Transaction Monitoring Software: How It Works and Tips on Deploying It

The demand for transaction monitoring software is increasing rapidly. According to Allied Market Research, the market value of such systems will reach $25,419.40 million by 2026 – which would make it see an almost 219% increase from when it was valued at $7,957.14 million in 2018.

We look at how it works for businesses along with the best tools for the job.

What Is Transaction Monitoring Software?

Transaction monitoring software helps financial institutions automatically spot suspicious transactions, such as high-value cash deposits or unusual account activity. It is a key part of the AML fraud detection – anti-money laundering – process, which is heavily regulated by government bodies. 

How Does Transaction Monitoring Software Work?

Transaction monitoring software works by recording transaction data and analyzing the resultant data to find signifiers of fraud, money laundering, and other fincrime. These signifiers are identified via rules that can either block high-risk actions, or give actions a fraud score so that an operator may manually review it.

Here is a summary of the process:

• Gather user and transaction data
• Feed the data through rules 
• If the rules are triggered, either automatically block the transaction or send it for manual review.

The rules may include unusual transactions or account activity transactions over a certain value, large cash deposits or withdrawals (also known as transaction velocity), or an unknown source of inbound and outbound funds.

Unlike manual transaction monitoring, software solutions can perform checks in real-time and at scale, making them ideal for online companies that deal with thousands of transactions daily.

Why Is Transaction Monitoring Software Important?

To understand the importance of transaction monitoring software, it helps to look at the consequences of failing to meet AML regulations.

Transaction monitoring software is important because it lets you:

• Remain compliant with legal authorities when it comes to anti-money laundering regulations.
  
• Flag suspicious transactions that could point to fraud or criminal activity.
  
• Manage customer accounts via a risk-based approach.
  
• Automate the risk management process, which saves time and reduces operational overheads.
  
• Reduce the load on your manual review team, as transactions can be automatically flagged based on your own parameters.
  

Finally, for a wide range of small to medium businesses, integrating a transaction monitoring software is simply the only cost-effective solution to remain compliant without hiring an entire risk management team. 

Ultimately, transaction monitoring renders your organization’s incoming and outgoing payments safer while also helping you achieve compliance while becoming more efficient, trustworthy, and respectable.

The 6 Best Transaction Monitoring Software and Tools

SEON – Transaction Monitoring Software Tailored to your Business

SEON offers full end to end fraud detection services designed to assist AML compliance efforts thanks to its AML API, which runs all the necessary checks such as PEP and relative lists, criminal watchlists, sanctions, blacklists, and others. 

But where the software really shines is when it comes to the flexibility of its risk rules. SEON lets you instantly create risk rules, add pre-built transaction monitoring rules tailored for your industry, and set your own thresholds for what is deemed high risk.

Its sandbox mode is powerful and intuitive, and you can even benefit from machine-learning suggestions, black box AI scoring, and integration with other risk management tools.

SEON can be deployed as an all-in-one fraud prevention and risk management solution, or as an extra compliance layer. You can try a free version or purchase its modules with flexibility via short, cancel-anytime contracts. 

Its no-code, custom rule making that monitor transactions with criteria that’s tailored to your risk appetite and business needs

Feedzai – Transactional and Behavioral Screening Software

Feedzai is a market leader in traditional finance, helping retail banks fight financial crime with the latest technologies. It is a complete AML and compliance solution that includes transaction monitoring as part of its offering.

Its RiskOps feature combines transactional and behavioral screening using consistent data across all functions. 

The software can automatically send SAR filings to accelerate your reporting after a suspicious transaction has been flagged, and it offers AI-driven suggestions to improve the accuracy of your monitoring based on your data. 

Its key customers are established financial institutions, which puts it at the higher end of the spectrum when it comes to pricing.

ComplyAdvantage – Transaction Screening Easy to Scale

A company whose goal is to make compliance less painful, ComplyAdvantage has become increasingly popular in recent years, thanks in part to the quality of its transaction screening. 

Offering flexibility and customization is at the core of ComplyAdvantage’s software, allowing you to quickly update your risk rules based on the latest AML regulations. It also offers full compliance checks including the ability to monitor the news for adverse media. 

Its transaction monitoring can be scaled to process billions of transactions.

Actico – Smart Digital Decisions

Actico calls its suite of products a digital decisioning platform, and it’s easy to see why it is becoming a leader in the world of transaction monitoring software. You get all the expected key features, but also a specific Money Laundering Detection System (MDLS), credit scoring tools, etc.

While it is a powerful and complete solution for compliance, it is worth noting that Actico offers little when it comes to traditional fraud prevention and identity verification, which means you’ll need an extra solution to meet KYC or PSD2, among others.

Its machine learning optimizes both cost and risk, which helps balance effectiveness and efficiency in transaction screening.

Cybersource – Transaction Analytics Tool

If you want your transaction monitoring tool to focus on payments rather than the user’s identity for AML, Cybersource has got you covered. Marketed as a global solution, this powerful risk management solution lets you monitor payments in all locales and every currency, and it supports POS (point of sale) as well as online payments.

While it relies on payment databases to block suspicious transactions, it is entirely possible to create your own rules to ensure you can flag payments that warrant the creation of an AML report for regulators. 

Its transaction analytics can help reveal business opportunities and other corporate insights.

iComply – Blockchain Technology

Also known as iComplyKYC, this company covers compliance in 240+ countries and supports 4,000 document types for identity verification. But when it comes to anti-money laundering compliance, it is just as impressive, allowing you to automate screening thanks to its access to exclusive global databases.

The transaction monitoring tools are limited, however, only allowing you to focus on individuals rather than the transaction amount, for instance. Still, it is a robust AML solution that can meet part of your transaction monitoring requirements.

Its security token management technology utilizes blockchain in the transaction monitoring process.

Key Features To Look For in Transaction Monitoring Software

A transaction monitoring software must be powerful enough to help you meet compliance regulations, and flexible enough to be updated regularly. Let’s explore the key features here:

• Risk scoring: At the core of every transaction monitoring tool is rule management, which is designed to trigger alerts based on your risk management strategy. However, the best software lets you calculate a risk score, which is more flexible by allowing you to determine whether the transaction must be automatically accepted, declined, or sent for manual review.
  
• Custom rule management: Compliance requirements change regularly, which is why it’s crucial to be able to update your rules manually, without having to rely on developers. Make sure your transaction monitoring software lets you easily create, edit, and update rules.
  
• Real-time alerts: Transaction monitoring tools must flag suspicious user actions as soon as possible. The results should be delivered within milliseconds for two reasons. First, it helps with compliance. Secondly, it also removes friction and frustration for legitimate customers.
  
• Sandbox testing: You will want to test your risk rules using live data, but also based on your historical data. This is why it’s important to be able to test transaction monitoring software in sandbox mode, to ensure you have the lowest number of false positives and negatives.
  

Other useful features may include AI or ML analysis, which can offer suggestions to improve your risk rules based on your own data, or the automated creation of reports such as suspicious activity reports (SARs).

How to Deploy Better Transaction Monitoring Software

Transaction monitoring software can be part of your AML solution, a fully automated on-premise installation, or an outsourced third-party solution you deploy as part of a multi-layer approach to risk management. 

Regardless of your approach, here are a few tips on the best practices.

Combine Transaction and Customer Monitoring

Transaction monitoring should look at the inbound and outbound data, but also at who is sending or receiving the money. That is to say, there is an overlap with customer due diligence (CDD) and know your customer (KYC).

You must be able to accurately verify identities (using ID verification software) and combine that information as part of your AML strategy. The more accurate identity verification is, the better you can spot discrepancies in account activity and improve your compliance at all levels.

Compare User Account Activities

Customer behavior varies a great deal depending on the kind of financial services you provide. Neobanks and challenger banks, for instance, need to pay extra attention to fraudsters, who use their accounts as “drops” to receive illegal money. 

What you need to do for maximum efficiency is to build a good understanding of what your typical user behavior looks like by comparing data points from every user account.

The key is to understand your company’s risk prioritization and grouping. Ensure your transaction monitoring software allows you to create custom rules and to set your own risk labels. You should also be able to set up priority levels for your alerts based on how much risk you could be dealing with.

This is not just an additional feature, by the way. Experts and authorities – the Financial Action Task Force, for instance – recommend you adjust your AML response based on the risks your company faces. 

Monitor Transaction Velocity

Your transaction monitoring system should include the option to set velocity rules. A velocity rule is designed to identify suspicious activity based on a rapid movement of funds. However, your limits need to take into account outliers or regular large deposits such as a paycheck. 

You should also be able to look at total transaction volume in order to assess what is acceptable versus risky velocity.

Double-Check IBANs 

International Bank Account Numbers, or IBANs, used to be a reliable way to link identities to banks. You can still go to a website like IBAN.com to check, validate and find bank information based on one of these numbers.

However, in the age of neobanks and challenger banks, IBAN monitoring may actually lead to false positives. This is because banks such as Wise, Revolut, or Monzo may rely on sponsor banks to issue their user accounts’ IBANs. It’s worth taking that discrepancy into consideration, especially as you automate monitoring with rules pertaining to geolocation and sanctioned countries. 

Log Data for Retroactive Analysis

Documentation and record-keeping are imperative, and not just for real-time screening and reporting. Your transaction monitoring system should also give you access to past data, to reassess previous transactions based on new insight and information. 

Ultimately, post-analysis can also be useful to feed data to an AI-driven system, which could update its algorithms in order to suggest more effective risk rules when assessing future transactions.

The Challenges of Deploying Transaction Monitoring Software

Transaction monitoring software is a legal requirement, but it tends to divide companies and risk management teams when it comes to its effectiveness. This is partly due to the following reasons:

• Added expense: Transaction monitoring tools can be either deployed on-premise or be outsourced. Either way, it is expensive to integrate, monitor and update.
  
• Resource-intensive: Software helps you process a lot more data as you scale, but you still need a fully-staffed risk management team to manually verify alerts and to produce reports.
  
• Time-consuming: The large number of alerts to monitor can require a tremendous amount of time and effort from the compliance department.

How SEON’s Software Does Transaction Monitoring 

At SEON, we’ve put together all the fraud prevention tools you need for identity verification, transaction monitoring, and user authentication. 

Our powerful system focuses on helping you understand user behavior via customizable rules. You have complete control over customization to adapt the system to your risk appetite, whether it’s to create new rules or accept suggestions from our machine learning engine.  See below an example of us in action:

Our goal? To give you access to an extra layer of hidden data to complete your AML compliance efforts, with complete control over the pricing.

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