Mobile Payments and Instant Compliance While mobile operators and vendors worked away at mobile wallet applications at the turn of the century, or promoted a limited ability to buy a soft drink or cinema tickets, under-banked mobile users in Africa were busy trading Pay As You Go (PAYG) credit with each other for goods and services – not least an occasional and purely medicinal glass of the good stuff. It wasn’t long before companies realised this was a great idea.
In 2007, SafariCom, Kenya’s largest mobile operator, launched M-Pesa. By 2010 it was the most successful phone-based banking service in the developing world. By 2012, 17 million accounts for the service had been created, equal to more than a third of Kenya’s population. The service has since spread across continents, in some cases creating unforeseen benefits.
The catch – and the connection – is that this creates all kinds of complications in the battle against money laundering. The problem isn’t necessarily with East Africa. The US State Department noted that overseas remittances in Kenya totalled $1.55 billion in 2015, and if even a tenth of that is laundered cash, it’s a drop in the ocean compared to the suspected 2 to 5 per cent of global cash that’s laundered – around US$2 trillion by UN estimates. It’s also likely to be dwarfed by the volumes that tech companies and other operators are already processing.

Opportunity and threat

Mobile banking and mobile payments have created both opportunity and threat, and not always in the ways they might first appear. Banks can improve their KYC (Know Your Customer) processes using mobile payments data to link and understand mobile payments better. And mobile apps can deliver all kinds of behavioural analytics that help ensure the entity sending or receiving cash is who they say they are: location, biometrics, phone usage data and more.
But for organisations entering the market, there are complications that sit alongside what is often a sound business move. New ways of moving money, and emerging requirements to clear and settle payments in near-real time make this a really tricky area for the financial sector.
M-Pesa and other services that have followed it – Apple Pay, Venmo, Android Pay and so on – have effectively allowed mobile operators and technology companies to handle payments and generally behave in the same way that banks and money transfer services do. SafariCom initiated its own Anti Money Laundering (AML) controls some time ago. Yet in the US, Apple, Venmo and Google’s products are new intermediaries between people and banks – they’re treated as Third-Party Payment Processors under the Banking Secrecy Act. As a result, they can effectively pass responsibility for reporting suspicious activity to their banks. This creates increased risk for those banks; if someone is up to no good on these platforms, the compliance, reporting and violation responsibility falls on their shoulders, not those of the payment processor.

Requirements and responsibilities

Requirements and responsibilities vary from country to country. In Australia, the New Payments Platform is live, speeding the pace at which payments are processed, with the aim of creating real time clearing and settlement. The requirement of payment processors to detect compliance violations are not yet clear – a real concern for banks and processors in that country.
In Europe, the story is different yet again. Under the new PSD2 directive, any new technologies facilitating payments must comply with regulation, have the means to spot suspicious transactions and have a reporting process in place to the relevant law enforcement agency. Banks, tech companies and mobile operators won’t be able to initiate transactions without considering how criminals can abuse the system to launder money.
All these changes mean that any institution with an AML and KYC requirement is going to have to work very, very hard to ensure it meets those requirements in real time and across multiple new and emerging digital channels as well as the existing staples: manual ATM deposit, wire transfer and so on.
For financial institutions to effectively tackle the risks that payment processors bring with them, they need to be able to use ultra-low-latency real time detection technologies that use advanced analytics to know their customers. Machine learning and artificial intelligence can and do spot potentially risky transactions before they take place. Human beings simply can’t match the pace and volumes of transactions. But machines running advanced analytics can - when put to work by skilled humans in a compliance team.
To learn more, download our Transaction Monitoring Solution Fact Sheet.

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