The business operations of modern companies have been significantly streamlined with technology that allows instant payments. However, online transactions can get compromised by hackers and fraudsters.
Businesses can implement transaction monitoring to protect their customers and themselves. This can help them identify and stop threats before they unfold. The goal of transaction monitoring is to identify suspicious activities that could indicate that the user is a fraudster.
With the costs of cybercrime being counted in trillions, all possible defenses should be engaged. We’ll explore the concept of transaction monitoring, as well as some of the best practices to customize and enrich it.
Transaction Monitoring Explained
For businesses that handle vast amounts of transactions, whether they’re deposits, withdrawals, transfers, or purchases, it’s crucial to keep track of the suspicious ones. The process of transaction monitoring includes tracking those actions in real-time, or at least near real-time.
The goal of this process is to identify suspicious activities and possibly prevent them. So an example would be a customer purchasing an item worth $10,000 while they would usually spend up to $100 before.
In the past, transaction monitoring was often manual, with compliance experts checking each customer against a global database of suspicious credentials, politically exposed persons, etc. However, nowadays businesses usually rely on leading transaction monitoring solutions, which do the work automatically.
These tools have an all-around approach. As soon as the new user makes an account, they analyze their credentials and identity and confirm whether they’re a legitimate person, a synthetic identity, or a PEP. Monitoring solutions can automatically check someone’s identity against global databases of PEPs, criminals, and media outlets. The goal of this process is to identify individuals who might be involved with activities like money laundering, fraud, terrorist financing, or other financial crimes. Eventually, transaction monitoring can stop hackers who have stolen user accounts in order to make unauthorized purchases. The implementation of the transaction monitoring process isn’t only ethical, but it’s also required according to global laws like AMLD6, BSA/AML, FATF guidelines, etc.
Of course, transaction monitoring isn’t required for all businesses, but mainly for banks, financial institutions, and casinos. However, there are exceptions in the form of other entities that don’t fit in these categories, yet they process financial data.
Finest Practices For Monitoring Your Transactions
The features that transaction monitoring tools offer are powerful. However, it’s often not enough to implement a tool and just let it be. The list of practices below should help you perfect your transaction monitoring process.
1. Use Monitoring Solutions
Manual systems aren’t good enough for modern businesses. The main reason is the different ways in which fraudsters can cover their tracks and the number of transactions. The latest monitoring solutions include:
- Artificial intelligence
- Machine learning
- Big data analytics
AI and ML ensure that the monitoring solution adapts to the new types of behaviors and threats. They can learn new patterns and improve their efficiency over time. This is a significant upgrade compared to the rule-based monitoring.
Big data analytics means that these monitoring solutions have learned to recognize threats based on vast amounts of data, usually coming from large enterprises like Google and Microsoft.
Although this software might sound complex, it offers visual dashboards and automated workflows that tech-savvy employees can adapt to. Businesses that aim to implement monitoring tools should check whether they’re scalable, cloud-based, and whether they’re going to be able to customize them based on their specific requirements.
2. Work On Regulatory Compliance
The laws and regulations can change so quickly that businesses won’t be able to manually adapt. However, it’s crucial to have the necessary software that will allow you to implement the latest regulations as soon as possible.
This also includes hiring compliance officers who will oversee your processes. Businesses in finance must adhere to multiple types of regulations. They should be aware of the AML directives, data privacy laws, and international sanctions lists.
As new fraud types emerge, the regulations change and adapt. Regardless of the reason, if you fail to make updates on time, it can lead to significant problems. Monitoring tools are especially helpful for PEP lists.
For example, an individual who wasn’t a PEP suddenly gets a high-ranking office, which significantly changes the level of risk they pose. Regular company-wide audits are crucial for ensuring that you stay compliant.
3. Customize Rules Based On Risk Profiles
Relying on default rules to recognize suspicious transactions and individuals can be inefficient. It’s crucial to customize the recognition rules based on factors such as customer profile, geographic region, transaction types, and their frequency.
Obviously, if you recognize that the vast percentage of customers from one region are conducting suspicious transactions, you’ll save yourself a headache if you mark all transactions coming from that region as risky.
Of course, this is just a simplification. The risk profile is based on multiple factors, and proper risk evaluation of each customer can minimize the chances of them causing financial harm to your business or your customers.
You should also conduct test trials to ensure the number of false positives that your rule-based monitoring recognizes is minimized.
4. Leverage PEP Screening
PEP screening is an important part of compliance. Individuals who are involved in politics, or have been associated with notable criminals pose a significantly higher risk than regular customers due to their money and influence.
Monitoring solutions can help you with the PEP screening process. This process involves checking the customers against international databases in order to find whether they’re involved with organized crime or have been participating in suspicious activities.
One important part of this process is to implement a know-your-customer verification, which can help you properly identify the individuals that are PEPs. You should conduct the PEP screening process during the onboarding process, but it’s also important to continue with ongoing monitoring if an individual is recognized as a PEP.
Along with that, an enhanced due diligence, which incorporates advanced reviews, such as checking their sources of funds, can significantly lower the risks of PEPs exploiting your platform.
5. Train And Upskill Your Compliance And Cybersecurity Teams
As the regulations change and your team adapts to new threats and problems, so should you. While there are many platforms that can automatically adapt to the latest changes, such as monitoring tools, your personnel should also be aware of them.
For example, your cybersecurity teams should know how to recognize new types of attacks, such as AI-created identities used for conducting social engineering attacks. On the other hand, all employees should understand data and AML regulations, at least on some level.
It’s also important that the communication gap between different teams is bridged. Cybersecurity, compliance, and software development teams must have some understanding of each other’s processes.
6. Implement Real-Time Alerts
Real-time alerts can be crucial in preventing certain fraud attempts. In the context of transaction monitoring, real-time alerts notify the relevant personnel about suspicious activities. The alerts can be customized based on risk.
For example, a sudden large transaction for a normal customer might not be flagged as risky, but it will be flagged if it’s conducted by a PEP. The alert can be handled by an individual, or the further steps could be automated.
You can automate notifying the regulators or initiating EDD or KYC steps. Regardless, the final goal of preventing fraudulent transactions or reducing false positives can be achieved more easily with real-time alerts.
7. Conduct Regular Reports
Consistent reports, whether they’re daily, weekly, or monthly, ensure that the company will keep track of trends. This can help the business recognize the areas of the transaction process where improvements can be made.
Transaction Monitoring Is Crucial In 2025
Businesses that operate in the finance sphere have it harder than ever. They’re at risk of cybercrime, but stricter regulations and tougher markets are also causing them a lot of problems.
The cost of battling online fraud can be high, but failing to protect your business can lead to a lot higher costs. For example, suffering a data breach will not only stop your business from being operational, but it can also lead to fines associated with breaking data regulations.
Remember that there isn’t a way that will guarantee security against 100% of fraud types and cyber attacks, but it’s crucial that you’re aware of all the potential problems. Implement the right AML solution and all the complementary cybersecurity measures to protect your business.
