Decoding Hidden Risks: How AI Can Help Fintechs Uncover Multi-level Marketing Schemes

Joseph Zhou
June 10, 2024
June 10, 2024

MLMs pose significant reputational and compliance risks to Fintechs and their banking partners.

With new brands popping up every day, the line between innovative marketing and risky business practices can sometimes blur. Multi-level marketing schemes (MLMs, also known as “direct selling”) are legally permitted in the United States. However, their status varies internationally, with MLMs being illegal or subject to restrictions in other countries. Despite their legal footing in the U.S., their close resemblance to Ponzi schemes and their controversial marketing practices pose significant reputational and compliance risks to Fintechs and their banking partners.

Traditional Know Your Business (KYB) products, which rely heavily on straightforward data checks, and even meticulous human scrutiny often fall short of effectively identifying these risks. This is primarily because today’s MLM operations can expertly disguise themselves. Their websites are intentionally designed to resemble those of other premium brands, making it difficult for traditional methods to discern the underlying MLM structure that focuses heavily on recruitment and network marketing.

Fintechs need to approve onboarding applications quickly and don't have enough time to conduct thorough investigations.

In contrast to their traditional banking counterparts, Risk and Compliance teams at Fintechs don’t have days to respond to an account opening application. Their customers expect onboarding decisions in hours, if not sooner, or they might switch to a competitor. Consequently, Risk and Compliance teams have very limited time to gain a holistic understanding of each customer's business and the associated risks.

Each of the websites shown above uses an MLM model. But how can one determine that under those well-designed websites and clean branding, these companies are actually MLMs? 

Accend AI can perform this job better than humans.

Accend works with some of the leading fintechs in the US and Europe, and has discovered that almost all of our clients have designated MLMs as high-risk. This insight underscores the need for robust tools to detect such risks efficiently and accurately.

Accend AI automatically conducts comprehensive online research to understand the products these companies are selling and whether these products target customers vulnerable to MLM schemes (such as homemakers and retirees looking for “side hustles”). It also delves deeper and analyzes the broader context of a website’s marketing practices.

Accend AI has developed a keen and rigorous eye for subtle cues that indicate MLM activities. For instance, the promotion of social gatherings like “shows” and “parties'' are typical of MLM strategies. These are not merely social events but are also recruitment funnels central to the MLM business model. A human reviewer might miss these signals due to inattention or insufficient knowledge, but Accend AI will treat every case with the same intense rigor, even if there are thousands.

By employing advanced analytics, Accend AI provides fintech companies with a clear understanding of their exposure to MLM schemes, ensuring they can make informed decisions and maintain compliance with industry regulations.

In conclusion, as Fintech continues to push the boundaries of innovation, the need for equally innovative risk management solutions becomes paramount. Accend AI stands at the forefront of this challenge, employing the most cutting-edge AI technology to assist fast-moving Risk and Compliance teams in uncovering hidden risks at a speed that was not possible before. 

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