18 December 2017
Sriram Natarajan

Sriram Natarajan

Sriram Natarajan - Credit Risk Fraud Cards Professional

74Posts 203,808Views 29Comments

P2P - Power to Phishers?

07 January 2008  |  2320 views  |  2

The onset of the New Year gets me thinking on what are the likely fads and buzz words in 2008.  2007 has already enriched our vocabulary with 'sub prime' , 'Ninja loans' and other such terms that a Credit dog's delight. Come to think of it, some of the fads like mobile payments have been around for some time now!

 I came across a report by Javelin Strategy Research outlining the potential of P2P business. P2P seems to have caught the eye of mobile operators, payment organisations and banking community in general. The high profile visibility attached to P2P lending/networking sites like Zopa, Prosper and Facbook seems to suggest that social networking sites are going to play a much bigger role than just connecting people.

However, the Risk dog in me sniffs trouble here. Who is going to regulate these sites and how? As ever, it is highly likely that the nefarious elements in our world are likely to make smart use of the P2P avenues than the masses.

Imagine a money laundering 'enterprise' wanting to spread its funds around. Well simple; use lenders on sites like Zopa, Prosper and Facebook. We have seen numerous cases of phishing 'mules' used by criminals to wash their dirty money. Just a few months ago, there was a landmark case of hundreds of poor immigrants being asked to deposit small amounts of cash into their bank accounts and then transfer them to accounts of criminal enterprises and withdraw through ATMs. To me it seems quite easy for a launderer to get ten 'mules' on each of these sites. Even if each mule lends 10,000 dollars a week on each site, the numbers can be mind boggling! Who knows, the pleasant face lending small ticket amounts at 'easy terms' may actually be a front of something more sinister. Social lending is on a mass scale, of small amounts, and quite often very personalized. The USP of 'anonymous' borrowing (i.e. not have to go to a bank and prove your creditworthiness) may  be a bugbear.

While P2P may sound exciting and holding forth tremendous possibilities, the potential darker fallouts need to be sized up and regulatory authorities have to figure out a way of control. Banks may see their multi million dollar spend on compliance and KYC being circumvented by social networking sites offering credit.

TagsRisk & regulationRetail banking

Comments: (2)

Paul Penrose
Paul Penrose - Finextra - London | 07 January, 2008, 09:14 Interesting point, Sriram. Similar problems of abuse by fraudsters have bedevilled the growth of anonymous digital cash systems such as e-Gold. I wonder if anybody in the social lending community can set us straight on the KYC controls in place to prevent abuse of their business models by the criminal underworld?
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A Finextra member
A Finextra member | 07 January, 2008, 12:29

It's true.  Regulators are always several steps behind, although naturally Congress has been looking a virtual worlds from a tax perspective now for about a year (!).

Chris Skinner blogged on the implications of virtual worlds and money laundering.

Great post, Sriram.

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job title Risk Dog
location Gurgaon
member since 2007
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A consumer credit/risk and payment cards professional with interest in next generation technologies and growth strategies.

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