks from fraudsters.


Some might argue that FinTechs, in essence, are online already so they will have experience with fraud already, and they’ll know what to expect and look out for. Does fraud really impact FinTechs and does it drag their performance? And if so, what are the ways we can begin to quantify the cost of fraud to a FinTech business? Josh, you did some work with Gartner last year; do you want to lead on this one? 


Yeah. Generally most of the reporting across the last few years has suggested that the cost of fraud continues to rise, be that from the publications and the likes of: UK Finance, Action Fraud, or the Office for National Statistics. When it comes to an organisation assessing the cost of fraud to their business; it has a number of variables within a frame which requires, I suppose, a more holistic review of the impact of not just fraud itself, but how you fight it as well .
So, the first thing to callout is that the loss isn't just in fraud losses. Some of the more significant influences from a P and L perspective can actually come from inefficient controls and processes. We saw various tipping points across the pandemic where operational teams were, rightly, diverted to other aspects of customer services. Which, essentially, leaves things like referrals unassessed. So, a cost of imperfect controls and processes, or an inability to facilitate a customer easily evidencing their trustworthiness, perhaps results in a failure to convert good business – and generate those new revenues as well.

For 2020, it was a very different year; lots of reset buttons for new normals where, potentially some of the more static fraud defences would, potentially, be caught out. Which for me points to, not just getting more data – which in itself perhaps has an incremental cost – but I see a more targeted, focused investment in applying techniques to turn that data into actual insights, to ensure there are checks and balances in the strategy and that they’re proportional. It can’t be that, in the face of such fierce competition in the marketplace, that you set the wall so high and create too much friction, seeking to stop all fraud at the expense of genuine customers who are quite quick to abandon and use alternative products. FinTechs want to champion CX to enable that growth aspiration. It really is a balancing act. It does sound a bit cliche, but those who are winning in the market at the moment are getting that right.    


And Steve: from your perspective, does fraud really FinTechs?


I think, as Josh mentions, the threat landscape is always changing. They need to be completely tuned into the threats and risks that that brings. Robust fraud defences are table stakes for doing business in such a competitive market place. You can't let your guard down at all, particularly with FinTechs, where we see new entrants coming into the market. They are, potentially, more vulnerable as well. Fraudsters are clearly watching the market as much as we are and they're quite happy to go and target those new entrants to see how robust thier defences are. And even the stats tell us, as Josh mentioned there, first party fraud and impersonation fraud is growing year-on-year, it's not standing still and we can't afford to be complacent at all.


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Fraud is an ever-changing challenge for businesses and – especially in the pandemic – we've seen a big rise in fraud overall. With that comes a trust…and the lack of it. It's a big talking point at the moment for many of us and it would seem to be an increasingly valuable commodity in the digital world. It would be good to get your thoughts on the power of linking identity to digital data to build trust. Josh? 


There has undoubtedly been an 18 month rise of digital engagement for most of society. It's a footprint that will continue to accelerate and grow. I think the important thing for me – with respect to digital data – is that it's incredibly transient, and it has some real potential to reward pockets of customer segments with less traditional footprints. And we often keep these data points as we go through different life events, such as I did recently with the house move, so digital data can be really positive artefacts to help someone prove who they say they are. 

I think that the other element is around that: consumers themselves are perhaps now more familiar with digital data controls. Those that are driven by regulations, such as particular customer authentication, FCA requirements under the second payment services directive – which are now more visible… Most people listening to this will have had communication with whoever they bank with, around these types of controls coming in place and it leverages the technology that our devices give us now to help prove our identity through a very convenient channel. It's part of our online ecosystem. I don't think that's going to change. It contributes to your point, Asia, around enabling trust – as much as it does to pinpointing risk. And I think that's recognised by the market and the innovative solutions that are being developed and adopted by FinTechs and, from a broader market perspective, we can see that things like the digital identity trust framework shows a real intent to make the digital data unity with identity a reality. 

And it’s not just for FinTechs – it's designing an infrastructure to bring further trust and portability into how digital data can be used to support identity verification across an increasingly faceless channel. And current processes do seem a bit at odds with, perhaps, the messages we've probably all been bombarded with over the last 12 months about keeping our data safe and the awareness of scams. Essentially, lockdown all of your data until you actually want to get something and then you've got to give us everything including things like your mother's maiden name – which aren't really anything personal to do with who you are and the identity you're presenting. The evolving nature of how and where we present our identities does need to consider – and leverage – the power of digital data in the context of identity proofing and I think that's something we're going to see come to the fore over the next few years. 


So, all the things you've just said there, Josh – around technology, the right types of data and digital identity; I suppose all of it means putting information online, bringing the processes online. There is underlying risk there of things like data breaches. From your perspective, what's the impact of a data breach on a FinTech business?


It's certainly multifaceted in terms of impact. They are boardroom concerns. As a result of increasingly blurred lines between, perhaps, what we were once historically disparate functions within the ecosystems of financial crime: compliance, cyber security… and the breach is a tranche of genuine customer data, and that can be used outright, leveraged, or synthesised, to become the ingredients for other activities by organised criminals. We trust organisations we have relationships with to secure that information – and that's the more emotive part of the etymology, really –  is when the trust is broken. And there are, rightly, fines when organisations get these things wrong. 

But in terms of the cost impact, perhaps the most significant cost is going to be the onward investment in attempts to rebuild that trust with the consumer base. And that's another key theme from the Economist Intelligence Unit report that suggests that data security and data privacy, more generally, have a greater influence than CX on the technology adoption programs for many of the respondents to the surveys – and that's true even for more CX-centric players like FinTechs. And, these controls of the technical and operational; it means that FinTechs will need to concentrate on the security of data – combining that with an arsenal of fraud prevention methods to secure customer experiences for genuine customers – and have the right checks in place to confirm it’s the genuine party that presents that identity and not a fraudster using information that’s been gathered from a breach.


And so, just coming back to some of the other things that we’ve seen happen during the pandemic, some of the patterns we’ve seen emerge. We’ve seen a shift in consumer behaviour, especially when it comes to purchase behaviour – do you think this shift is permanent?



I think that consumers are likely to want to continue to benefit from the innovation the market’s delivered and perhaps we’ll look back and wonder what on Earth we were doing, in some respects.
The FinTech market isn’t going to stand still, it’ll continue to innovate, it’ll be forward thinking, it’ll focus on where there’s market opportunity –even, perhaps as some of the offline spending habits return to the UK population as restrictions in society and the economy are eased. Trying to predict what’s next is the trickier part of your question. As per Steve’s comments earlier; the combination of a desire for growth, backed by investment and pent-up demand from consumer bases, are great things – but it’s a perfect storm for fraudsters to hide within. They’ll find ways to hide within those populations, discover new avenues to exploit; before organisations may even have the time to address them. 

So, my short-term prediction is that vulnerabilities will continue to be exploited and I think that’s true at both an organisational and a consumer level. Three out of four – so 76% of UK consumers – have been targeted by fraud, according to TransUnion’s own research, and whilst people are getting better at spotting it, increasingly sophisticated scams mean that the average financial loss has more than doubled in 12 months – so it is significant.
People are, perhaps unwittingly, enabling financial crime, sharing more than they realise, and that personal data will be used for impersonation, amongst other attack vectors, where the right controls aren’t in place. But, so I make sure I end on a positive note, for FinTechs: they are extremely well placed to continue to exceed the expectations of customers and I’m really encouraged by what I’m seeing them enable, as far as combining seamless and secure journeys through genuine digital transformation rather than just digital migration that I’ve seen in other verticals, where – perhaps – some of those loopholes for frauds have yet to be resolved.


OK, and Steve, to come back to you. We’ve heard a lot here, a lot of insightful information from yourself and Josh. If you could summarise for our listeners, say, three key takeaways to take away from this podcast, what would those be?


As you say, we’ve covered a lot of ground today. I guess the key call outs for me: one would be that semi-consumer behaviour and those preferences that we’ve seen evolve throughout the pandemic are definitely here to stay. We don’t expect consumers to migrate away from digital channels; they have high expectations now around onboarding experiences, speed of check outs, and I think that’s the new standard – that’s the first one. I think the second one for me is probably around digital identity and a lot of what Josh was saying there. It’s changing the way we think about customer journeys. In the past we’ve talked about: the Holy Grail was really getting to a frictionless journey, and I think our thinking and strategies have evolved where we’re actually looking at a friction-right approach, and that’s where we want to accelerate those consumers where we have a high degree of trust – but we want to introduce step-up measures for those individuals where we haven’t established that digital trust. I guess the final one is, again, around customer experience really, that’s really for me where the fierce competition is between FinTechs. 

We’ve seen a number of super-apps being launched by them. FinTechs really want to engage consumers and foster that relationship. Rather than it being just a ‘one and done’ scenario, they want to build that ongoing engagement and that customer loyalty. So for me, they’re probably the key observations, really.


Wonderful, thanks Steve. Thank you to our guests Steve and Josh, and thank our to our listeners. If you would like any further information on TransUnion or our solutions for the FinTech industry, then please do get in touch via our website, transunion.co.uk – there you’ll find our latest consumer and industry studies and guides. Also, look out for our future podcast episodes on the latest hot topics in the FinTech industry. My name is Asia Anwar-Jones, thank you.
 

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