How Transaction Monitoring Fights Fraud in Digital Banking

by Bence Jendruszak

Today, all forms of digital banking are vulnerable to becoming vehicles for fraud. With the rampant digitalization of financial services, opportunities for fraud have escalated. For example, the popularity of mobile banking services has surged from 54% of users in 2022 to 73% last year – with mobile fraud jumping 30%. Likewise, synthetic identity fraud surpassed $6 billion annually, with average losses at $10,000 per account. Digital payment fraud losses will exceed $343 billion globally between 2023 and 2027.

This concerning rise in fraudulent activities calls for advanced and reliable defenses, among which transaction monitoring is critical. Transaction monitoring allows digital banks to scrutinize every transaction in real time – to help immediately detect anomalous activities indicative of fraud and mitigate risks before they escalate into financial losses.

The Role of Transaction Monitoring in Banking

Transaction monitoring provides real-time analysis by scrutinizing each transaction as it occurs. It continuously monitors transactional patterns; these systems detect anomalies or behaviors that deviate from a customer’s usual banking activities, flagging potential fraud. Transaction monitoring also employs customizable risk scoring models, evaluating transactions based on factors like amounts, geographic locations and user behaviors to help prioritize high-risk transactions for further investigation – tailored to each bank’s customizable risk thresholds.

Transaction monitoring integrates advanced technologies such as machine learning and artificial intelligence (AI) to bolster effectiveness. This not only sharpens the detection of complex fraud patterns at a massive scale but also streamlines decision-making processes, minimizing the need for manual intervention and review, aside from flagged cases. By combining digital footprint and device intelligence, transaction monitoring connects user information – ranging from geolocation, device configuration, online activities and social media profiles – to generate a comprehensive user profile that can inform monitoring banking sessions across all channels and devices to spot potential risks.

As the landscape of digital banking expands, transaction monitoring becomes increasingly indispensable. Employing sophisticated algorithms, transaction monitoring systems proactively alert banks to high-risk activities, including suspicious money transfers or unusual login attempts, enabling immediate preventative actions. This proactive stance maintains the integrity and trustworthiness of digital banking channels and ensures compliance with stringent regulatory requirements to prevent financial crimes such as money laundering.

Best Practices for Fintechs

Transaction monitoring is an essential component for fintech companies. It serves as a cornerstone in both compliance and fraud prevention efforts, both vital in the fast-paced environment of fintech transactions. Regarding compliance, transaction monitoring can assist fintech in adhering to anti-money laundering (AML) regulations and other legal mandates. By performing thorough screenings of transactions, continuously monitoring and aiding in the necessary reporting of any suspicious activities, transaction monitoring is integral to identifying and managing risks related to money laundering, terrorist financing and other illegal activities.
For optimal results, fintechs should opt for transaction monitoring solutions that offer real-time capabilities, adaptability to scale with business growth and seamless integration with existing systems, ensuring they remain equipped to tackle the evolving challenges of financial crime.

Transaction Monitoring for Financial Services

Transaction monitoring is critical to AML and counter-terrorist financing (CTF) efforts in financial services. It involves the continuous surveillance of customer transactions to detect suspicious activities. Financial institutions can effectively identify patterns and anomalies that suggest illicit behavior by leveraging comprehensive transaction data. This vigilance is crucial, especially as financial crime tactics become more sophisticated and pervasive.

Effective transaction monitoring systems are designed to be dynamic and responsive, adapting to new fraud methodologies and the latest regulatory updates. These systems must not only track the usual parameters of transaction size, frequency and type but also consider more nuanced indicators, such as discrepancies in customer profiles or uncharacteristic cross-border activities. Enhanced by AI and machine learning, transaction monitoring can evolve from reactive protocols to predictive measures, proactively identifying risks before they manifest into more significant issues.

How Digital Banks Can Protect Themselves – And Their Customers

Digital banks face a substantial challenge due to the immense volume of daily transaction data. To effectively manage this, many are adopting an automated, rule-based approach to transaction monitoring. This method balances the volume of transactions with the system’s efficiency and leverages past learnings to better understand and act against anomalies in customer behavior. As a result, digital banks today are increasingly turning to third-party transaction monitoring software to identify and manage risk more efficiently.

SEON’s Impact on Digital Banking

Prominent digital banking leaders like Revolut and HYPE have adopted SEON to optimize their transaction monitoring processes. SEON enhances its capabilities to monitor the frequency and intensity of suspicious activities effectively as soon as they occur. Digital footprint analysis and device intelligence provide a comprehensive overview of individuals, enhancing institutions’ abilities to respond swiftly and accurately to potential threats. Using SEON, digital banks can improve their operational efficiency and strengthen their defenses against the evolving landscape of financial fraud.

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