Implication of Financial Compliance on Instant Payments

Today’s world is modelled on the principle of instant gratification. Communication is immediate, cabs arrive in the blink of an eye, and food deliveries are promised in under 30 minutes. The payments industry has evolved to capitalize on this trend. But what is the direct impact of financial compliance on this rapidly growing sector?

Adapt or Become Invisible

Instant payments have become the norm in most markets now, supported by faster internet connectivity, and innovative banking technologies, and an increased customer demand for the same. The global real-time payments market is projected to increase by 30.6% CAGR between 2018 and 2025, according to Faster Payments Tracker

Direct payment services are giving banks a run for their money. Traditional financial institutions have been forced to offer customers quick payment options or risk losing them to contemporary counterparts

Even regulators are recognizing the trend. In Europe, a revised version of the Payment Services Directive includes third-party payment providers under its scope. 

The AML Hiccups

Greater adoption of instant payments means that AML compliance and KYC screening time must also be faster. To ensure safety and legitimacy of transactions, any suspicious payments must be put on hold. This delays the transaction process, thereby defying the whole purpose of “real-time”. 

The trouble with AML compliance is that it is traditionally designed to operate in a batch mode, according to Henry Balani, the Global Head of Strategic Affairs for Accuity Inc. The queueing up of fishy transactions meant for review, causes delays.  

Time lags are accounted for in regular banking transactions. But instant payments demand immediate results. For B2B transactions, this delay is even more problematic because it can cause distrust between parties, sometimes even leading to lost business. 

False Positives

AML checks also throw up a lot of false-positive results. Take, for instance, the issue that a BuzzFeed reporter in the United States faced while trying to use Venmo to pay for a Cuban sandwich. His transaction was put under review, citing the mention of “Cuba”. 

Since the US has a long-standing trade embargo with Cuba, just its mention prompted a payment suspension. A number of other cases involving references to sanctioned countries (like Syria) or other under-review terms have had similar outcomes. AML scanners need to ensure that only truly suspicious activities are flagged and legitimate transactions are not caught in the cross-fire. 

Leveraging Technology

AML services providers will have to upgrade their offerings to fulfill the need of the hour – speed and accuracy. 

A number of third-party AML services now include real-time payment fraud detection software, augmented by cutting-edge technology like artificial intelligence, to help navigate these issues. Yet, screening algorithms and machine learning techniques have to become more sophisticated to reduce errors. 

A basic criteria change, for the aforementioned case, would be to ensure that searches for sanctioned country names are limited to the address section. 

The Bottomline

Irrespective of market demands, payment screening should primarily focus on the safety and security of transactions. AML compliance ensures the stability of the online financial network as a whole. Solutions built on technology, regulatory suggestions, and customer feedback, can ensure that instant payments evolve to the highest benchmark of safety while continuing to drive the market. 

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