Risk management vs. risk orchestration
The analytical, data-rich world of technology and finance remains in stark contrast to less linear, creative fields like art and music. However, a musical analogy can help illustrate the fundamental difference between risk management and risk orchestration.
Musicians playing instrumental solos can sound hauntingly beautiful. When playing together in an orchestra, the effect is amplified with fervour. But an orchestra requires a conductor to keep time and ensure that all instruments play together in harmony. Without that guidance, any recital will quickly descend into a chaotic din.
Traditional risk management strategies are akin to putting a group of highly accomplished soloists together without a conductor. This can only result in a confusing, tangled noise. A risk orchestration strategy is the conductor in this analogy – bringing order, unity, and harmony to an otherwise siloed and disjointed series of financial crime and fraud processes.
This unified approach is a more innovative way of addressing threats and issues. Which is why it’s gaining traction amongst fintechs.
An agile and disruptive mindset
LexisNexis® Risk Solutions surveyed 201 UK financial services organisations in September 2022, including fintechs. It found that 30 per cent are investing in anti-fraud and financial crime solutions over the next 12 months.
Fintechs see this as a priority, as they know technology, software and data sources are all fast evolving. Investment in these areas is an effective means of beating ever-changing, and increasingly relentless and sophisticated fraudsters and criminals.
More importantly, fintechs are applying their agile and disruptive mindsets to how they can embrace and deploy even more effective fraud countermeasures.
Research data shows that financial service organisations rely on an average of five external vendors for data sources or solutions to help detect and prevent fraud and financial crime. This number will increase as fintechs invest in additional levels of due diligence.
But there’s often a misconception, especially amongst more traditional finance organisations, that additional levels of prevention will bring unavoidable complexities and consequences.
Fintechs don’t share this view. Instead, they utilise risk orchestration software to challenge conventional thought processes and evolve financial crime and fraud risk strategies.
Trendsetters challenging convention
Conventional thinking dictates that adding additional layers of due diligence means processes will become more intensive and demanding on the customer. Increasing the monitoring of customer activity and transactions, introducing extra verification checks or enhancing multi-factor authentication are all priorities for finance organisations. And by default, these are perceived to require more time and resource commitment on a company’s part.
Generally, it’s a price worth paying in the bid to create a robust, frontline defence against fraudulent and criminal activity that protects customers and brand reputation and keeps the regulator happy.
Fintechs know that enhanced due diligence doesn’t have to be synonymous with slow service. They are often leaders in software that better meets customer demands for fast, slick services that are as seamless and secure as an online banking app.
Fintechs are at the forefront of technology designed to overhaul inefficient and archaic processes and strengthen regulatory compliance. Financial crime and fraud risk orchestration is simply the latest evolution of this tech-centric vanguard.
Automated decision-making
Risk orchestration provides the ability to create an end-to-end screening platform that automates complex decision-making. This can draw from as many data sources as required, all brought together to create unified rules and scoring during customer onboarding.
Customer behaviours can also be automatically tracked to quickly detect anomalies, with flexibility configured according to bespoke risk appetites. Orchestration software can also be scaled in line with an organisation’s growth strategy, without specialist coding or technical support.
When adding third-party data sources and vendors to the anti-fraud and financial crime process, fintechs can do so in days, not weeks. This level of agility truly fits with the creative and innovative use of technology and software that sets fintechs apart. It’s a key reason why they’re pioneering the trend of financial crime and fraud risk orchestration.