The world is quickly moving towards a cashless society, and with the rise of digital wallets and mobile payments, where does this leave the Lunar New Year tradition of gifting little red packets of cash, known as hong bao? The digitisation of hong bao has been on the rise in recent years and with the pandemic looming over this year's Lunar New Year festivities, we are likely to see even more people sending and receiving e-hong bao than usual. FINTRAIL and transaction monitoring and screening solution provider, ComplyAdvantage, explore what payment services and financial institutions may see from a payments and transaction monitoring perspective during this period.
Rise in ‘e-hong bao’
Recent years have seen a gradual shift towards “e-hong bao” with the first of this type of product being launched by Chinese mobile payment and digital wallet provider, WeChat Pay, in 2014. Since then, other payment and banking providers such as PayNow, GrabPay and DBS have followed suit introducing new, creative ways for people to send and receive hong bao without the use of cash. DBS’ ‘QR Hong Bao’, for example, allows its PayLah! App customers to load money onto a physical card via their banking app using a QR code, in which the recipient can then redeem the value by scanning the QR code. PayNow uses its peer-to-peer fund transfer service which allows money to be transferred to a recipient using only their phone number or National Registration Identity Card (NRIC) for Singaporean customers. Most recently, Revolut Singapore revealed its designs for its new gifting feature which allows customers to send e-hong bao in any of its 28 in-app currencies for free. Just like physical red packets, Revolut customers can choose from a selection of designs with customisable greetings and schedule them to be sent on a specific day.
Today, with the pandemic looming over this year's Lunar New Year festivities, celebrations are likely to look a little different, with families no longer crossing borders to celebrate with loved ones, mass celebrations being replaced with virtual gatherings, and the gifting of hong bao also going digital. In Singapore, there has been a government push to encourage the adoption of e-hong bao and e-gifting. The Monetary Authority of Singapore (MAS) has encouraged those who celebrate Lunar New Year to give out e-hong baos, as it will not only help to reduce queues for new notes from a Covid-friendly perspective, but also has the benefit of being significantly more eco-friendly, as it will reduce the printing and subsequent wastage of red envelopes and new notes returned to banks after each festive season. Likewise, the Association of Banks in Singapore (ABS) has also supported MAS’ stance, as it claims e-gifting enables the tradition of giving hong baos to continue safely and complements the existing safe management measures in place. In Singapore, this effort is further encouraged through the MAS incentive of rewarding the most innovative FinTech e-gifting solution with a special recognition at the Singapore FinTech Festival in November this year.
Key trends
So, what does going cashless and the rise of e-hong bao mean for payment services and financial institutions when it comes to monitoring customer activity during the Lunar New Year period? FINTRAIL and ComplyAdvantage explore some key trends that have been identified across the industry and provide payment services and financial institutions some high-level considerations when it comes to monitoring customer activity during this time.
Payment services and financial institutions are likely to see a spike in transaction monitoring and payment alerts during the Lunar New Year period, as a result of the increased volume of payments being sent by customers. This is due to traditions like the gifting of hong bao or other traditional customs, such as paying off any debts and loans, including mortgages, as well the gifting of shares in companies. For many payment services and financial institutions this includes two distinct spikes associated with pre-new year and post-new year activities.
Financial institutions may also see an increase in payments through alternative channels, for example, if they only offer their e-gifting products at certain times of the year. For these seasonal specific products, banking providers may see an increase in account openings during this period, for accounts that are purely set up for e-gifting purposes, and are only used at this time of year. Accordingly these accounts may remain dormant until the following year. This pattern of customer activity may trigger a number of alerts involving dormant accounts.
Customers are likely to be sending payments to a wider audience and beneficiary group compared to their average payment history. This may include both local and cross border payments to a wider variety of individuals in their network including friends, relatives, business partners, and employees. E-hong bao can also be gifted from a range of customer segments including wholesale and business customers. This includes gifting between businesses, from businesses to its employees, and between business partners. This variety of payments may increase the number of payment screening alerts for payment services and financial institutions.
With these trends in mind, mainly relating to the increase in volume of payments and associated transaction monitoring and payment screening alerts, what are some considerations financial institutions and payment services should take into account to manage these spikes and assess financial crime risk appropriately? Ahead of the Lunar New Year, Compliance teams may want to consider the following:
Work with data analysis teams and transaction monitoring system owners to calibrate rules to address the expected spikes and volumes during this period, for example by increasing thresholds for cash base rules, to reduce the volume of single or aggregated alerts
Perform sandbox testing to provide assurance that any new or modified rules have been tested sufficiently and are effective in identifying typology risk. Calibration and testing will ensure operational efficiency during this period but also ensure Compliance teams are adequately resourced to address any spikes in volume of alerts as well as manage BAU processes.
Leverage resources from other regional transaction monitoring and investigation teams that do not celebrate Lunar New Year to assist with any potential spikes and backlogs. This may also present itself as an opportunity for teams to provide analysis on any patterns and trends identified through analysing the data from afar.
Increase staff awareness around the cultural traditions of Lunar New Year and any nuances of how it is celebrated between countries. Taking the traditional customs of paying off debts, loans and mortgages, compliance professionals will need to understand what financial crime risks and red flags may be associated with early repayments and how to appropriately assess these risks and distinguish between early repayments from legitimate sources of funds compared to illicit funds.
Increase staff awareness around seasonal scams and frauds perpetrated by bad actors using the increase in volumes expected and business closures during the Lunar New Year period to integrate illicit funds. This may include paying increased attention to local and global regulators publishing any regulatory updates or warning notices pertaining to seasonal scams.
If you would like to contact us about any of the topics raised in this article, or about your financial crime compliance needs in the APAC region, please contact sara.abbasi@fintrail.com
ComplyAdvantage is an AI-driven financial crime risk data and detection technology company transforming financial crime detection. The company actively identifies tens of thousands of risk events from millions of structured and unstructured data points every single day. ComplyAdvantage has four global hubs located in New York, London, Singapore and Cluj-Napoca and is backed by Ontario Teachers’, Index Ventures and Balderton Capital. Learn more at complyadvantage.com.