The world is changing faster than we expected with the internet and technology becoming more and more present in our lives. It has infiltrated every aspect of our lives, from remote working, online shopping to exclusively digital banks. Every industry has found a way to infiltrate it into their business operations, creating new opportunities for them and their customers. Having an online presence is no longer an option for a business that wants to succeed; it is necessary. Companies that haven’t accepted this fact yet are seriously lagging behind their competition.
Institutions dealing with finances were never the ones to shy away from technological developments, updating their business operations constantly to offer the best possible service. Just imagine the financial marvels we have had in recent years, from online banking to completely digital banks, from wireless payments to payment-enabled wearables. And the institutions and businesses weren’t the only ones benefiting from these developments. People appreciate the flexibility and transparency that allows them to be more in control of their finances. But, it also puts them and businesses in danger of financial fraud. Cybercriminals and fraudsters are constantly looking for an opportunity to exploit them for their own benefit. Luckily, there are tools such as transaction monitoring we can implement to ensure that doesn’t happen. Transaction monitoring shows how it can be used to prevent fraudulent behavior before it can cause financial or reputational damage to businesses.
What is transaction monitoring?
Transaction monitoring allows financial institutions to monitor the financial activity of the customers in real-time to assess the risk factor of financial crime. It can recognize anything from money laundering to account takeover. While transaction monitoring is already mandatory for financial institutions as a part of the anti-money laundering process, other business industries can also benefit from it. Fraudsters and cybercriminals do not choose who they will attack based on the industry they work in; their only goal is to make as much profit as possible. This is why transaction monitoring should become an integral part of any business dealing with finances. It would allow them to get a clearer picture of customer activity and recognize and flag any suspicious behavior. This way, they can take necessary steps to prevent it before fraudsters or cybercriminals manage to exploit them.
What difference can transaction monitoring make?
While transaction monitoring has already been present in financial institutions, it wasn’t as evolved as it is now.
Transaction monitoring software allows businesses to:
- Avoid Anti-money laundering (AML) fines.
- Reduce the financial burden of manual reviews.
- Utilize a risk-based approach instead of a rule-based one.
- Reduce user friction.
By changing the approach to the risk-based one, businesses will get an opportunity to reduce the number of false positives that were quite common in the rule-based method. It will stop flagging every user that matches a particular rule, such as visiting your site from a specific location, and instead, it will determine their risk factor and make a decision based on it. Instead of automatically blocking the users that are considered risky based on just one rule, it will give you the opportunity to allow low-risk customers to perform actions while monitoring medium to high-risk users. If necessary, the high-risk users can be blocked or asked to provide an alternative verification method to confirm they are who they say they are. A reduced number of false positives will also decrease the number of unsatisfied customers whose transactions would’ve declined in the past. Do you know how many people decide never to do business with a company again after their transaction is declined or abandon the cart because the process is taking too long? According to the Merchant Fraud Journal, around 40% of consumers claim they won’t use a merchant that falsely rejected their order; instead, they will go to their competition.
Therefore, transaction monitoring reduces the risk, not only of financial damage but also reputational one.
How does transaction monitoring work?
You have probably seen the examples of transaction monitoring in your personal life, such as the bank blocking your card when you try using it in a different country or calling you to confirm you planned to make a particular transaction. Financial institutions can do this by using transaction monitoring software to analyze users’ transactions and spot any red flags that might arise.
It considers the following red flags and assigns them a risk factor:
- Unusual account activity that doesn’t match customers’ standard transaction activities
- Unusual transactions
- Transactions or transfers over a certain value (Businesses try to cause as little user friction when it comes to this by requesting additional verification checks that block fraudulent users but allow legitimate ones to continue with the transaction)
- Large cash deposits or withdrawals
- Inbound and outbound funds from unknown source
Implementing transaction monitoring can prevent various types of fraud such as account takeover, card not present fraud, fraudulent loans, or identity theft. This can allow businesses to concentrate on growing their business instead of worrying if they will become a victim of an attack. It is time to start being proactive instead of waiting for something to happen before reacting.