5 Ways To Improve Transaction Monitoring In Fintechs

What is transaction monitoring in fintech?

Transaction monitoring is what it sounds like—the monitoring of customer transactions. This can include purchases, transfers, deposits, and withdrawals, and it is often combined with an analysis of historical customer information to provide a complete picture of customer activity.

Transaction monitoring in fintech is one of many ways for these firms to manage risk and predict future customer activity. It also enables fintechs to prevent money laundering, fraud, terrorist financing, and other types of financial crime. In today’s connected world, transaction monitoring and analysis is crucial for meeting the requirements of many AML and counter-terrorist financing (CFT) laws, in addition to other compliance and reporting obligations.

How do fintechs monitor transactions?

While the most effective approach to transaction monitoring in fintech would arguably be tasking employees to manually stop and review every single customer transaction, it lacks efficiency. Checking every transaction before it is allowed to be processed is an impossible proposition, fails to scale and is simply unworkable.

Instead, most fintechs will opt for an automated AML transaction monitoring tool that analyses transactions on an ongoing basis and flags potentially suspicious transactions for human review. Taking advantage of automation enables fintechs to eliminate human error and allocate more human capital to reviewing and investigating potentially suspicious behaviour.

When implemented properly, a robust AML transaction monitoring tool will be able to detect a wide range of criminal activity, including:

• Money Laundering
• Terrorist Financing
• Fraud
• Drug Trafficking
• Bribery
• Corruption
• Identity Theft

When potential criminal activity is identified by the automated tool, an alert is issued and a follow-up assessment is completed by compliance teams.

Transaction monitoring in fintech is a vital weapon in the fight against financial crime. For fintechs, it’s important because, as we mentioned, it’s a process that can help flag suspicious activities such as large cash deposits or wire transfers which could be linked to criminal activity.

As the nature of financial crime continues to grow and regulations become more complex, transaction monitoring in fintech becomes more important. Automated transaction monitoring platforms and tools are going to play an increasingly critical role within fintechs and other financial institutions.

For example, fintechs are already required by law in most jurisdictions to report suspicious customer behaviour via suspicious activity reports (SARs). Automated transaction monitoring tools can help to streamline this process by automatically generating and populating these ready for human review.

How can fintechs improve their transaction monitoring?

Getting to grips with transaction monitoring is something that all fintechs should look to tackle early on and the temptation of using a spreadsheet to track potential financial crime activity should be avoided. This is because if even one of their customers’ transactions has ties with illegal activity, they could face significant fines. 

Transaction monitoring in fintech doesn’t need to be a complicated process, though. Here’s our quick step-by-step guide for how firms can hit the ground running with their own transaction monitoring process.

1. Understand client risk factors – Different clients carry different risk influenced by a range of current and historical factors, such as industry and location.
2. Create rules for each risk – You should assign specific rules for each different risk category, which should be dynamic and customisable.
3. Set up alerts – An alert should be issued each time an AML rule is triggered, telling human operators that additional scrutiny needs to take place.
4. Notify compliance teams – Once an alert has been triggered, the transaction may be put on hold, pending further investigation by compliance or risk personnel.
5. Create a SAR – If a crime or reasonable suspicion of criminal activity is detected, a SAR should be prepared. The transaction in question should also be reported to the relevant Financial Investigation Unit (FIU). This can be a daunting process, but can be automated with the right approach.

Although it may be tempting to try and handle transaction monitoring yourself, the value of a dedicated AML tool cannot be understated. In addition, regulatory activity and the sophisticated nature of modern financial crime make AML transaction monitoring an increasingly complex facet of compliance.

More powerful transaction monitoring tools use the latest in automation technology and data analytics to provide 360-degree coverage while eliminating key challenges. If you’re interested in how a tool like this could help protect your bottom line, request a free demo of our transaction monitoring solution today.