Reported by Steve Marshall

(Summarized version featured below)

Digital payments are expanding rapidly, driven by increasing consumer demand, new payment providers, and the acceleration of instant payment systems. These advancements offer significant benefits but also create new vulnerabilities to financial crime (FinCrime), such as money laundering and sanctions violations. To keep pace, financial institutions (FIs) must ensure their payment screening and compliance processes are robust enough to detect and prevent these risks in real time.

The payments landscape has transformed dramatically from traditional debit and credit card transactions to a diverse ecosystem of digital wallets, embedded finance, and alternative payment options. BigTech and FinTech companies are capitalizing on this shift, addressing issues such as high processing fees and slow settlement times. The emergence of open banking and stablecoins is further reshaping the industry, introducing new opportunities for both consumers and businesses but also increasing the complexity of transaction monitoring.

Instant payment systems, which enable near-instantaneous transaction settlement, introduce additional challenges for FIs. These institutions must upgrade their workflows to operate 24/7, enhance payment tracking, and improve dispute resolution. While instant payments provide faster access to funds, they also reduce the time available for compliance checks, making them an attractive target for fraudsters and money launderers. Financial institutions must, therefore, balance speed and security to maintain trust in these new payment methods.

To effectively manage FinCrime risks, financial institutions must modernize their compliance infrastructure. Legacy systems, designed for slower payment processes, are no longer sufficient. Institutions must adopt flexible, scalable solutions that can accommodate different payment rails, keep sanctions lists updated, and configure watchlists based on jurisdictional requirements. Real-time compliance checks must occur within milliseconds to avoid disrupting instant payment transactions, as recommended by regulatory bodies such as the Office of Foreign Assets Control (OFAC).

Ultimately, as the payments industry evolves, so must FinCrime prevention strategies. Financial institutions handling cross-border transactions should integrate advanced screening solutions that support formats like ISO 20022 and SWIFT-Alliance certification. The ability to process and monitor diverse payment formats efficiently will be crucial in detecting and mitigating financial crime risks. By proactively enhancing compliance measures, institutions can ensure secure, seamless payment experiences while staying ahead of evolving threats.

Read original version via: https://www.electronicpaymentsinternational.com/comment/real-time-payments-real-time-risk-fighting-crime-in-a-faster-world/?cf-view&cf-click&cf-minimized&cf-view&cf-click&cf-minimized&cf-view&cf-closed