The Inevitable Role of AML in the Payment Sector and AML Transaction Monitoring Best Practices


Why is AML in the Payment Sector required?

AML in the Payment Sector has an inevitable role in mitigating the risk of transaction laundering, the online form of money laundering currently posing the most imminent cyber threat. Payment processors must exert due diligence during merchant onboarding and transaction processing and remain vigilant during the complete payment processing cycle. Payment gateways and payment processing businesses owe enhanced anti-money laundering measures to the banks and financial institutions they are linked to, as any negligence on the security part while aggregating the payments might lead to a financial and reputational loss of the payment entity as well as the financial institution.

Anti-money laundering, or AML, in the payment sector has a broad scope, and there are two core technological components for risk mitigation in this field. The first is AML Transaction Screening for verifying merchants against the global sanctions listing to determine the risk levels they brought to the payment business. The next is AML Transaction Monitoring, an AI-ML-based engine to monitor merchant behavior and activities and their transaction risk levels.

As payment aggregators process mass transactions, a due merchant onboarding process to ascertain the risk levels of the merchants is an important degree of AML-CFT execution. Drafting terms agreement with the merchant, a thorough examination of the business by the designated compliance officer, AML training for the onboarding division staff, and continuous merchant review as part of the due diligence are all important steps to achieve compliance for AML in the payment sector.

AML in Payment

AML Transaction Screening

Screening merchants against the global sanctions database eliminate the risks of doing business with individual and entities detrimental to the AML-CFT standards. High-volume transaction merchants bring the maximum revenues to the payment gateways and processors, but this should not come at the cost of illicit money laundering activities many high-risk businesses might be involved in. Politically exposed persons (PEPs) and adverse media screening are the next two important screening phases to accomplish the requirement of AML in the payment sector.

A more advanced and comprehensive AML Transaction Screening has multiple security features for pre-screening, merchant KYC and identity verifications, background checks, and past transactional record proofs. Website content analysis and compliance security checks are the screening tools for underwriting the merchant credit risk.

AML Transaction Monitoring

Recently, the significance of live transaction vigilance has grown manifold, and even the international AML-CFT regulators, like the FATF and EU AMLD, have emphasized AML Transaction Monitoring. The regulators maintain that filing Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs) is the most substantial part of AML risk mitigation obligations.

The AI Machine Learning algorithms build a logic to relate the live data from transactions with the static customer data from CRM. In keeping with the pre-defined logic, the business transactions must match the thresholds set at the time of merchant onboarding. Different merchants have different payment thresholds depending on the transaction volumes, nature of the business, and country of operation.

This whole AML Transaction Monitoring automation is hence operated via a detection engine. The engine is built on a rule-based scenario model. It senses whether any merchant transaction or activity poses a risk to the AML-CFT security standards of the payment provider. The system sends an alarm as soon as a threat is determined, and the compliance team must review the alert. Any suspicious or threatening behavior or activity must be filed with the concerned authorities in the form of Suspicious Transaction Reports (STR) and Suspicious Activity Reports (SAR).

Challenges in AML Transaction Monitoring

False positives have been considered the biggest challenge. It is equally time-consuming and affects the business bottom line as genuine merchants often feel harassed and choose a different payment vendor instead because of excessive friction. However, the primary challenge that the payment providers find is to accomplish a frictionless integration of the AML Transaction Monitoring solutions in the existing organizational infrastructure. A comprehensive AML solution for payments with an easy cloud-based API solution doesn’t require additional hardware. It is much more scalable for integrating into the payment gateway and processing systems.

Thirdly, transaction laundering is a growing form of online money laundering and currently stands as the most significant challenge or threat to the payment industry. In transaction laundering, legitimate-looking merchants sell illegal goods or services via genuine-looking sites; the technique is highly sophisticated, and capturing it requires an advanced AML solution for payments.

Selecting the Best AML Solution for Payments

A cutting-edge solution for AML Transaction Monitoring comes with dual Know Your Merchant (KYM) and Know Your Payment (KYP) features. IDMERIT offers global payment providers its flagship IDMkyX AML-KYC and Identity Verification products.

IDMkyX is a complete one-stop solution to the requirement for AML in the payment sector. To learn more about AML Transaction Screening and AML Transaction Monitoring, please schedule an IDMkyX demo with our AML professional to learn more about our AML solutions for payments.

Tony Raval
Tony Raval

Tony Raval brings more than 15 years of leadership in data technology as the Founder and CEO of IDMERIT, headquartered in Carlsbad, California. He leads an executive team including top data tech veterans to execute on his passion of creating a global data universe generating true and trusted intelligence. IDMERIT’s competitive success has come from the company’s ability to perform cross-border transactions, for which Tony and his team have developed a meticulous process and progressive technology. The company was launched as the result of a highly effective engagement with a leading global financial institution, whereby the company was uniquely able to triangulate multiple elements to create a comprehensive, and yet, frictionless experience. Tony has provided data intelligence to companies such as Google, SalesForce, and HP as well as clients across financial, government and other sectors seeking a superior partner in compliance and mitigating risk. He holds a Master’s Degree in computer engineering and data sciences, is an active member of the Entrepreneurs Organization San Diego and dedicated mentor to new entrepreneurs in EO’s Accelerator Program, enjoys meditation and running, and he and his wife Sonal recently celebrated their three-year-old son's birthday.

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