Tackling Financial Crime at Speed: How to Adapt to a Faster, More Complex Payments World

Demand for digital payments continues to hit new heights, sparking a wave of payment innovation to meet demand.  Meanwhile, the shift to real-time payments means more transactions are settled faster than ever. This new payments landscape can deliver enormous benefits but also opens the door to new financial crime (FinCrime) risks. Regulated institutions will need to up their compliance game and ensure payment screening processes can detect money laundering, sanctions breaches, and other FinCrime in real time while maintaining full compliance with regulatory requirements.

Expanding choice, rising complexity

Think back fifteen years or so ago. Then, making an electronic payment meant paying by debit or credit card, maybe using an e-wallet for online purchases or, in some markets, authorizing a bank transfer. Today, it’s a very different story.

Thanks to innovation from BigTechs and FinTechs, individuals are presented with many more options at checkout. Apple Pay and Google Pay now frequently overlay card transactions, providing a simpler interface for consumers. Fintechs such as Klarna provide consumers access to credit and merchants with lower processing fees and faster settlement. Alongside this, the rise of embedded finance (the integration of financial services into non-financial platforms) has seen tech-led brands, such as Uber, become payment facilitators. Digital currencies are also reshaping the landscape, with stablecoins gaining momentum as payment platforms such as PayPal and Stripe bring them to the mainstream.

For merchants, the changing payments landscape is a boon. Unhappy with high card processing fees, delayed access to funds, chargebacks, and the inability to recoup processing fees for refunds, they have long lobbied for alternatives to payment cards.

Yet, while it is easier than ever for consumers and merchants alike to send and receive payments, under the covers, the payment workflows and processing ecosystem are becoming more complex. 

Real-time payments, real-time oversight

The rise of real-time payments, which means transactions are settled instantly rather than over several working days, adds another dimension to the growing complexity of the landscape. As more real-time rails come online, financial institutions and fintechs must overhaul processing workflows, implementing real-time API integrations and automating exception handling. At the same time, they’re under pressure to upgrade user interfaces and strengthen capabilities around payment tracking, dispute resolution, and cross-border interoperability, all to deliver the seamless, secure, and dependable experiences customers now expect.

The move to instant settlement offers several advantages, such as real-time access to funds for recipients. It also enables account-based payments to become a true competitor to card payments at checkout, even for in-person purchases. However, with funds available immediately and less time for compliance checks, the risk of FinCrime also increases.

Intelligent compliance for a faster, more complex world

Regulated institutions need to ensure their payment screening systems and processes, as well as their AML systems, such as customer identification and verification, are up to the challenge of this new reality.

Many incumbent firms operate on a legacy infrastructure developed for a simpler era with fewer payment rails and longer transaction settlement timeframes. Now, they must identify and assess the parties to more payment types in real time. However, regulators are not cutting them any slack in their compliance obligations, especially in light of the troubling geopolitical landscape and increasing sanctions activity.

In reviewing their technology capabilities, regulated institutions need to consider the following:

• Flexibility and scalability: Does your system have the flexibility to adjust workflows for different or new payment rails? Can it scale up or down to accommodate volume spikes?
• Sanctions updates: Are sanctions lists continually updated? Failure to screen transactions again potentially prohibited parties can result in hefty fines and adverse publicity.
• Jurisdictional configuration: Can watchlists be configured for locations of interest? Screening by country corridors or specific jurisdiction lists increases alert quality.
• Speed of checks: Can compliance checks be completed within milliseconds to meet real-time requirements? Adopting a risk-based approach helps allocate resources effectively.
• ISO 202022 compliance: Does your screening solution support the new ISO 20022 format? It is essential for cross-border SWIFT transactions and a growing array of domestic schemes.

FinCrime prevention in a new payments world

The evolving payments landscape presents significant opportunities for businesses and consumers, as well as growing challenges in the fight against FinCrime. As new payment types and instant settlement reshape the industry, regulated institutions face heightened pressure to maintain robust, adaptable compliance measures.

In this fast-moving and increasingly complex environment, effective payment screening is essential to prevent money laundering and sanctions violations. To keep pace, institutions must modernize their systems, ensuring they can process new payment types, stay aligned with evolving sanctions regimes, and perform compliance checks in milliseconds to meet the demands of real-time transactions.