Fraud prevention for fintech industry: How Covery helps obtain EMI license 

Andrii Degeler

Andrii Degeler

Journalist and podcast host based in the Netherlands. Covering all things technology since 2007 for Tech.eu, Engadget, TNW, Ars Technica UK, the Kyiv Post, and more.
andrii@tech.eu

Editor’s note: This is a sponsored article, which means it is independently written by our editorial team but financially supported by another organization, in this case, Covery.ai. If you would like to learn more about sponsored posts on tech.eu, read this and contact us if you are interested in partnering with us.

With the rise of the fintech industry across Europe, more and more players are bringing their new ideas to the field, from challenger banks to buy now, pay later (BNPL) platforms to salary-on-demand providers. However, the financial services are strictly regulated (and rightly so) across the continent, requiring new players to jump through plenty of hoops to start operating.

The main roadblock on the way to establishing a new fintech player is obtaining an e-money license, properly named the Authorised Electronic Money Institution (EMI). A procedure of getting one can be easily found online, but the rules differ significantly between European countries like Switzerland or Lithuania. At the end of the day, going for an electronic money license means spending quite a bit of resources to do the paperwork right.

That’s where Covery.ai comes in. While its product was initially released in 2016, the team behind it has eight years of experience in the payment industry. The company is a global risk management platform that offers a technical background covering all the needs of an EMI licensing application at each stage. Covery provides a range of automated solutions for fintech operations: KYC/KYB/AML, anti-fraud checks, transaction monitoring, etc.

Routine checks automation

One of the most important parts of the documentation needed for receiving an e-money institution license in any European country is related to know-your-customer (KYC) compliance. In simple terms, KYC is the identity verification of a user. Without a doubt, it is a crucial part of customer due diligence, which protects businesses from money laundering, identity theft, cyberterrorism, scam, and other fraudulent activities.

As a part of anti-money laundering (AML) flow, every electronic money institution must continuously ensure that its users aren’t present in the database of known politically exposed persons, also known as the PEP list. A PEP is generally any person who holds a prominent position in public life, from a head of state or a minister to a senior corporate executive or a military official.

Covery is an integrated risk management platform enabling you to solve all the challenges an e-money institution can face during its operations. The data collected at each customer journey step forms a holistic user profile, simplifying the ongoing KYC, AML and anti-fraud checks.

Compliance is key

Because online payments require a superior level of risk assessment and scam prevention, anti-fraud solutions are very central to this line of business.

Key services of EMI companies are merchant account opening, IBAN settlement, SEPA/Swift transfers, cross-border payments in multiple currencies, currency exchange, and online acquiring. All of them require that users pass the KYC procedure in the beginning and during every transaction. This ensures regulatory compliance — and this is where Covery really shines, preventing possibly fraudulent actions before they result in regulatory fines.

“Today we don’t know any industry that doesn’t need KYC procedure,” said Aleksandr Khelemskiy, product owner at Covery.ai. “The fintech industry is particularly highly regulated and demands identity verification to ensure responsible gaming, make up-to-date payouts, and detect fraud. However, lots of fintech businesses spend a lot of their risk managers’ resources on time-consuming KYC. Thus, KYC automation and all the rest of the steps performed by Covery help e-money institutions automate a huge chunk of their routine”

Real-time anti-fraud and AML checks

The sore point of most payment service providers and banking entities here is the need for third-party integration with PEP list providers. Covery takes care of this thanks to being a certified partner of Dow Jones, the global leader in data intelligence for anti-money laundering, anti-corruption, economic sanctions, third-party data, and commercial risk. Thus, the PEP list check is already included in Covery’s features.

In view of constant PEP list updates, the Covery platform checks users at their every action automatically, which takes as little as one second. Covery also performs the check of the user’s device through the global reputation data network called Trustchain. At the moment Trustchain contains more than 27 million device reputation records gathered with device fingerprinting technology.

Here is what a standard user journey looks like.

During the user account registration, Covery uses device fingerprinting and checks if the user comes from a country that is under sanctions or matches against other filters, based on 300 million of reputation records, the Trustchain technology. This way, when the customer tries to open a bank account, Covery already shows their language and performs automated KYC checks against PEP/ RCA/ SAN sanctions lists worldwide.

The results of these checks are stored within the user profile and are updated during every transaction to help identify corrupt politicians and affiliated persons, terrorists, criminals, and other suspicious individuals. This information is also used later as a part of ongoing transaction monitoring, and forms a part of a user’s risk rating.

When the customer signs up, Covery updates their profile after each login, using device fingerprinting and user behavioral analysis to prevent phishing and account takeover scams. The platform enables the client to configure limits on the types and quantities of operations a user can perform daily and checks every transaction to ensure both the sender and the recipient are not in the PEP/RCA/SAN and other lists. This is done in under 1 second thanks to direct integration with the Dow Jones databases — one of the world-leading data providers for anti-fraud and anti-money laundering checks.

Should the customer decide to issue a bank card with your electronic payment institution, they might engage in synthetic identity fraud, perform other kinds of fraud or engage in money laundering. Automated user behavior analysis checks performed by Covery allow flagging such transactions as suspicious immediately to reduce the risk of future chargebacks and other complications. The same goes for ATM and land-based card operations and allows preventing lost/stolen card scams and other types of fraud.

Finally, if your customer operates a merchant account, you should also check every incoming transaction to ensure both the sender and the recipient are not in any watchlists. Covery provides configurable risk logic scenarios, allowing to specify risk management workflows based on the merchant group, industry, location, and other factors. 15 such flows that can be adjusted according to the needs of any business are available off-the-shelf.

By combining all these services, Covery strives to be the one-stop-shop for everything needed for EMI licensing and staying compliant with the latest regulations and requirements. With years of experience in fraud prevention and data analysis, the company provides the important automated infrastructure for the rising wave of fintech applications across the continent — cutting lots of resource-intensive paperwork along the way.

Image credit: rupixen on Unsplash

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