Why compliance teams need to focus on transaction monitoring

Payment fraud is accelerating rapidly. A report from Merchant Savvy found that payment fraud tripled from $9.8bn in 2011 to $32.4bn in 2020. This is then expected to reach $40.6bn by 2027.

Digital innovation has only opened the gates for criminals, with more ways for firms to leverage payment processing technology to commit fraud. As firms attempt to combat the rising levels of fraud, they need to better understand what they are up against.

Sentinels has released a report on understanding transaction monitoring for payment processors.

One of the areas highlighted in the report is transaction laundering. This is a streamlined method of money laundering where criminals secretly process credit card payments. This happens when transactions, like credit card charges, are submitted by one merchant under another merchant’s account entirely unbeknown to them, it said.

Some of the biggest transaction laundering suspects, highlighted by Sentinels, are those who sell counterfeit merchandise, illegal drugs and sex services.

Sentinels said there are many factors that make transaction laundering hard to spot. For example, the complexity of the payment chain. It said there can be a combination of a payment cycle whereby a payment can travel through multiple gateways and payment processors. As a result, this makes it hard to differentiate legitimate transactions from illegitimate ones.

Another challenge comes from safeguarding sites. It said that merchants might not realise their websites are being used for illegal transactions through shadow sites of affiliate programs.

A third challenge is with hidden websites. Transaction laundering can take place through hidden websites, which banks cannot monitor because they are unaware of them. Finally, there is the trouble of corporate credit cards. The widespread use of these B2B payments makes it harder to single out a single transaction.

While it is harder to spot laundering, it is easier to commit.

As a result, firms need to make use of the latest advancements in technology to combat financial crime. Transaction monitoring technology is powered by AI and automation, and helps payment processors detect a wide range of criminal activity more accurately.

To find out more, read the full report here.

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