Every Bank’s Nightmarish Dream: Real-Time Transaction Monitoring

real time

Globalization and automation make the call for real-time payment processing ever larger. The world moves fast. People have little patience and understanding for slow payment processing these days. Especially because this form of payment processing lightens liquidity stress for small and medium-sized businesses. And instant payments also increase efficiency, transparency, convenience, and financial control for clients.

Many clearinghouses have already made real-time payment schemes available. But the demand for instant payments doesn’t make banks ready to invest. Even if it could mean gaining a competitive edge. For many banks, instant payments are way too risky. They have too many doubts and questions about how to keep in control of their compliance.

What if transaction speed outpaces compliance software?

Speed and irreversibility are the main characteristics of instant payments. These traits trigger the main concern banks have: losing control. Many banks are barely in control of their compliance as it is. Let alone when they have to process payments in real-time.

Processing payment batches immediately instead of overnight or within 3 to 5 days leaves little time for compliance checks. Imagine those batches containing thousands of non-compliant payments. All gone forever in just an instant. What would regulators say? What would they do? What would it mean for the bank’s reputation? 

Banks are right to be worried. Real-time payment processing does make it more difficult to detect money-laundering payments. After all, moving funds quickly through many accounts at different international banks is the oldest trick in the book for criminals.

Can you think of a faster way to move money than instant payments? The transfer takes only (milli)seconds. And no, real-time payment processing isn’t available for cross-border transactions. But they can be used to obscure the path a payment has taken domestically before offering it to the international payment network. Banks know this and that’s where their concern comes from.

Lack of time isn’t the issue, using outdated compliance software is

Banks looking to invest in real-time payments need to adjust their compliance software. A shift needs to be made to real time monitoring.

A majority of banks use outdated compliance software. Banks using these conventional systems run into several problems:

  • They can’t handle the volume of everyday payments;
  • They can’t adjust to changing and evolving regulations;
  • They can’t keep up with the speed of regular payment processing.

Add real-time processing to the equation and regulatory fines are bound to be imposed.

Banks worry about being unable to keep up with the instant payment processing. But speed of compliance checks isn’t so much the problem. The amount of false positives is. This number needs to be reduced to mitigate compliance risk.

Compliance software should be able to work towards solely producing true positive alerts. This is even more important for real-time transaction monitoring, as it gives compliance officers more time to spend on rapidly responding to those true positives.

Can false positive alerts be reduced without taking more risk?

Conventional compliance software is based on rules. With every regulatory change, a new rule is added. A rule might be: check every payment above €25.000. This type of monitoring is rather one-dimensional. Quite simple and straightforward. To reduce false positive alerts from a system that works in this way, you’d need to remove rules. This is an extremely risky approach.

False positives can be safely reduced if your compliance software is based on machine learning. Where rule-based alerts are one-dimensional, machine learning alerts are rich. It enriches signals with behavioral information, network information, and information from other sources. it also cross-checks with various sources like solved cases, sanctions lists, and big data. By drawing upon so much data, the system recognizes patterns that would otherwise remain undetected. This makes the generated alerts more accurate and harder to miss. Resulting in fewer alerts for transactions that appear suspicious but are actually benign.

But that’s not where it ends. When these enriched signals create an alert, the compliance officer assesses it. Every time the compliance officer gives feedback on an alert, the system learns to distinguish the characteristics of a false positive alert from a true positive alert. Which decreases the false positives again and thus the total number of alerts.

Instant payments aren’t the real risk

The truth is: if your compliance software can’t handle instant payments now, you’re already at risk. It  means that your software is outdated and is lacking:

  • Access to data for proper monitoring;
  • A trail to assess compliance breaches;
  • Functionality to keep up with regulatory changes.

Replacing outdated software reduces workload and increases speed and accuracy—which is important to process real-time payments safely and securely. The result: delighted customers, less stressed compliance officers, and lower compliance risks.


Tames Rietdijk

Tames Rietdijk is the CEO of BusinessForensics. His area of expertise lies with Product management, Forensic investigations and Data analytics. His work is focused on improving market mechanisms and operational efficiencies to increase value for his customers.