Tackling the AML Challenges while Streamlining the Cross-Border Transactions in today’s Digital Era

Tackling the AML Challenges while Streamlining the Cross-Border Transactions in today's Digital Era

Rather than succumb to criminal obstacles, financial institutions must charge on, update and enhance AML systems through utilizing artificial intelligence (AI) and machine learning (ML) tools,” says Anders la Cour, CEO and Co-Founder, Banking Circle, in an exclusive interview with EnterpriseTalk.


ET Bureau: Why do FinTech companies and Banks struggle to make seamless cross-border transactions for their customers?

Anders la Cour: The pandemic has accelerated the digital revolution and as part of this, transacting online is now the norm as lockdown forced communities to turn away from physical outlets and cash. As a result, there is pressure from merchants who are demanding a speedy settlement for both domestic and cross-border transactions, from the FinTechs, Payments businesses or Banks they are partnered with. The problem is, Payments businesses and Banks cannot rely on the traditional correspondent banking network, which is the slowest yet most expensive way to move money for merchant customers. They need an alternative; a modern solution for the new age of banking.

Payments need to be processed quickly, and they need to be monitored effectively. FinTechs and Payments businesses struggle to achieve this because they simply don’t have the necessary payments infrastructure. On the other hand, Banks are often operating with legacy systems and can’t effectively upgrade to keep up with growing customer demands. What FinTechs, Payments businesses and traditional Banks all need is a collaboration with a partner who has the technology, the payments network and banking license to take care of all back-office processes securely and compliantly.

Also Read: Using Enterprise Automation Platforms to Streamline Business Workflows

ET Bureau: What steps can financial institutions take to reduce the excessive fees associated with cross-border transactions while also being able to meet their short and long-term goals?

Anders la Cour: The quickest way to reduce cross-border transaction fees is for financial institutions to get as close to the clearing as possible and partner with a trusted tech-led payments bank. The key is a partner that has done all the ‘heavy lifting’ and is connected to all the necessary payment rails to enable global transactions seamlessly and efficiently. In particular, one with a cloud-based infrastructure, a strong payments network, and a full banking license that is hassle-free to integrate, will enable organizations to focus on evolving their offering while leaving the back-office processes to others.

What’s more, when it comes to meeting other short and long-term goals, a decision has to be made. The build vs. buy debate has raged for many years – should organizations build from the ground up or collaborate and buy the infrastructure and solutions they need? Both have their advantages, but unless financial institutions have the vast resources, time, environment, and expertise to invest in developing their own bespoke solution, collaborating with a payments specialist is the way forward, leaving time to focus on the customer relationship and service.

Furthermore, the need for partners to have cloud-based and de-coupled infrastructure is also key. Customer demands are always changing, but when organizations are confident that they have the environment and infrastructure to quickly adapt, they are future-proofed.

ET Bureau: How can FinTech institutions effectively address issues related to financial crimes such as money laundering in today’s digital era?

Anders la Cour: It’s exciting to see the potential of our new digital era, but technological advancements also come with more sinister undertones. Criminals themselves are embracing new tech and are ready to infiltrate the slightest loopholes. This makes stringent anti-fraud processes in line with regulatory compliance, though burdensome, an utmost priority to optimize as they are essential for combating serious financial crime.

While anti-money laundering (AML) automation has improved in efficiency, traditional rule-based approaches to transaction monitoring are still in use and are heavily outdated. The use of these static behavioral rules, which capture only one element of a transaction, generally means the industry sees false-positive rates of a staggering 97-99%.

Rather than succumb to criminal obstacles, financial institutions must charge on, update and enhance AML systems through utilizing artificial intelligence (AI) and machine learning (ML) tools. The use of this technology can increase rules precision, highlighting red flags and patterns that would otherwise be invisible to the naked human eye, enhancing fraud detection beyond human capabilities.

Also Read: How Enterprises Can Utilize IoT for Streamlined Business Functionalities

ET Bureau: What steps can the payments industry as a whole take to lower the chance of money laundering and fraud?

Anders la Cour: As well as being more open to AI and ML, to combat money laundering and fraud, organizations must join forces. This should not be confined to a bi-lateral partnership between two organizations either. Instead, to achieve long-term success, advanced analytics should ideally be based on shared data both nationally and internationally.

Unfortunately, many organizations still feel reluctant to give away their data sources – not out of unwillingness to collaborate, but rather due to external regulators required to give organizations the green light. Going forward, regulators must outline a clear, definitive guide on AML so that financial institutions can comfortably share client data without the risk of violating GDPR guidelines.

Global collaborative efforts would enable organizations to reduce the time spent resolving suspected money laundering events by 10-15% through the use of complementary data sources. As a testament to this, the Netherlands’ 5 leading Dutch banks are jointly developing an AML solution as part of their P27 initiative to create the world’s first digital platform, in a bid to change banks’ relationship to payments and “create magic” across the Nordics. This venture will allow banks to pool their transaction data, undertaking common analysis of the data to identify any exceptions that could indicate either the presence of money laundering or terrorism financing.

This is just the start, and although it feels like there’s still a long way to go, we’re on the brink of something revolutionary. Cross-industry collaboration and adoption of digital solutions is the best way to bring about change. The industry’s approach to regulation needs to be more flexible, more collaborative and more open to using emerging and exciting technologies such as AI. This can be done through educating the financial sphere about the benefits of sharing data and these tools.

Anders la Cour, is the CEO and co-founder of Banking Circle. Anders la Cour, is a tech-first bank that provides financial infrastructure to Payments businesses and Banks. As a fully licenced bank, free of legacy systems, Banking Circle technology enables payments companies and banks of any scale to seize opportunities in the new economy.

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Vishal Muktewar is a Senior Correspondent at On Dot Media. He reports news that focuses on the latest trends and innovations happening in the B2B industry. An IT engineer by profession, Vishal has worked at Insights Success before joining Ondot. His love for stories has driven him to take up a career in enterprise journalism. He effectively uses his knowledge of technology and flair for writing, for crafting features, articles and interactions for technology enterprise media platforms.