Did you know that between $800 billion and $2 trillion is laundered around the world every year? This isn’t a measly number. In fact, it represents 2% to 5% of the world’s GDP!
This money is used for a wide range of illegal activities, from human trafficking to financing terrorists. It’s because of this that we have very strict regulations in place, including know-your-customer (KYC) and anti-money laundering (AML) laws.
One of the steps that businesses need to take to adhere to KYC and AML regulations is the use of transaction monitoring software to monitor all of their transactions. In this post, we’ll reveal everything you need to know about transaction monitoring systems and their features.
What is a transaction monitoring system
A transaction monitoring system helps businesses to prevent fraud by monitoring every transaction, either periodically or in real-time. If a transaction is considered suspicious, it’ll be blocked.
Transactions can include:
- Fast transaction withdrawals
- Frequent international transfers
- Large cash deposits
You can read more about transaction monitoring and why it’s important to get a more thorough understanding.
The benefits of transaction monitoring systems
There are a number of reasons why businesses should install a solution to monitor their online transactions. Ultimately, all businesses are required to comply with the anti-money laundering laws that are in place. Having a transaction monitoring system enables you to do this.
You’ll be able to:
- Manage customer accounts using a risk-based approach
- Lower the operational expenses associated with manual reviews
- Give confidence to financial partners, banks, and regulators
- Avoid non-compliance files
Using a risk-based approach when managing client accounts is critical in terms of balancing ease-of-use and security while reducing frictions. If a client is identified as low risk, for instance, you can allow them to perform more actions.
What are the key features of transaction monitoring systems
Now that you understand what a transaction monitoring system is and the benefits associated with them, let’s take a look at the key features you should be searching for when purchasing a transaction monitoring tool for your business.
AI learning
Today’s transaction monitoring systems should feature AI (Artificial Intelligence) learning features. If you simply choose a transaction monitoring tool that follows static rules, it won’t be effective for very long.
After all, cybercriminals are getting more and more sophisticated all of the time. They regularly adapt their behavior to improve their chances of success. If you don’t have a transaction monitoring system that adapts, you’re fighting a losing battle.
This is why AI learning is critical when implementing a transaction monitoring solution at your business. This will help you to adapt quickly and deal with behavior you’ve not encountered before.
As cybercriminals try new tactics and change their behavior, you’re solution will be learning and adapting in real-time.
Risk scoring
Risk scoring is another important feature to look for when selecting transaction monitoring software. This means that a risk profile is generated for every customer, and risk assessments are conducted based on this.
A number of different variables are considered and the tool will come up with a number to score a customer’s degree of risk. This is then used as a threshold for what’s suspicious and what’s normal activity.
This enables businesses to easily group their clients into high-risk and low-risk profiles. Information like this is critical when creating a fraud risk management strategy. After all, some customers require closer monitoring than others.
A simple, unified platform
A comprehensive and complete transaction monitoring software should provide a number of applications, including:
- Enhanced risk assessment
- Client activity reviews
- Payment and client screening
- Transaction monitoring
It makes sense to look for a tool that keeps all of these applications within the same, unified solution, otherwise it will be incredibly difficult to manage everything.
If you use different vendors for different applications, you’ll need to switch between different tools, open and close tabs, and so on, and this makes the whole process incredibly clunky. Not only is this long-winded but problems are more likely to happen.
Real-time screening
The best transaction monitoring software will monitor all of your data in real-time, 24/7, ensuring nothing slips through any cracks.
Not only will monitoring take place on your business website but any mobile apps you have as well.
These tools also make it possible for you to evaluate transactions in batches if you prefer, for example, at the end of every day. However, we don’t recommend this approach. Why? It will delay your response time, which is why real-time screening is much better, ensuring you react instantly to anything suspicious.
User configurability
The majority of transaction monitoring systems feature some sort of dashboard, which consists of a number of different widgets to help you manage the data that your solution assesses and tracks. These widgets can include graphs and charts that display various information.
What’s most critical, though, is to find a solution with a configurable dashboard. This means you can swap widgets in and out as you wish. This enables you to create a dashboard that works for you. After all, we all have different goals and requirements depending on our customers and objectives, as well as the type of data we handle.
If you have the control and flexibility to create your own dashboard, you’ll be able to work more efficiently and make better decisions at a quicker speed.
The ability to create, iterate, and test different rules
If there’s one feature you need to make sure you have in your locker, it’s the ability to test rules and change them when needed.
Transaction monitoring systems require algorithms to function, and algorithms depend on rules. The better your rules, the more effective the algorithm is, and the lower rate of false negatives and false positives you’ll experience.
With your unique set of rules having a massive impact on the performance of your transaction monitoring tool, the need to modify, add, and test rules is a critical requirement.
And, a rule that’s effective today may not be effective six months down the line! We only need to look at the impact of Covid-19 to see that things change!
So, can you independently amend and test rules within your user interface? This is a must!
With conventional transaction monitoring software, it’s normal to have to get in touch with the vendor and request that they write new code whenever you want to change or add a rule. As you can imagine, not only is this incredible time consuming but it also costs a lot of money!
This is why you need to look for a modern tool that enables you to create and build your own rules, without any new code needing to be written.
No doubt, you’ll want a tool that doesn’t require expert technical ability either. You should be able to add new rules without needing to have any programming knowledge. This means you can tweak and implement new rules easily and as regularly as you want to.
Flexible deployment
You need to consider how the new transaction monitoring system is going to be deployed. Generally, you have three options:
- On your premise, on a server
- On a cloud that you host
- On a cloud the vendor hosts
To determine the best approach, not only do you need to factor in your own preferences but any regulatory requirements you are bound by. For example, some regulators demand on-premise systems to make sure the data doesn’t leave the server.
Automatic data analysis
Last but not least, effective transaction monitoring systems will automatically analyze outgoing and incoming data. There’s no need to have a team that manually reviews data, which is pretty much impossible considering the speed and volume of transactions today.
Instead, this type of tool will assess all data across all of the different variables that are relevant to a certain risk profile. If anything crosses the threshold, this transaction will be flagged so that you can do some more digging.
Choose transaction monitoring systems wisely and lookout for key features
As you can see, there are a number of key features you should be looking for when installing a transaction monitoring system at your business.
Not only do you need to choose a solution with care but you need to implement it effectively and run regular updates to ensure it’s working efficiently. After all, as time goes on, our needs change, and you may find that some tweaks or further plug-ins are required.
About the Author
Kerry Leigh Harrison has over 11+ years of experience as a content writer. She graduated from university with a First Class Hons Degree in Multimedia Journalism. In her spare time, she enjoys attending sports and music events.
