Q&A: AI, Mobile Pin Acceptance Ensure Compliance Transparency

Photographer: David Paul Morris/Bloomberg

Technology is having some of its most far-reaching effects in the financial industry, especially as it’s helping make the system more accessible. Sivan Whiteley, who is general counsel for Square, offered her insights on a few of the more prominent effects.

Hear more from Whiteley at the Bloomberg Law In-House Forum on June 27 in San Francisco, where corporate counsel representing Fortune 500 businesses and leaders from top law firms will gather to discuss the key challenges facing in-house counsel today.

What role do artificial intelligence and predictive analytics have, or are they likely to have, on the payments processing and acquisition industry?

There are a number of roles for AI and predictive analytics in moving money. On my team, both play a crucial role in our efforts to combat money laundering and terrorist financing and to prevent bad actors from operating on our platform. In short, we want to ensure Square is safe and secure for our customers.

We leverage heuristic models and automated screening solutions to detect anomalous behavior among billions of data points and to identify transactions that require immediate review. We continue to invest heavily in technological solutions to complex compliance challenges, as we have found the scalability and precision of these tools to be very compelling.

How would you characterize the broad impact that changing technology will have on financial inclusion in the U.S. in particular, but in other developed countries as well?

At Square, we use technology to give businesses access to tools that previously were only available to large corporations. We’ve been able to achieve this by using technology to effectively manage risk, enabling us to bring acceptance rates to approximately 95 percent, which is about double the industry average.

We’ve developed products to expand access to financing. Traditional lenders have historically underserved small businesses because they can’t effectively provide smaller-sized loans. Our average loan size is approximately $6,000, which we’re able to extend because we use technology like machine learning to analyze sales and transaction data to determine seller eligibility. This process provides access to a broader set of people, and we’re proud of the high percentage of women and minority-owned businesses that have received a loan.

We’re also seeing the impact technology can have on underserved communities in our other markets. In the U.K., more than three-quarters of active Square sellers in the U.K. are outside London. As more than half of U.K. bank branches have closed since 1989, this is affecting commerce in areas outside urban centers.

One of our sellers, a computer firm in Holywell, Wales, stopped accepting cards in 2014 because of the fixed monthly fees he incurred with his previous processor—even if he didn’t process any card payments. With only one bank branch remaining in the town, the company could no longer be run as a cash business, but with Square’s hardware and transparent pricing, it is accepting card payments again.

What are the most salient legal and regulatory issues faced by the payments processing and acquisition industry and how do you see those changing, especially with respect to anticipated shifts in technology?

I see it more as, how do we ensure legal and regulatory requirements are keeping up with changes in technology? Particularly when we’re using technology to remove barriers to entry. For example, in the U.K. and Australia, we needed to enable acceptance of payments that use PINs to authenticate chip card transactions instead of signatures, which are used in the U.S. We built a new, secure way to enter PINs into the Square app on a mobile device, eliminating the need for expensive hardware PIN pads and making card acceptance more accessible.

Additionally, our solution is quick and easy to update because it’s software-based, ensuring that our sellers always have access to the latest technology. Along the way, we worked with industry partners to evolve standards for this new mobile PIN acceptance capability, which is the first of its kind for payments. Our approach is to maintain an open and active dialogue with regulators and industry groups so that we can align and create great experiences for our customers.

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The Bloomberg Law In-House Forum is a key opportunity for corporate counsel and law industry leaders to gather insights and discuss the challenges faced by in-house counsel in addressing regulatory compliance, managing internal issues, and dealing with the increasing need to play an integral role in achieving overall business goals.

The Forum will feature a thoughtful interchange with other in-house leaders on how today’s corporate counsel must increasingly take a leadership role in the business’ overall strategy, while continuing to manage key legal department responsibilities.