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New Breed of Online Businesses Face Unique Transaction Risks

Payza featured in Compliance Week

Our CCO, Ferhan Patel, has been featured in a new article from Compliance Week. Compliance Week, an information service on corporate governance, risk and compliance, published an article focusing on the challenges facing emerging tech companies featuring advice from top compliance, risk and fraud specialists. Visit Compliance Week to read the full article: New Breed of Online Businesses Face Unique Transaction Risks.

Below is an excerpt from the article, including Mr Patel’s comments.

September 2013 – Compliance Week

Empowered by “Web 2.0” and built on the foundation of social media, a new wave of companies is taking shape, described as “next generation” businesses. Companies with names like AirBnB, Uber, Lyft, and Square are raising new compliance and regulatory challenges.

Many are non-traditional, dabbling in virtual currencies or engaging in peer-to-peer transactions, or are part of the “sharing economy,” where users lend and borrow cars, boats, houses, and vacation spots. These companies face unique money laundering and financial transaction risks that traditional online companies haven’t had to deal with.

In a traditional venture, money laundering controls only look at one side of the transaction; many of these companies demand a dual-sided approach. In some ways the risk profile for some of these companies is mitigated because the cash amounts exchanged are often small. In other ways, however, risks are enhanced because they deal in, and with, non-traditional financial services. Their social media component can also open the door for international scammers who target users.

Reputational risk also has a very clear-cut financial impact on these types of business. To share, customers must trust that they are protected. If that’s not the case, they take their money elsewhere.

Given the risks they face, what should these emerging companies do?

Vigilance is crucial, says Ferhan Patel, chief compliance officer and director of global risk and compliance for Payza, a global online payment platform. “The various fraud scenarios that we monitor on a weekly basis are incredible,” he says. “For someone in a developing nation, if they make $10, or $100 each time, they consider it worth the risk that they are putting in because they are sitting behind a computer thinking no one will be able to catch them. The reward outweighs the risk.”

Crooks may not just steal credit card information. They may also try to manipulate currency exchange rates, or alter IP addresses, he says. Red flags may be an unusual pattern of log-in attempts, whether in number or location.

That vigilance, Patel says, has to extend to social media sites. On a frequent basis, he will find videos posted to YouTube and Vimeo that purport to be instructions on how to hack into his systems. Most are fishing for an individual who, by turning to a hacker, gets hacked themselves. With constant monitoring of video and social media sites, he can respond quickly and remove the offending content to protect those who may become victims.

Patel stresses the value of mentoring and industry collaboration. He suggests finding external expertise, whether it is paid consultants, free advice, or through a business group such as the Stanford University based BayPay Forum, which networks payment professionals.

“You might know about technology, but you need to find someone who understands the payment space inside out and can help you avoid pitfalls along the way,” he says. “You can’t just read about compliance online. You may not realize what it actually means in application or in practice. Anyone who is starting up, whether venture backed or privately backed, should be networked and find other people in the same space.”