Fighting financial crime in a digital era

6 min read

As the pandemic and consequential lockdowns forced a powerful shift from consumers towards e-commerce, the rate at which online financial crime has evolved has also drastically increased. Threats of fraud are evolving at speed, demanding that financial institutions are able to respond and combat trends immediately to protect customers and the broader community. Today’s cyber criminals are constantly improving their schemes to take advantage of the wide proximity of the global web and the increasing number of consumers who are susceptible to their attempts online.

What does this mean? In the past years, the banking industry’s main challenge in the digital space was in fighting account openings with so-called “fake-IDs” and data. However, with measures that we and other banks implemented to prevent this, cyber criminals have shifted their approach to selling/buying the identity and data of individuals who are convinced by social engineering scams or job offerings to share their information.  

Fighting these evolving threats is a constant effort and we have made many effective commitments to tackle these industry-wide issues because security is of the utmost importance to us at N26. 

As a foundation, our German banking license along with a Pan-European reach means we are governed by the same regulations as traditional banks to meet a high standard of banking. We are fully committed to holding ourselves to those strong standards and clear anti-money laundering guidelines that are a crucial base of trust and security in our industry.  N26 is taking several highly effective actions to continue to fight against the new global wave of financial crime and keeping our customers’ money safe.

Getting a team of experts on board

Going all the way back to 2019, our Chief Banking Officer Thomas Grosse came on board at N26, with the task to build a strong governance structure across the N26 Bank and the N26 Group. One of the focus areas: setting up an effective and efficient Anti-Financial-Crime and Anti-Money-Laundering structure and hiring additional specialists. 

Thomas has a wealth of expertise and experience in the space where banking and technology converge. Before joining N26, he was Industry Leader Banking at Google Germany, responsible for partnerships with German banks and fintechs, and closely involved in the market rollout of Google Pay. Previously, he was a director at Deutsche Bank for their private and business clients. He started his career as a consultant at McKinsey serving the banking and insurance industry.

In 2020, I joined N26 to share my broad experience and profound expertise on compliance and financial crime prevention, a journey which started over 20 years ago. I have specialised my entire career and university education on the topic of compliance and combating money laundering, starting with a doctoral thesis at the University of Bielefeld focusing on “e-Money Laundering” and the limits that can prevent criminal offenses in digital payments. Since 2003, I have worked in senior directorial roles in compliance at several large banks such as the former WestLB, Commerzbank, and J.P. Morgan building industry leading compliance solutions meeting regulatory and business requirements alike.

Since joining N26, I have rebuilt a very experienced international team of outstanding professionals with deep experience in fighting financial crime from across the banking sector. We are working together to build an even more robust and future-proof compliance platform with the aim to become industry leading.

In recent years, we have not only doubled staff to strengthen our anti-financial-crime (AFC) divisions, but also continue to strengthen our approach in this area with the use of artificial intelligence, advanced algorithms, statistical modelling and machine learning. We have teams working on optimising our digital advantage by using secondary metadata and behavioural analysis to detect fraudulent patterns so that we can respond to any suspicious behavior immediately.

Developing the right tools 

In recent months, we intensified our efforts and implemented a special AFC enhancement program, consolidating efforts which were already underway in other teams across N26 - from improved transaction monitoring to further security enhancements of the onboarding processes for our customers.

In the last couple of weeks, we have enhanced our systems to a point where we can detect  fraudulent transactions in real time and block and report them immediately to the Financial Intelligence Unit (FIU). We are constantly optimising our Anti-Financial Crime (AFC) operations to be increasingly accurate and quicker, but we have reached this pinnacle with constant investment in automation, combined with artificial intelligence and behavioural analysis. 

This means we are one of only a few banks in Europe who is able to detect and assess suspicious activity by a combination of intelligent data points, algorithms and machine learning in real time. This pace for innovation is a result of a deep commitment within N26 to invest in innovation in our AFC approach just as much as our product experience. 

Today, the first results of these efforts are already visible:

  • Sophisticated machine learning models and enhanced capabilities to track and block marketplace fraud to help us detect fraud at a faster rate than the industry standard. 

  • Enhanced 24/7 monitoring has helped detect high-risk or potentially fraudulent accounts in real time, so our team can act swiftly to block and close these. Our dedicated teams continuously work to identify, investigate, process and close any accounts which have a potential for fraudulent activity on an ongoing basis.

  • We hired additional staff to add human intelligence to our smart systems, processing potential cases and monitoring sophisticated patterns and suspicious trends in behavior as these emerge.

We work very closely with local authorities, regulators and law enforcement to prevent financial crime. As a result of these improvements we have been receiving positive feedback from prosecutors and police on our fast and efficient response to help law enforcement in taking down organised crime rings.

Implementing more restrictive rules

On top of developing the right tools, we have continued to tighten our rules when it comes to onboarding and account usage.  

Specifically, we have strengthened our KYC approach beyond industry standards with the implementation of further criteria that helps identify and block fraudulent sign-ups before these are processed. We have managed to introduce a highly sophisticated algorithm which checks, in addition to the current 210 data points, more than 70 data points on every customer who tries to open and use an N26 account to determine the authenticity of their identity. The algorithms are trained by detected fraud patterns  in the past at N26 and across the industry for us to leverage.  

On top of this, knowing that the ability to withdraw large amounts of cash is a security risk, we reduced the daily cash withdrawal limits from €2,500 daily to €1,000 daily for European markets. The new withdrawal limit also reflects changes we are seeing in how our customers are using less cash today, and is another measure that allows N26 to better ensure the safety of accounts.

We also believe that an important element in preventing financial crime is to educate customers and raise awareness around security, such as our comprehensive security guide and numerous online resources on how customers can protect themselves while banking digitally. 

As a leader and pioneer in digital banking, we know we hold an important responsibility to help lead the fight against financial crime in today’s digital age. Tackling global financial crime is a shared responsibility amongst our entire industry, tech players, society, and authorities. It is a battle we fight together and we take our responsibility very seriously.

By N26

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