Banks depend on customer trust. To ensure that they’re doing everything possible to reduce risk, prevent fraud, and abide by the rules, banks need to operate large compliance departments.
But compliance processes are undergoing a digital transformation, much as all other parts of the financial sector constantly have to adapt to technological change.
Startups like Tookitaki have specialized in this niche by building software solutions that improve the compliance processes in the financial sector. The Singapore-based company, which raised USD 7.5 million in a Series A funding round in March 2019, currently offers two solutions–an AI-enabled anti money laundering suite (AMLS) and a reconciliation suite (RS).
Its founder Abhishek Chatterjee, a former associate at JPMorgan, said that Tookitaki decided to focus first on anti-money laundering solutions as banks were going through massive regulatory changes where they needed better support through improved anti money laundering processes.
“All our theses [suggested] that the way banks manage their compliance process as a whole was not really scalable as it was very manually intensive,” he told KrASIA in a recent interview.
“After the 2008 financial crisis, regulators across the globe became stricter about financial checks and balances to maintain financial stability at all financial institutions,” he said. As the overall volume of digital banking transactions increased, traditional rules-based anti-money laundering monitoring is not as effective as it generates high numbers of false positives due to the rules’ threshold.
Artificial Intelligence can improve the process. With machine learning, a form of AI, algorithms can be taught to detect and to recognize suspicious behavior and risk rate them accordingly. They will learn to focus on “bigger” risks whilst knowing which transactions they can flag as safe, analysts at Deloitte explained in a whitepaper on using AI to combat money laundering.
Deloitte recommends compliance departments embrace innovation, with the goal to reduce false positives and to bring about greater effectiveness in the process.
Rolling out the solutions
Banks need new solutions, and startups are willing to offer them–but bringing about change in highly regulated environments such as banks can be challenging.
Chatterjee said that the company uses a ‘glass box’ approach—making sure that Tookitaki’s solutions can be easily explained and understood from both business and technical aspects—to establish trust with banks who form the core of Tookitaki customers. “If you are not able to explain [the products], you will not be able to establish trust. As an early-stage company, if you can’t establish trust, no one will buy your products,” he said.
Chatterjee learned to take it slow with banks. Looking back, he said that one of the missteps that the company made was to sell its solutions prematurely. “We found out that banks don’t like large platforms. Rather, they like specific solutions which can help them solve one problem at a time,” he added.
That’s when Tookitaki decided roll out its solutions individually, rather than overwhelming clients with access to all of its tools at once. That way banks have the chance to test individual applications in a safe environment.
Last year, Tookitaki teamed up with UOB on a pilot program to apply its anti money laundering suite.
The bank used Tookitaki for name screening and transaction monitoring within its own anti-money laundering framework. It yielded positive results. Tookitaki reduced the number of false-positive alerts by 40% and increased the detection of new suspicious cases by 5%. For name screening alerts, there was a 60% and 50% reduction in false positives for individual names and corporate names respectively, said Chatterjee.
After the successful pilot, Tookitaki’s anti-money laundering solution is now “in pre-production stage” before it becomes fully operational at UOB, he added.
Tookitaki charges for its software with a subscription model, based on the size of the team that is using the solution, Chatterjee explained.
Even though Chaterjee had to learn to package and sell Tookitaki’s solutions one-by-one, he still thins it was one of the firm’s good decisions early on to think of itself as a platform for compliance instead of just focusing on one application,
This “made the market that much larger for us,” he said. “We were not just stuck with a single solution. We could use the success of our anti-money laundering solution to sell other smart apps,” he added.
The second one, Tookitaki’s reconciliation suite, helps banks find discrepancies in their debit and credit systems and manage their balance sheets across different applications. That’s also in test phases now with big clients. Societe Generale, for example, has leveraged Tookitaki’s Reconciliation Suite to automate the bank’s existing break reconciliation system.
The third, a credit portfolio monitoring suite is set to launch in the first quarter of 2020.
Tookitaki aims to create one new solution every 15 months and expects Singapore and Hong Kong, with its vibrant financial sectors, to become its biggest markets. However, Chatterjee declined to provide any revenues estimates.
The company also decided to expand to the US, setting up an office in Charlotte in September last year in anticipation of further global expansion.