iProov, a U.K.-based company specializing in mobile security and identity, has won a fintech competition organized by Citi in Singapore that its founder hopes will lead to globally scalable business.
Andrew Bud, CEO of iProov, says the acknowledgement “provides a level of enhanced access to the organizations represented”, which in addition to Citi include Clifford Chance, MasterCard, Microsoft, Monetary Authority of Singapore and PwC.
“This will allow us to build a relationship, which should lead to serious commercial activity,” he told DigFin. Although the company signed its first customer in 2014 (clients include BBC and Britain’s tax authority, as well as banks), its business has been limited to northern Europe.
Winning a Citi-backed competition in Singapore gives the small company a shot at scale.
RegTech the rage
Jay Collins, New York-based vice chairman of Citi’s corporate and investment bank, told DigFin that both financial institutions and governments are eager to find technological solutions to the risks of fraud, corruption and criminal activity around flows of information, transactions, payments and collections.
“If we can digitize these flows and issues around identity – if we can close the gap on the last mile by bolting it onto devices, wallets, documents – we can electronify the entire flow,” he said.
Collins says fintech’s greatest application is likely to be around compliance, anti-money laundering and know-your-client regulation. “Our KYC costs have exploded,” he said. “The industry spends billions of dollars to meet its compliance needs and go after illicit flows, but with questionable results.”
Vast sums have gone into cleaning up financial markets in the wake of banks being caught helping customers evade taxes and to help criminals move money – not to mention huge settlements by banks for market manipulation in interest rates, foreign exchange and other instruments.
Governments, meanwhile, face problems with fraud and corruption in areas such as procurement, as well as rising costs of supervising markets.
Yet financial fraud continues to cost society anywhere from $2 trillion to $4 trillion a year, based on a variety of projections made by fintech companies pitching to Citi and its partner firms.
“I don’t believe all that extra money [spent by banks on compliance] has dented those trillion-dollar numbers of fraud and corruption,” Collins said. “The industry and the regulators can’t be anything but disappointed.”
A number of reasons enable this, among them the technological sophistication of fraudsters. That includes facial recognition, which is iProov’s area of expertise.
“Every single system [for cyber-security] based on facial movement detection is breakable,” Bud said during the company’s pitch. “It’s incompetent as a method of security.”
The problem with face verification is that it’s too easy for images and even videos to be copied and pasted; hackers can record someone’s image by hijacking the cameras in their devices; or a device’s API (application program interface) can be attacked.
Authenticating digital identity
iProov’s response is to have a person – say a potential new customer of a financial institution or a citizen seeking public services – to take a video selfie using its app, which casts the person’s face in a random array of colored lights. The app sends the video to its server to confirm the lighting and sequence of colors, matching it to a passport, government I.D. or other document.
“We’ve added information to the scene by controlling the screen and the illumination,” Bud said. “Authentication is at the core of digital identity.”
iProov has its own drawbacks. It works best when its video images are compared to an original document that is embedded with biometric capabilities, such as passports issued by most rich countries. The technology works with lesser forms of identity documents, but at a lower degree of integrity.
Secondly, in many developing countries, people lack a basic identity document of any sort.
Thirdly, the app works on Android phones but not on iPhones: Apple hasn’t opened third parties to its underlying protocols allowing for contactless transmission of information (such as taping your phone on a merchant’s device to send money).
These are out of iProov’s control: “We don’t do documents; we do faces,” Bud said.
He added the company uses Microsoft’s Azure cloud service to transmit and verify faces; some companies – including Citi – prefer to work with its private cloud, relying entirely on its own servers. iProov can operate on private clouds too, but at extra cost and operational complexity.
Despite these flaws, Bud says winning Citi’s ‘Tech for Integrity Challenge’ in Singapore will help his company convince potential customers that they can innovate while also managing risk.
Collins says the competition is aimed at helping the bank’s public-sector clients use artificial intelligence, big data and other tools to clear out paperwork, simplify regulation and reduce costs, while also combating bribery and other problems.
He wouldn’t comment on iProov or any other company in the process, but says the bank and the other firms involved can package many participating companies’ offering for different regulators’ needs, as well as onboard them, buy them, or adapt them for commercial uses.
Over 100 fintechs are participating in various rounds of Citi’s competition, held in Abu Dhabi, Buenos Aires, Dublin, Hyderabad and Mexico City. The bank’s corporate partners vary by region.