The emerging role of fintech in times of conflict and displacement

The world is in the mid­dle of geopo­lit­i­cal upheaval. The inva­sion of Ukraine by Rus­sia has dis­placed mil­lions of peo­ple and threat­ens glob­al food secu­ri­ty. Else­where, refugees have fled for their lives from Syr­ia to Sudan, on per­ilous jour­neys to safe­ty or asy­lum.

In such cir­cum­stances, peo­ple leave their homes at speed, often with­out a valid pass­port or oth­er iden­ti­ty doc­u­ments. This can soon lead to short-term finan­cial exclu­sion. To mit­i­gate this, fin­tech com­pa­nies are search­ing for ways to ensure that peo­ple can access the infor­ma­tion that they need to quick­ly rebuild their lives. 

Katery­na Danylchenko is CEO of the Inter­na­tion­al Bureau of Cred­it His­to­ries (IBCH) and has expe­ri­enced both sides of this tough sit­u­a­tion. Since war came to Ukraine, she has closed her offices, evac­u­at­ed staff and tak­en refuge in France. 

She says: “With lim­it­ed or no doc­u­men­ta­tion and no access to some bank accounts, refugees and migrants were often met by a brick wall when they were try­ing to find employ­ment, accom­mo­da­tion or make pay­ments in their host coun­try.

“Since the start of the con­flict in Ukraine, rapid advances in fin­tech over the past few years have allowed me to con­tin­ue to access basic finan­cial ser­vices, whether open­ing an account at an alter­na­tive dig­i­tal bank, send­ing mon­ey to fam­i­ly and friends, book­ing tem­po­rary accom­mo­da­tion or being able to iden­ti­fy myself to land­lords.”

Fin­tech solu­tions have also allowed Danylchenko to top up her mobile phone account so that she could com­mu­ni­cate with friends and fam­i­ly. It also meant that she could buy aero­plane tick­ets for a woman and her daugh­ter, whom she met in a Kyiv shel­ter, enabling them to relo­cate to Madrid. 

But giv­en that IBCH is a Ukrain­ian sub­sidiary of fin­tech firm Cred­it­in­fo, a cred­it rat­ing agency focused on har­ness­ing alter­na­tive data in emerg­ing mar­kets, Danylchenko also sees first-hand how this can be used by fin­tech com­pa­nies to assist refugees when one big chal­lenge remains iden­ti­ty authen­ti­ca­tion. 

Cred­it­in­fo is work­ing with cen­tral banks, inter­na­tion­al mon­e­tary organ­i­sa­tions, banks and oth­er finan­cial insti­tu­tions to give refugees in Poland, Moldo­va and the Baltics access to cred­it reports that are used as a stand-in for that iden­ti­ty infor­ma­tion.

Danylchenko says that fin­tech ini­tia­tives will con­tin­ue to play an impor­tant role in Ukraine – and beyond – facil­i­tat­ing access to at least basic finan­cial ser­vices for refugees. But she argues that while devel­op­ments such as open bank­ing and open finance have offered bet­ter con­nec­tiv­i­ty with­in regions, finan­cial ser­vices and trans­ac­tions are increas­ing­ly inter­na­tion­al in nature.

Danylchenko says that fin­tech busi­ness­es are well placed to deliv­er enhanced cross-bor­der com­pat­i­bil­i­ty, but she warns this will only hap­pen if gov­ern­ments and cen­tral banks keep up with the poten­tial and do more to pro­vide inter­na­tion­al bridges.

“The war in Ukraine has high­light­ed how finan­cial con­nec­tiv­i­ty across bor­ders isn’t as strong as it could or should be,” she adds. “If a coun­try is exclud­ed from a glob­al pay­ment infra­struc­ture or if know your cus­tomer (KYC) and cred­it his­to­ry data can­not be shared across bor­ders, then it’s often the peo­ple flee­ing war who face dif­fi­cul­ties access­ing finance while they are reset­tling.”

Mikkel Velin, co-CEO at embed­ded finance provider YouLend, also sees KYC as a big prob­lem, giv­en strin­gent iden­ti­fi­ca­tion require­ments that can exclude refugees from the likes of mort­gages and busi­ness financ­ing. Fin­tech, he sug­gests, offers an answer by focus­ing on more data streams that can be analysed far more quick­ly.

“The main issue is dis­crim­i­na­tion and mis­un­der­stand­ing – pos­si­bly sub­con­scious – around what data is need­ed in the 21st cen­tu­ry to deter­mine whether some­one is eli­gi­ble to access cer­tain prod­ucts and ser­vices,” he says. “Wider data sources and open bank­ing can allow banks and lenders to make more con­crete risk assess­ments.”

Else­where, oth­er com­pa­nies are solv­ing dif­fer­ent prob­lems. For exam­ple, cheqd pro­vides a tech­nol­o­gy for peo­ple to take con­trol and own­er­ship of their data, known as self-sov­er­eign iden­ti­ty (SSI) or decen­tralised iden­ti­ty. A sim­i­lar SSI solu­tion was pre­vi­ous­ly pilot­ed by Tykn — now a cheqd part­ner — allow­ing the gov­ern­ment in Turkey to opti­mise and speed up the issu­ing of work per­mits to refugees and then hold the val­i­dat­ed doc­u­ments in a dig­i­tal wal­let.

There is anoth­er crit­i­cal area that fin­tech com­pa­nies must con­sid­er when it comes to con­flict, and that is the enforce­ment of glob­al finan­cial sanc­tions, such as those levied against Rus­sia. Many fin­tech solu­tions are being deployed to pre­vent fraud in this area, with start-up SEON recent­ly rais­ing $94m (£77m) in fund­ing for that very pur­pose. The war in Ukraine is now dri­ving demand for anti-fraud solu­tions to com­bat sanc­tions eva­sion by polit­i­cal­ly exposed per­sons.

SEON CEO Tamas Kadar explains how machine learn­ing democ­ra­tis­es fraud pre­ven­tion and fraud detec­tion, allow­ing fin­tech to ensure strin­gent mea­sures that allow cur­rent sanc­tions to be upheld.

“Fin­tech com­pa­nies can do their bit to help cut off some of the resources pour­ing back into the hands of unsavoury actors,” he explains. “With­out care­ful man­age­ment, fin­tech busi­ness­es could soon find them­selves being used to cir­cum­vent these sanc­tions. 

“With­out the right strate­gies and tech­nolo­gies in place, such solu­tions have the poten­tial to be exploit­ed. The fall­out wouldn’t only affect indi­vid­ual fin­tech busi­ness­es but could lead to the indus­try being seen in a neg­a­tive light by some mov­ing for­ward.” 

Gabriel Hop­kins, chief prod­uct offi­cer at Rip­jar – which was found­ed by ex-GCHQ tech­nol­o­gists – agrees. The com­pa­ny uses AI to counter finan­cial crime by auto­mat­i­cal­ly iden­ti­fy­ing risks from data and trans­form­ing insti­tu­tions’ approach­es to know your cus­tomer and anti-mon­ey laun­der­ing (AML) solu­tions.

Hop­kins admits the imple­men­ta­tion of these sanc­tions is “extreme­ly com­plex” giv­en the ties between Russ­ian indi­vid­u­als and com­pa­nies to Europe and the UK. This presents a huge reg­u­la­to­ry chal­lenge for the indus­try, includ­ing for fin­tech busi­ness­es such as neobanks, which are 100% dig­i­tal and use apps and online plat­forms rather than branch­es, and oth­ers that trade inter­na­tion­al­ly.

He main­tains that banks and oth­er finan­cial insti­tu­tions must have a “bal­anced sanc­tions and watch­list man­age­ment approach” to guar­an­tee “100% adher­ence” to glob­al sanc­tions lists while using oth­er sup­ple­men­tary lists for a holis­tic view of risk. 

Part of the puz­zle to solv­ing this is through machine learn­ing and advanced ana­lyt­ics to auto­mate the screen­ing process, he says, with next-gen­er­a­tion name-match­ing soft­ware ensur­ing banks and finan­cial play­ers can: “Max­imise true pos­i­tive hits on glob­al sanc­tions and watch­lists and min­imise false pos­i­tives.” 

But to achieve this, Hop­kins high­lights one big advance that will be vital and is need­ed urgent­ly – fin­tech com­pa­nies tap­ping into a range of lan­guage sys­tems. 

He adds: “In the future, there will be a greater need to process match­es that include Cyril­lic, Asian and oth­er char­ac­ter sets with West­ern or Latin names and vice ver­sa. Being able to dis­tin­guish between and draw links between Lati­nate and non-Lati­nate lan­guage sys­tems is key for names that have alter­nate spellings. 

“For exam­ple, Vladimir can appear entire­ly dif­fer­ent and would need to be tracked sep­a­rate­ly, but also treat­ed as the same name.”