The growth of the online payment industry and FinTech companies comes with a simultaneous increase in fraud and financial crime. According to a recent study, about 10% of the average spending in the online payments industry and FinTech is taken up by fraud prevention measures. This is because detecting and preventing payments fraud is significant to avoiding financial and reputational losses in any given firm.Â
In order to ensure that their operations are fraud-free and they are compliant with international regulations, financial firms incorporate KYC verification solutions. Finding the balance between effective fraud prevention and cost management is one of the biggest challenges for businesses.
Risks Faced by Financial Institutions
Financial operations comprise numerous stages and each of them is a potential target for fraudsters. For this reason, businesses are now offered robust identity verification solutions that can be easily integrated as part of their online platforms. With these verification solutions, mobile and web platforms of eCommerce service providers can detect fake identities and fraudulent transactions. That being said, emerging technologies and the latest fraud techniques have made payment fraud detection more and more difficult for firms operating in the payments industry.Â
Looking on the bright side, it’s not necessary that the solution to a complex and unpredictable problem must also be complicated. For instance, technology has also improved the system of verifying and screening identities against sanctions lists using numerous AI algorithms. This means that the detection and prevention of payments are not that problematic after all. Compared to the complex and time-consuming verification measures that were used previously, today’s solutions take mere seconds to verify identities using nothing more than a selfie from the customer. What’s important for businesses is to adopt a risk-based approach toward fraud prevention while taking into consideration the latest trends in fraudulent activity. Developing customer trends through transaction monitoring and background screening also requires a robust AML Screening solution.
KYC – Identity Verification
Unlike banks and financial institutions that constantly face the risks of fraudulent activities and bigger risks of money laundering, the payments industry is relatively less regulated. Banks are bound to implement procedures to verify the identity of their customers and analyse risks associated with their transactions.Â
The Know Your Customer (KYC) measure is incorporated for the purpose of detecting fraudulent entities at the onboarding stage to prevent money laundering. The onboarding stage is the best for KYC because it eliminates the fraudulent entity before their account is created. For legitimate customers, the process doesn’t delay or create any problems for the rest of the operations throughout the customer journey.
Transaction Monitoring
KYC verification in itself is not enough when the aim is to protect financial institutions from crimes like money laundering and terrorist financing. As customers with legitimate identities can also be part of a money laundering scheme, it is equally important to perform ongoing transaction monitoring to analyse trends. By implementing AI-driven measures to mitigate the risks of financial crime, the payments industry and FinTech firms can prevent becoming the source of money laundering.Â
A FinTech company can never know which online transaction involves money coming from illegitimate sources. For this purpose, they require robust AML screening measures to detect, flag, and report suspicious transactions. Furthermore, the increasing rate of online payments accounts for more and more transaction records with every passing second. To cope with this speed, businesses operating in the payments industry need to incorporate innovative solutions that can detect anomalies in real-time.
