How do financial institutions monitor transactions in real-time?

The financial world is evolving faster than any of us expected, especially businesses or financial institutions, which is why it can be a struggle to keep up with all developments. There are so many new financial and transaction options from online banks, mobile wallets, and even payment-enabled wearables that haven’t existed just a few years ago. These new changes in transaction and payment technology are not only helping businesses and financial institutions to conduct their operations more efficiently, but they are also improving customer experience by increasing convenience, transparency, and financial control for end-users. But, to cope with all the changes development brings and ensure the safety of all sides, transaction monitoring needs to be implemented. Financial security needs to be a priority for everyone, from consumers and businesses to financial institutions.

What is transaction monitoring?

Just imagine what differences real-time payments can make for financial institutions in terms of processing? Instead of having a few days to conduct compliance checks, they need to process them immediately. With such a large number of transactions that are conducted daily, or even hourly, criminals could use this system and process substantial amounts of non-compliant payments that could go unnoticed without proper monitoring. Not only would the financial institution experience significant financial loss, but it would also damage their reputation and possibly even bring some legal trouble as the processed transactions wouldn’t be compliant with AML or anti-money laundering regulations. Real-time payment processing will make it more difficult for financial institutions to detect money-laundering payments or other suspicious transactions, but luckily implementing real-time transaction monitoring will help solve that issue.

Transaction monitoring enables financial organizations to keep track of their customers’ transactions in real-time or, in some cases, on a daily basis. These tools monitor all of the current transactions while simultaneously analyzing a customer’s transaction history and their account profile, trying to assess their risk factor and predict their future activity. Not only does the transaction monitoring software help financial institutions protect their business by recognizing suspicious transactions, but it is also a mandatory part of the AML process. 

How does transaction monitoring work? 

The truth is that all of us have experienced some examples of financial monitoring during our lives, even though we might’ve not realized what it was exactly. For example, have you ever received a phone call or a message from your bank to confirm that you have made a specific purchase or asking you if you want to continue with some transaction they thought deviated from your normal financial behavior? This is possible through financial monitoring as it gives the financial institutions insight into consumers’ standard financial activities, making it easier to spot any deviations when doing transactions. This can effectively prevent the exploitation of stolen credit cards, attempts of fraudulent loans, or even identity theft. 

By using transaction monitoring software, you can monitor and analyze every bit of data related to a transaction, recognize any suspicious activity and assess the transaction risk score in real-time. You will be able to automatically recognize questionable actions such as:

  • Unusual transactions that deviate from consumers’ standard transaction activities
  • Discrepancies in the consumer’s account activity.
  • Transactions over a certain value. ( Most financial institutions have implemented additional verification checks when it comes to processing the transaction over a certain value. This allows legitimate users to conduct their transactions and minimizes the users’ fraction while assuring financial institutions that the transaction is legitimate and authorized.) 
  • Financial transfers over a certain value, regardless if domestic or international. 
  • Large cash deposits or withdrawals. ( This could indicate fraudulent behavior such as money laundering or stolen cards).
  • Unknown source of inbound and outbound funds.

Recognizing the suspicious behavior allows financial institutions to react on time before serious damage can be done. They can flag or even block the transaction until the matter is investigated, either by contacting the user to confirm their intent or by implementing additional verification methods to verify the transaction’s legitimacy. 

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