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CTO Interview

Lafferty News recently caught up with Mitek's chief technology officer Steve Ritter for a Q&A to discuss the work the firm does in the field of digital identity verification.Among the topics discussed were how the technology is helping banks to augment their abilities and why the firm is also applying its solution to cryptocurrency exchanges.Lafferty News: Obviously, Mitek specialises in digital identity verification — can you explain to me how AI facilitates this process? I'd love to hear your breakdown of how it all works. Steve Ritter: Mitek specialises in verifying physical identity documents in the digital channel.  This involves the high level steps of firstly identifying which document is being presented, secondly extracting data from the document, and then finally looking for signs that the document has been tampered with.  AI, specifically machine learning, helps Mitek at each of these stages.  The reason machine learning is a good fit is that it is very hard to describe in rules what should be considered "good" and what should be considered "bad".  Instead of writing all of these rules, Mitek uses machine learning powered by millions and millions of images to teach our software how to do the job accurately. LN: Minimising fraud is one of the key objectives when it comes to using AI for KYC. Do the banks you work with rely on Mitek to provide the AI infrastructure when it comes to on-boarding customers, authenticating identity for money transfers, etc? Can you give me some figures about how you have helped reduce fraud as a result?      SR: Yes this is exactly how our banking customers use Mitek's solution.  While the bank's intent is to minimise fraud, Mitek's solutions do not specifically detect fraud.  Instead, Mitek focuses on verifying that the identify information being provided is valid.  The idea is that by decreasing identity risk you also decrease the risk of fraud. LN: I'd also love to hear about any figures you have regarding the number of customers you have helped banks/fintechs on-board around the world. SR: We can't give a complete number, but as an example we helped a credit company in the US onboard over 500,000 new customers in a three month period — customers they would have otherwise lost.  That's just one example of the impact of having a low-friction identity solution for the digital channel. LN: Mitek's use of 'Advanced Computer Vision' sounds quite neat. What is this and where does it fit in the process of verifying a customer's identity on behalf of a bank? SR: Mitek is able to verify the identity of an end-user by asking them to take a picture of their government-issued identity document with their smartphone.  This is an example of "computer vision" in that Mitek is leveraging the camera on the smartphone and combining that with sophisticated AI to identify the document. Essentially, Mitek is teaching its software how to understand what the smartphone's camera or "eye" is seeing.  Computer vision has long been one of the central objectives of AI, so for Mitek it is a natural combination. LN: You work with banks like MoneYou and CaixaBank — why do you think these big banks come to you for identity verification? How come these banks do not have their own processes in place? Is it a result of the new ecosystem where partnerships make more sense than going it alone? SR: All of Mitek's large banking customers have existing identity verification systems in place.  The new piece that they are relying on Mitek for is the automated verification of government-issued identity documents along with the ability to tie that document to the person submitting it using facial biometrics.  So, in essence, Mitek is augmenting the banks' current capability. LN: You also work with digital lenders and established fintechs such as Kabbage, MoneyGram and PayPal. Is there a significant difference between the work Mitek does with these firms and the work it does with banks? SR: Lenders and payment processors are subject to the same AML/KYC regulations as the banks so from that sense, there are no significant differences.  Mitek feels that its Mobile Verify solution is beneficial to any company or organisation looking to do business in the digital channel.  Trust is the foundation of business, and identity is the foundation of trust.  LN: Mitek recently purchased French AI and image analysis specialist A2iA. What was the significance of this move? In what instances would this AI be used and how does it complement the AI you are already leveraging? SR: A2iA is a world leader in several technologies that all have one thing in common: extracting knowledge from documents.  Optical character recognition (OCR) is the ability to find machine-printed characters in an image and correctly read them in digital format.  Intelligent character recognition (ICR) is similar, but for the much more difficult task of understanding handwritten or cursive text contained in the image of a document.  Mitek currently has a suite of OCR technologies targeted at the countries it currently supports, and those work well.  However we believe that by integrating A2iA's OCR and ICR into our identity products, we will be able to accelerate coverage for global identity documents for key areas such as Western Europe and Asia. LN: It's my understanding that crypto wallets and exchanges are under pressure to implement formalised KYC and AML processes to prevent misuse. Mitek is leading the charge in this field, from what I gather; you are already providing verification solutions to onboard customers at a crypto broker. Can you expand on this for me and explain why verifying identity in this instance is important? SR: Cryptocurrency wallets and exchanges represent new ways to transfer financial value, and as such represent a new payment solution.  The blockchain technology that forms the foundation of these cryptocurrencies can provide a highly anonymised environment making it difficult for governments to enforce anti-money laundering laws.  As such, it is very important that the exchanges collect reliable identity information from all users of the exchange — for all owners of cryptocurrency wallets.  AMLD5 (the 5th revision of Europe's AML regulations) formally includes cryptocurrency exchanges and wallets within scope of the regulation.  This means that in order for an exchange to lawfully conduct business within Europe, the exchange needs to meet identity verification requirements (Know Your Customer) as described in the regulation.  Mitek's Mobile Verify is a solution that allows the exchanges to comply with the regulation, while maintaining their "100 percent digital" user experience.

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Nick Burgess robotics interview

One of the primary fears about introducing robotics to the everyday operations of a financial institution is that it has the potential to drastically reduce the number of human-led jobs.Nick Burgess (former head of robotics at Danske Bank) is one of the leading figures in the field, and he tells Lafferty News about a widespread concern for many big banks today."There's a big cultural shift, and people are inherently nervous about robotics — whichever type of robotics they are trying to deploy — because there's a perception that robotic solutions are aimed at operational efficiencies which equal job cuts", he said."However, the type of work, the type of processes that are automated in the deployment of robotics, is not stuff that people want to do on a day-to-day basis. It tends to be boring, manual, repetitive work that isn't particularly rewarding, so there are two elements: first of all, it removes the daily grind from some of the activities and enables them to focus on the value-add piece, but then secondly it creates new opportunities."So, there are quite a few flipsides that even those mired in the everyday processes of banking and financial technology need to be aware of. The harrowing dystopian image of robotic overlords someday ruling the planet is still quite a tad hyperbolic.The fact is that FSPs which introduce AI or Robotic Process Automation (RPA) do not always end up forcing redeployment of people en masse. In truth the use of robotics in banking is not yet fully formed; banks still don't have a firm grasp on how to wield it until every operation from back office to front is digitally overhauled.Nevertheless, scepticism still permeates the discussion — and changing that mind-set across the board will take time.The view that robotics, alongside AI and all that comes with it (machine learning, automation and intelligent algorithms), has the greatest ever potential to change the industry may be a romantic one, but Burgess feels that if harnessed correctly, it can have a major impact in the years and decades to come. Until now it has been more talked about than engaged with, but Mr Burgess feels those days are fast disappearing.Mr Burgess notes that China is a leading light in the AI finance game. There, Shenzhen — one of the country's newest cities — has been compared with the poster-child hub of AI, Silicon Valley.For Burgess, China is engaging with and showcasing AI and robotics in all the right ways. Whereas others prefer to talk, discuss and plan, China has been actively pursuing progress and going out of its way to say 'this is what robotics can bring to your firm and this is how it will be implemented'."These guys have brought AI to life, they've brought this emerging tech, this fintech, to life and have actually shown valid use-cases that can be taken forward to drive a better service for the customer", he said."In the past, I've heard lots of talk about it, but I've never actually seen that materialise. It has been very high-level theoretical stuff, but this has been practical."That approach has certainly been very effective in allowing China to become an empowering destination for banks, fintechs and other FSPs to use robotics and to do so in a transparent, hands-on way. The West could certainly learn something from that.As Burgess explains from his own experience, Danske Bank is itself "doing a really good job of deploying robotics at enterprise level" alongside some other notable players, but adds that there are plenty of others who are letting themselves down."There are a number of people having success with [RPA]. I think there are also some organisations that are struggling with it in that they have purchased the licences, they think they've got the expertise to actually build it themselves, but actually they find they haven't because they don't have the right use-cases, the tool that they've purchased isn't fit for purpose for the problem they are trying to address, [there are] a whole variety of reasons they can fail".He explains that the failures are often because they don't recruit subject matter experts, preferring to strike out to go it alone when they should consult those in-the-know.Nick Burgess was speaking at Lafferty Group's Retail Banking-Fintech Conference in May 2018 in association with Tencent and Consulting China, in Shenzhen. IMAGE CREDITWikimedia Commons/Richard Greenhill and Hugo Elias of the Shadow Robot Company.

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Nordic banks KYC

Nordic banks navigated a relatively safe passage through the 2008 banking crisis. The seven biggest Nordic banks have a combined balance sheet exceeding two trillion euro and have performed well with respect to profitability and solidity measures.Leading Nordic banks have, since 2015, been hit by severe scandals and penalties due to bad anti-money laundering and poor KYC controls.Five major Nordic banks are now preparing a joint venture to collaborate on more efficient KYC processes. Scandals and penaltiesThe Panama Paper revelations disclosed that many of the leading Nordic banks were reported to have significant numbers of customers operating in tax haven countries.As of November 2017, the Norwegian Tax Administration is still actively investigating over 60 cases related to the data leak. The Swedish Financial Supervisory Authority, Finansinspektionen, opened an investigations in 2016 into four major Swedish banks for money laundering issues. In Denmark, two of the leading banks have been intricately involved in laundering Danish krone via Moldova and Latvia, ending up in Nordic accounts. So far, Finland has avoided the negative headlines and has a reputation for low corruption and transparency.By contrast, Iceland has witnessed a severe financial crisis, precipitated by the reckless actions of a small group of bankers and businessmen who used offshore companies to conceal their dealings in high-risk financial products. New challengesIn order to cover their tracks, criminals have learned to spread their business to different product systems, different banks in different countries, which of course makes it more difficult to assemble the pieces of the puzzle and detect patterns of money laundering, terror financing and tax evasions — especially when it is conducted by organised crime gangs.In addition, the new requirements of the GDPR has made it harder to detect such criminal activity as it is not now permissible to process data pertaining to individuals unless a legal basis for such processing has been sought and documented.Inefficient KYC processes also affect banks negatively, slowing down transaction processes, and increasing administration costs and risks.Finally, all these scrutiny processes impact the customer's experience and leave many struggling with time-consuming KYC information requirements, often with different formats for different banks. A common solutionTo help solve these problems five Nordic banks are now developing a new utility to enhance efficiency and increase security for the region's know your customer (KYC) processes."Our ambition is that customers shall have a far better experience of the KYC process. The main difference will be that they can update their information in one company and not in every bank connection", says Erlend Engh Brekke, public affairs manager at DNB.DNB, Danske Bank, Nordea, Handelsbanken and SEB intend to set up the Nordic KYC Utility as a joint venture to simplify customer onboarding and streamline information exchange."The company will be owned and controlled by the founding banks, however, the plan is that the company will also offer its services to third parties. The initiative will contribute to ensuring a healthy financial environment, prevent financial crime and to protect customers and society. The utility will initially service large and mid-sized Nordic corporates." says Brekke.The innovative joint venture first needs to be approved by the European Commission under the EU Merger Regulation but the company is expected to be established during the second half of 2018.Former banker Frank Jernberg is Lafferty News' Nordic correspondent.

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