Secure Online Payment Processing Practices: Protecting Customers and Businesses from Risk

Fraudsters are always looking to exploit the weak points in a system, be it ordinary banking activities or online payment. Shoppers can’t just stop making online payments due to the fear of being exposed. Customers deserve a smooth, friction-free, and secure payment experience and it’s the responsibility of a business to make that environment.

To protect customers and the business from fraudsters, merchants need to understand the best parameters and best secure online payment processing practices. By employing the best practices for secure online payment processing, businesses can ensure that every payment goes through seamlessly, be it credit cards, debit cards, or digital wallets.

Three Factors for a Secure Online Payment Processing

There are several factors that payment merchants should keep in mind while trying to build a secure online payment environment. The payment method should provide a smooth and simple experience for all types of payment methods, including credit and debit cards and digital wallets. Here are the three factors to consider to reduce payment risk:

  • Fraud
  • Security
  • Compliance

1. Fraud

How well a business manages fraud will determine its success. Fraud management is the key to businesses and may require changes to the payment methods and additional buyer identification verification. A high level of fraud can result in credit card companies stopping a merchant’s right to process payments, and it can lead to reputation loss for a business.

2. Security

As fraudsters try to find and exploit the weaknesses of a payment processor, it is up to the merchants to find all possible vulnerabilities and fix them. This will help in building a secure online payment processing environment. 

3. Compliance

Merchants need to follow the regulatory rules and regulations dictated by regulatory entities, as per their geographical location. These rules and regulations are built to protect customers and businesses from all fraudulent activities. Payment merchants need to have a clear understanding of the regulations that they’re obligated to follow to ensure secure payment processing for customers and businesses.

Best Practices for Secure Online Payment Processing

1. Matching IP Address and Billing Address

Checking the details available during a transaction can help in uncovering fraud in real-time. This can help businesses save huge sums in terms of both money and resources. Payment merchants can use the latest technologies that help in verifying the IP address of the buyer with the billing address mentioned on the credit card to verify if the credit card holder is a genuine buyer. 

2. Encrypt Information

SSL (Secure Sockets Layer) and TLS (Transport Layer Security) are standard practices that can be used to encrypt data when browsing the internet. Securing transactions with SSL protocols ensure that sensitive information is encrypted and can be accessed by the authorized recipient. 

3. Use Payment Tokenization

To build a secure online payment processing environment, merchants can use credit card tokenization. Credit card tokenization can de-identify sensitive information by converting it to a series of randomly generated numbers known as “tokens”. As a token, information can be sent and received through the internet and payment networks without sharing information that can lead to a customer being exposed.

4. Make Strong Passwords Mandatory

Fraudsters gain access to millions of accounts annually just by guessing commonly used passwords, such as names, birth dates, and common words. Merchants and eCommerce businesses can protect customers by requiring them to use stronger passwords. In case a customer forgets their complicated and secure password, they can reset it by using the “forget password” option. 

5. Leverage 3D Secure

One of the easiest ways fraudsters gain access to a consumer’s accounts is by guessing the passwords. 3D secure is a method of customer authentication designed to prevent unauthorized use of credit cards and protect eCommerce merchants from losing money in a fraudulent transaction. 

Payment merchants, credit card networks, and financial services institutions share necessary information among themselves to authenticate transactions. All merchants are required to comply with the latest regulations by the EU for better online customer verification and 3D security is one of the best ways to achieve this. 

6. Request CVV

The CVV (Card Verification Value) should be made mandatory across all payment networks. This CVV should be asked before every transaction for authenticating the user of the card, this can prevent “card-not-present fraud and fraudulent transactions over the phone.” Even if your credit card numbers have been exposed, asking for CVV information can help in the prevention of fraudulent transactions. 

7. Use Strong Customer Authentication

SCA can be leveraged by payment merchants and credit card companies to reduce fraudulent transactions significantly. SCA contains two or more elements to authenticate a customer. It requires something you know (a password or PIN) and something you have (a badge or smartphone), or something you are (fingerprints or voice recognition).

8. Continuous Monitoring

One of the best practices for secure online payment processing is continuous monitoring. Merchants need to use a payment gateway that automatically detects and manages fraudulent activity. With built-in fraud management, businesses can set rules, based on their situation and tolerance for risk, that limit or reject transactions that seem suspicious. 

9. Manage PCI Compliance

Merchants that process, store or share credit card data are required to be PCI compliant as per government rules. If a non-PCI compliant business suffers a data breach, they can end up paying hefty fines and penalties, plus they’ll have to deal with reputation damage.

Payment processors play a huge role in helping out merchants and maintaining compliance, but businesses should take a proactive role in understanding compliance requirements.

10. Train Employees to Detect Fraud

A business is as good as its employees. It should be the responsibility of a business to provide its employees with enough knowledge and skills to recognize suspicious activities and how to deal with them. When the team understands the secure payment process, they’re better prepared to identify fraudulent activities while they’re underway.

By using these practices for secure online payment processing, businesses can reduce the risk of fraudulent transactions while improving brand reputation and customer experience.

Secure Online Payment Processing

7 Reasons to Switch to Compliance Apps instead of Cross-Border Manuals

Compliance is a word that’s thrown around leisurely in the financial services industry. Banks, financial institutions, FinTechs, and other businesses operating in the financial industry need to comply with KYC and AML regulations. For years, businesses have been relying on country manuals or handbooks that are jurisdiction-specific. These guidelines contain all rules and guidelines for businesses and financial services businesses. 

Handbooks are essential for legal and compliance teams, but you can also be a compliant business activity of wealth as asset managers, HR, Marketing, and even IT teams.

What Are Compliance Apps?

Compliance apps are tools for financial institutions that need to comply with KYC or AML regulations. AML and KYC directives keep changing frequently, so it’s hard for most financial institutions to keep up with them. They allow for faster compliance and decision-making and efficient knowledge sharing between internal parties, businesses, and other departments throughout the organization. 

Here’s why you should use compliance apps. 7 Advantages of Compliance Apps

1. Clear Guidance on Compliance

Compliance apps provide users with simple answers to confusing questions related to business activities abroad. The answers are visually pleasing and straightforward and provide answers for endless business scenarios. Compared to hand-held cross-country manuals and static text, compliance apps provide information in a much more consumer-friendly method. Compliance apps provide clear guidance on the information you require, which requires compliance time. 

2. Flexible & Scalable Coverage

Compliance apps can support the growing needs of businesses. With compliance apps, businesses can choose a variety of business scenarios and new countries and add as many users as needed to access the app. Compliance apps compared to country manuals can provide scalable information. Country KYC and AML compliance manuals can’t grow according to businesses. 

3. Immediate Answers Regarding Regulations

Compliance apps offer a user-friendly comparison between different cross-border scenarios on a single screen. It’s easy to find out answers to complex situations, which isn’t possible with country compliance manuals, and exploring cross-border situations often takes days. 

4. Compare Cross-Border Compliance Factors in Real-Time

Compliance apps users can compare compliance rules and regulations all over the globe in real-time without having to do tons of research. Easily find out where the circumstance best fits products and services. Cross-border country manuals can’t support exploring the comparison of scenarios.

5. Up-to-date Knowledge

By using compliance apps, banks and financial institutions can reduce the risk of missing out on important updates, and they’re automatically applied to the knowledge consumed by users on the app. If you compare this advantage of compliance apps with country compliance manuals, then these manuals need to be updated and distributed manually whenever any update comes in KYC and AML directives.

6. Facilitate Knowledge Sharing Internally

Compliance apps provide users with an increased chance of knowledge sharing among business teams with just a couple of clicks. Communicating with teams and sharing even the smallest of information becomes easy and quick. This can’t be done with country KYC and AML compliance manuals.

7. Answers Offered on Instrumental Level

Compliance apps offer business activities not for just one country, most of them provide insights on a product level, adding context and providing highly tailored guidance that all businesses and teams can benefit from. There is a certain level of complexity that country compliance manuals can simplify.

Conclusion: Advantages of Compliance Apps

Banks and financial institutions that don’t focus on compliance as much as they should tend to get fined. By using tools like compliance apps and online KYC verification software, banks and financial services businesses can improve their overall compliance process.

compliance apps

Importance of Client Onboarding: 5 Reasons for a Smooth and Seamless Onboarding

The client onboarding process is the first step in a customer-business relationship, so businesses need to make sure that the first impression is the best one. The moment a prospect becomes a client, a smooth and seamless customer onboarding process is crucial.

Unfortunately, complying with KYC and AML regulations has made this customer onboarding process incredibly tough and challenging for businesses. Since their first introduction in the 1970s, the total amount of laws and directives has increased significantly with annual updates. The regulatory bodies have been raising the bar for compliance, thus making the client onboarding process incredibly tough.

Under these circumstances, it’s more than important to onboard clients simply and seamlessly. Current onboarding practices, however, are often cumbersome, time-consuming, tedious, and frustrating. That’s why the importance of customer onboarding is growing which enhances customer experience.

In this article, we’ve mapped out why a business needs a simple and smooth client onboarding process and its benefits.

What Is a Good Client Onboarding Process?

One client onboarding survey found that banks themselves consider their onboarding process inefficient for the customers. Some banks and financial institutions even stated that they still rely on a paper-based customer onboarding process.

As customers are becoming technology-friendly, this process needs to be changed. Therefore, businesses need to understand the basic attributes that make for a “good” client onboarding process. 

There are a couple of things that make for a good client onboarding process.

  • Simple Process
  • Smooth Process
  • Seamless Process

A user-friendly process should be a priority while building a customer onboarding process. The ideal customer verification process sets the tone for a robust and long-lasting client relationship.

The client onboarding process should also comply with all the KYC and AML regulations. These regulations are also used to support risk assessment, it includes a long list such as Anti-Money Laundering (AML) practices, and Know Your Customer requirements. In an ideal customer onboarding process, compliance shouldn’t slow down the customer onboarding process. 

A good customer onboarding process should be fast and with a quick response time. An average customer onboarding process often takes 2-3 weeks. This needs to be changed, and the client onboarding process needs to be replaced with the online customer onboarding process. This can be achieved by leveraging technologies such as online KYC verification software, online AML verification software, or online customer document verification process.

What’s The Importance of a Good Customer Onboarding Process?

There are 5 biggest reasons why businesses should have a seamless client onboarding process:

1. Demonstrate Own Value

First of all, the implementation of a smooth and simple client onboarding process allows for a company to build healthy and loyal customer relationships early on. A good customer onboarding experience goes a long way and it stays with the customers during their relationship. First impressions of these onboarding processes count, and missed opportunities to demonstrate your company’s value.

2. Exceed Client Expectations

This is a huge reason for building great customer onboarding experiences. The customer experience can be significantly improved by implementing a simple, smooth, and seamless client onboarding. Companies can make this happen by introducing a user-friendly process for onboarding. Customers are accustomed to tiresome and tedious processes and they can be pleasantly surprised when they experience a smooth operation.

3. Increase Efficiency & Revenue

This is another reason for banks and financial institutions to build an ideal customer onboarding process. Financial services companies should focus on enhancing their process as much as possible and make that visible for the client onboarding process. The drive for efficiency should enhance the customer experience. 

4. Customer Satisfaction

If a business fails to build an impressive customer onboarding process, it’ll end up losing customers to businesses that offer better processes. There’s no business that wants to lose customers instead of acquiring them. A good customer onboarding process will bind your clients to your company. 

5. Improve Regulatory Compliance

The final reason for building a smooth customer onboarding process should make sure that all parties comply with all the rules and regulations. This part isn’t actually easy. However, a smooth and simple client onboarding process with proper AML and KYC compliance can happen by leveraging technologies.

Benefits of Client Onboarding Process

The benefits of a good client onboarding process include a variety of considerations, such as:

1. Increase Efficiency

  • Boost customer onboarding time by eliminating unnecessary touchpoints.
  • Always stay compliant with the right set of requirements.
  • Reduce costs by increasing efficiency

2. Enhance Business Potential

  • Increase the scalability of business by understanding requirements across major jurisdictions.
  • Minimize risks and misconduct by understanding the regulations.

3. Try to Boost Client Satisfaction

  • A simple, smooth, and fast customer onboarding process is equivalent to limited interactions, which leads to increased customer satisfaction.
  • Increases the reputation of the business by adding real value based on great customer experiences.
Client Onboarding

Protecting Your Businesses from Chargeback Fraud: Best Practices

Chargeback fraud is a common happening in the world of eCommerce. Chargebacks happen when a purchase is reversed and the consumer gets their money back from the seller because of a dispute initiated with their credit card company. Originally, chargebacks were intended to boost confidence in debit and credit card security and also provide a level of protection to consumers. Businesses should be aware of how to prevent chargeback fraud. In the current environment, a customer can dispute a purchase on their bill for the below-mentioned reasons: 

  • They don’t recognize a certain charge on their card
  • The customer never received their purchase or they were billed incorrectly
  • Customers feel that the product or service they paid for isn’t as promised
  • Their credit/debit card information was stolen and fraudulent transactions were made
  • A merchant’s return policy isn’t clear, and the customer doesn’t know how to return a product.

How do Chargebacks Work?

A chargeback happens whenever a customer contacts their credit card company to dispute a purchase on their monthly bill. When they start a dispute on a particular purchase, customers have to provide a reason as to why they feel the charge is an error and provide proof of their position. To keep the cardholders happy, most of these disputes work in the favor of the customers. This is one of the unsung rules for a chargeback.

In the end, customers end up getting their money back in terms of chargeback. Fraudsters all over the globe try to take advantage of this policy, which is known as chargeback fraud. Businesses should be aware of chargeback fraud protection rules and regulations.

Rise of Chargeback Fraud

Chargeback fraud is a huge concern for eCommerce businesses as it has been growing at an annual rate of 20%. The greatest reason for chargebacks is a fraud, including the transactions that weren’t made by the cardholder. There has also been an increase in a new type of fraud, known as “friendly fraud,” where a card may be used by a family member without the knowledge of the cardholder and the consumer doesn’t recognize the purchase at the end of month. Whenever the cardholder learns about this unrecognized charge on their card, they dispute with their card provider about the charge, without learning that the payment was genuine. Businesses should know how to prevent chargeback fraud of this kind or any other kind. 

Chargeback fraud is a growing concern for businesses and it can have huge impacts. A business can lose a significant amount of money, they also have to bear the fees associated with chargebacks. If a merchant is hit with tons of chargebacks they could permanently lose their access to process payments. That’s why businesses need to adopt chargeback fraud prevention practices.

Best Practices to Prevent Chargeback Fraud

eCommerce businesses can follow some of the chargeback fraud best practices to reduce the rate of flow. Some of the chargeback fraud best practices are:

1. Keep Up With Latest Chargeback Codes

Chargeback reason codes aren’t permanent. That’s because each card network has its series of chargeback reason codes, or different categories to indicate the reason for a customer dispute for chargeback or refund.

For proper chargeback fraud prevention, merchants need to stay up to date on all the new chargeback reason codes so they can authenticate if something suspicious is happening. If a consumer suggests that the charge was due to fraudulent activity, but a merchant has the evidence to prove otherwise, they can dispute the customer’s claim and prevent potential chargeback fraud. 

Keeping track of chargeback codes can help merchants understand the biggest reasons for customers requesting chargebacks. If there’s a particular reason for it, merchants can look for a solution to solve that problem.

2. Proper Documentation of All Card Transactions

Some chargeback fraud best practices include merchants to dispute customer claims for chargebacks with signatures and receipts. Maintaining proper and thorough records of customer transactions will help your business from chargeback fraud. 

Now that eCommerce transactions are growing widely, it makes sense for merchants to have physical documentation. In a growing digital economy, sometimes it’s not possible to keep paper-based records, in this case, merchants need to leverage record-keeping technologies. These solutions can help in keeping track of every card-based transaction, including date and time, IP Address, and other information.

3. Utilize Technologies

Customer authentication technologies such as 3D secure can provide an additional layer of security to the card acquisition process and prevent chargeback frauds for merchants. This authentication process transfers the liability to the card issuer, compared to chargebacks landing on the merchant for responsibility.

Additionally, whenever a business invests in a fraud prevention solution, it can help them in identifying chargeback fraud opportunities before they happen, by identifying high-risk transactions. Having an always-on fraud prevention technology can help in reducing the flow of chargeback frauds.

4. Well Trained Teams 

If your team has a great understanding of payment processor compliance rules, they’ll be able to detect and spot suspicious activities instantly. Training your team in transactions when a card is present and when a card isn’t present can help in uncovering fraud before it even happens, which is the best way to prevent chargeback fraud. Businesses should build secure payment processes that aim in strengthening defenses against fraudsters. Regularly training your team on changing compliance is a great way to detect and prevent fraud.

5. Respond to Customer Issues Quickly

85% of consumers initiating disputes admit that they do this because it’s convenient, making it imperative that merchants make it just as convenient for consumers to get their issues fixed as soon as possible. With “friendly fraud” rates expected to cross over $130B in damages from last year, merchants must follow preventive measures to eliminate fraud before it happens. The best way merchants can make this happen is by providing 24/7/365 customer support, allowing customers to contact the business and settle concerns as soon and as seamlessly as possible. 

Not all businesses may be able to provide this level of support. In these cases, merchants and their teams must solve customer problems as soon as possible. Businesses should also provide clear return rules and regulations on their website, along with answers to other FAQs.

Chargeback Fraud

Chatbots in Banking Sector: Use Cases

Chatbots are amazing. They’ve helped countless sectors improve customer engagement and customer service. Now that the global banking sector has started seeing the benefits of integrating technologies into their process, there are so many technologies left neglected. Providing seamless customer service and experience is vital for retaining customers for any bank. And, in this age of digitization, customers expect banks to be more innovative in their workflow and how they offer services to their customers. The use of AI chatbots in the banking sector is another innovation that can be useful for banks and customers.  

Customers’ expectations are high when it comes to digital banking services as FinTechs are putting new digital products and services on a daily basis. Integration of high-end technologies such as artificial intelligence and open banking APIs can help in streamlining or completely transforming the recurring and mundane tasks. In this age of AI-powered tools, chatbots in the banking industry are another solution that the banking sector can use. 

There are several benefits of chatbots in banking that leverage AI and machine learning to serve customers better and make more fluent and effective conversations with the customers. AI chatbots in the banking sector can easily provide the consumer with a human-like chat experience while answering their questions.

Chatbots in the banking industry has become a common utility throughout retail banking services as they play a vital role in handling customers using access to real-time data analysis.

In this guide, we’ll list the use cases of chatbots in the banking sector.

Chatbots in Banking Sector: Benefits

Let’s start with how chatbots in banking help retail banks provide a better and more streamlined customer experience by leveraging consumer data and AI.

1. 24/7 Instant Customer Service

One of the most common chatbot use cases in the banking sector is that banks can offer 24/7 online customer support, without having to invest in human operators. Plus, they’re more durable as AI chatbots will end up providing better service than humans.

AI chatbots in the banking sector run state-of-the-art algorithms that can understand and complete the most common commands, over time the AI learns more about customer queries and teaches itself to provide answers to more complex commands as well. This process is known as machine learning.

The more an AI chatbot interacts with customers, the better it’ll become in handling a variety of customer requests.

2. Time and Money Savings

The widespread use of chatbots in the banking sector can help in saving both time and money. Chatbots can work faster and require less training compared to human operators. At their core, chatbots act as virtual financial assistants, helping customers find answers to their problems. This frees up the human operators to focus on more complex problems that can’t be fixed with a chatbot.

With machine learning algorithms, human customer support staff can rely on AI chatbots to get smarter and handle more complex problems raised by customers. This makes the future of chatbots in banking bright throughout the industry.

3. Honest Customer Feedback

Another chatbot use case in the banking sector is that it helps banks get an insight as to what their customers feel about their services. As AI chatbots help out a customer, they can gather valuable customer feedback which can help in figuring out the weak points in a bank’s workflow.

Most customers tend to leave feedback at the end of their conversations with a chatbot. Getting reviews in chats often helps in understanding how a customer is feeling instead of the old-style email surveys. This can help banks and financial institutions significantly improve their customer engagements and improve their most problematic areas. This is one of the best benefits of chatbots in banking.

4. Personalized Offers

Chatbots in the banking sector can assist banks in offering personalized products and services without feeling too pushy. With the higher standards of customer privacy and permissions, chatbots can understand customer transactional patterns and habits.

The data collected from these conversations can be used to provide a more personalized experience to the customers and can even help them learn about investment opportunities and build their financial profiles.

5. Boost Product Adoption

Banks and financial institutions can make their chatbots ask new visitors on a website or customers looking for help if they’re interested in a particular product or service. These service offerings could be anything including loans, savings accounts, credit cards, etc. This customer engagement can provide helpful information for the sales process that focuses on meeting customer needs in a timely way and offers services in a way that feels natural.

The conversational environment via a chatbot can help enhance customer satisfaction with their banks. If a customer is happy with one product offering from their customer, they’ll also be open to getting new products and services from the same bank.

Examples of Chatbots in the Banking Sector

Here’s a list of top banks that are using chatbots to improve their customer interactions. If other banks follow the below-listed examples, the future of chatbots in banking looks great.

1. Bank of America Erica

In 2018, Bank of America unveiled their AI chatbot “Erica”, which also acted as a virtual financial assistant. Erica is available only through the Bank of America’s mobile banking app and it can help customers with simple tasks such as bill payments, credit reports, and getting e-statements.

With time, Erica is improving tremendously. As more and more customers are using digital services, Erica will get to learn more about consumer behaviors. 

2. Capital One Eno

Capital One’s AI Chatbots in the banking sector also come with their mobile banking app, it understands consumer behavior and their preferred way of banking. Through Eno, customers can pay the bill instantly and receive real-time updates about account balances, transaction history, and credit limits. Eno leverages machine learning to gain insights into consumer behaviors and helps customers when they need help. 

3. American Express Amex

American Express credit card holders can connect their cards with the AmEx chatbot on messenger to receive updates and personalized offers. These often include recommendations, payment reminders, exclusive card benefits, and real-time sale notifications.

AI chatbots in banking sector

Best AML Compliance Rules for Fraud Prevention

Money laundering schemes are almost impossible to detect if a financial institution doesn’t have a proper anti-money laundering compliance regulations program. Money launderers leverage internal systems of businesses like FinTechs, banks, insurance companies, cryptocurrency dealers, gaming platforms, casinos, and other financial institutions to move illegal money around to make the money look legit. The flow of money laundering can be disrupted following AML compliance rules.

The primary goal of anti-money laundering rules is to uncover abnormal patterns between millions of transaction data, generated every day with financial accounts. By implementing regulations that have been outlined by AML laws in the Bank Secrecy Act (BSA) and the USA Patriot Act, financial institutions and related service providers can help regulatory bodies and federal law enforcement agencies and prevent the flow of money laundering. In this article, we’ll discuss the top 10 AML rules for compliance programs.

What AML Compliance Rules Do I Need to Consider?

While building a successful AML compliance rule program, firms need to meet a minimum standard set forth by the federal government. If a financial institution, does not meet these standards, government agencies such as:

  • Financial Crimes Enforcement Network (FinCEN)
  • Financial Action Task Force (FATF)
  • Financial Industry Regulation Authority (FINRA)

If financial institutions fail to follow through on the rules and regulations, these agencies can fine the institutions.

Compliance teams need to make sure that all the regulations apply to a financial institution and its specific business type and locality. Businesses need to develop proper methods and internal controls, including risk assessment and customer identification programs, to fulfill the due diligence requirements.

Anti-Money Laundering Rules for Compliance Program

Complying with anti-money laundering rules can be challenging for businesses of all scales. As all businesses have different risk factors and appropriate thresholds. However, there are some basic rules that every financial institution needs to follow. 

Below, we have mentioned 10 rules for anti-money laundering compliance programs, and these rules are the first point in building a successful compliance program.

1. Structuring Over Time

Structuring is a money-laundering activity that involves splitting the transactions into multiple smaller transactions to avoid reporting requirements. This rule should detect an excessive proportion of transactions below the reporting limit. Financial institutions are required to report transactions over $10,000, so banks need to look for transactions that are just below $10,000.

2. Profile Change Before a Large Transaction

This rule is for identifying instances where customers make profile changes to PII (personally identifiable information) shortly after making a huge transaction. This often signifies account takeover or potential “transaction layering” activity to obscure the path of the funds. 

3. Suspicious User Financial Behavior

Another common rule for anti-money laundering is keeping track of suspicious financial behavior. Financial institutions should look forward to identifying transactions that are different from an individual’s usual spending behavior. You should also look for behaviors that are not common for a financial party’s financial profile. 

4. Increase in Transaction Volume/Value

This rule for anti-money laundering should help in identifying parties with high pay-out transaction volumes or a significant increase in the value of a party’s outgoing transactions compared to their recent average.

A rule like this is perfect for a P2P payment network with the capability to withdraw funds to an external account. The rule should filter out entities that have their bank accounts for a short amount of time and parties with a low balance and low outgoing transaction value over the relevant time window.

5. Circulation of Funds

Circulation of funds happens when individuals pay themselves using different accounts. This rule should detect situations where:

  • The party deposits casino checks
  • Purchase of bank drafts that are used at casinos
  • Casino checks whose memo indicates that the funds aren’t the result of casino winnings

This rule should also look for transfers between parties that have the same IP address.

6. Excessive Flow-Through Activity

This rule for anti-money laundering should help in identifying parties where the total value of the credit is similar to the total value of debits in a short period. A rule like this should be perfect for a financial service that offers a collection of funds where there won’t be comparable spend activity.

7. Low Number of Buyers

For platforms that see several buyers, interacting with a single seller, the rule should detect merchants that only receive from limited buyers. This can help regulatory bodies uncover collusion and circulation of funds. This rule for anti-money laundering should only look for accounts older than a specific time period.

8. Low Communication Between Buyers and Sellers

Platforms that keep track of the frequency of communication between buyers and sellers on the service, this rule can also identify merchants with high earnings but very few sent messages, which can indicate money laundering instead of normal business activities. 

9. High-Risk Jurisdiction

This rule for anti-money laundering compliance relies on geographic-based risk factors for countries and regions where money laundering is common. Some examples of risk categories include high banking secrecy, high financial crime, high drug trafficking, and known tax-evading countries. 

It’s important to keep this AML program rule updated based on the latest information. For example, in June 2021, the FATF updated its list of the geographical locations under monitoring to also include Haiti, Malta, the Philippines, and South Sudan. Ghana was removed from the list after new information. 

10. Anonymous Source of Funds

The last AML Program rule should look out for situations where the party sends funds into decentralized exchanges and then extracts the funds, which is used to anonymize the funds. 

It can also help in identifying when the party converts the currency into gaming tokens and then withdraws them for money laundering purposes.

aml compliance rules

Challenges to FinTech Growth: Regulatory Compliance and Geographical Restrictions

When it comes to complying with regulations, FinTechs tend to face tons of trouble, be it KYC or AML. According to a survey, FinTechs all over the globe considers KYC and AML compliance one of the biggest challenges to FinTech growth. FinTech companies, regardless of their scale often face trouble with compliance. Let’s discuss all FinTech growth challenges and how they can prepare better.

FinTechs Regulatory Challenges Looking to Enter International Markets

There are a couple of challenges that FinTechs face while trying to enter other markets. Here are the biggest FinTech regulatory global challenges:

1. Expanding Digital Products and Services to Other Countries

FinTech companies such as Robo advisors and automated wealth managers run into lots of trouble while trying to enter new geographical markets. Apart from licensing issues, they also need to analyze and adapt to the needs of customers. This will depend on the customer’s nationality, domicile, and expertise, and will require acquiring knowledge of all customers involved. To do this, FinTech regulatory compliance needs to be followed thoroughly.

2. Offering Credit Cards in Other Countries

What are the requirements for offering free credit cards to a potential customer? There isn’t one perfect rule for all types of customers and every country. The requirements vary from country to country and these FinTech growth challenges. Understanding these rules can be challenging for small to big FinTech businesses.

AML Requirements for Onboarding Global Clients

Just like banks, FinTech needs to monitor and investigate suspicious activities. To make this happen, FinTechs require a robust risk management policy when it comes to onboarding customers from other countries.

Different countries have different AML requirements. One of the best examples can be the UK and Europe before Brexit, UK companies had to follow EU regulations for AML and KYC. With Brexit in place, financial services are now required to follow local rules and regulations for AML and KYC compliance. This is one of the biggest FinTech regulatory challenges.

This has led to the discontinuation of passporting across the EU, new implications for transferring and protecting data, and mandatory compliance with new regulations. If a company based in the UK wants to onboard a new customer in the EU, the company now has to acquire a license in an EU country and comply with the local rules and regulations of every country.

Benefits of Having Regulatory Answers

Regarding regulations, FinTechs have a tougher challenge to overcome compared to other types of startups. FinTechs have to penetrate a highly complicated and regulated market that acts as a hamper for growth. The best part is that there are endless benefits to being prepared to overcome FinTech regulatory compliance.

1. Scale Globally

For FinTech companies that want to enter cross-country markets, understanding the rules and regulations in every country is crucial for facilitating growth. It decreases the number of mistakes, enables the right partnerships, and supports a powerful growth that’s more calculated for growth.

2. Plan Strategically

Consumers will expect FinTech companies to consider and plan out financial regulations for growth. Consumers expect this because regulatory compliance can affect the business model, so it’s important to be strategic and plan. Based on the products and services, it makes sense to expand to one country rather than another.

3. Pick up Speed

One of the biggest FinTech regulatory global challenges is that the responses require a considerable amount of time even when they’re negative. The lengthy procedures reduce time in product development, expansion, and investment plans. 

Having the regulation answers ready via enterprise-ready solutions can bring down the time to reduce the market and cost of market entry.

Enhance Brand Value

In the end, it’s all about having solutions for regulatory compliance that decreases the risks of regulatory and reputational damage. Some FinTechs around the world are getting fined for not complying with regulations and it can hurt the brand’s reputation of the company.

The financial technology landscape world is still a new one, which means that the challenge to earning trust is higher. Being regulation-ready allows FinTech companies to stay compliant with KYC and AML regulations around the globe. 

Acquiring customers from other countries has plenty of challenges, and dealing with them remains a huge challenge for FinTechs. FinTech companies that aren’t prepared will spend significant time and resources on remaining compliant. 

With the right tools and solutions, FinTech companies can use regulation as a stepping stone for global reach. 

fintech growth challenges

Virtual Debit Cards: Everything You Need to Know

As the name suggests, a virtual card isn’t a physical card made of plastic, it’s just a set of sixteen digits like a credit card number combined with a CVV code that’s generated using the software. Virtual cards can be both debit and credit cards.

What’s a Virtual Debit Card?

A virtual debit card is the same as an ordinary debit card, but the randomly generated number is linked to a debit account instead of a credit card. These virtual numbers act just like a debit card and they can also be used to make purchases remotely, although a user can’t use a debit card to make in-person purchases. 

When charges are made using the virtual debit card number, the amount is detected from the linked bank account. However, people can’t trace the number back to the originating account or access money by using the number. 

What’s a Virtual Credit Card?

A virtual credit card is also a series of 16 numbers that are generated at random with a CVV code that these numbers can be used to make goods and services online. Charges can be made with the card numbers online or on the telephone, but you can’t use a virtual credit card in person.

When a card number is generated, the charges are linked to the original credit card number. Similar to a virtual debit card, a virtual credit card can’t be traced back to the original card, and it will not work after the purchase.

What is a Virtual Card Used for Payments?

Virtual card payments are payments that happen online or over the phone without cash or check transactions. These payments are done using the generated numbers securely. 

When payments are made online, hackers who steal the generated numbers will not be able to use them. The numbers stop working after you’ve made the payment and they won’t work to allow access to your accounts or your company. Virtual payments can help to reduce invoices and enhance the payment process.

Who Needs Virtual Cards? Why are they Used?

Virtual credit and debit cards are incredibly famous among consumers and now businesses are also beginning to use them. They are also used to make purchases remotely and prevent fraud. 

Since the numbers are basically throwaway numbers, hackers and thieves have no use for them. When you choose to use virtual credit and debit cards, you can eliminate the chances of card fraud. Your employees also won’t be able to use the numbers to make unauthorized purchases.

Virtual Cards for Business: Good Idea or Not?

The use of virtual debit cards can allow businesses to eliminate the need for drafting checks. They help in saving businesses from fraud and using virtual payment methods can help you save time and money.

The owner of the card can restrict what can be purchased and what can’t be purchased from virtual numbers that you generate. You can also save money on transaction costs that might otherwise be involved with requisition forms, PO (purchase orders), invoice processing, and checks. Using virtual debit cards can also help in streamlining the payments and your expense management. 

Where Can You Use a Virtual Card?

As virtual cards are not physical, they can only be used to make purchases online or via telephone. You can’t take a virtual number to a physical store and expect to pay for goods with it. Virtual numbers can be used online or via telephone to make purchases from companies that accept all the major credit cards including Visa, Discover, Mastercard, or American Express. Once they’re used, the numbers expire and are worthless. If you want, you can set an expiration date that allows purchases to happen for a couple of days, and then the card can expire. 

How Can You Add Money to the Virtual Card?

To add money to a virtual credit or debit card you need to decide how much money you want to allocate to the card from your debit account and credit card from which it originated. The funds are then automatically transferred to the virtual numbers you’ve selected. 

When you see that the balance is low on your virtual cards, you can refund the money by an electronic transfer from your bank account. There’s no need for you to make a withdrawal of cash from your account to add money to your cards.

How Easy are Virtual Cards to Use?

To use a virtual credit or debit card, you can use proprietary software used by your card issuer. You can generate as many random numbers as you need in a few minutes. The cards allow you to assign spending limits by the day or week. 

Once you’ve generated these numbers, you can distribute them to your employees, and your employees can use them to make payments to suppliers of vendors online or over the phone. The numbers can be charged similar to plastic debit and credit cards.

How Safe are Virtual Cards?

As virtual card numbers can be traced back to your account or credit card, they’re much safer to use for buying products and services from unfamiliar online vendors and suppliers. The suppliers or vendors that you pay money to won’t be able to charge you for more than you’ve authorized, thus saving you from fraud. 

Using virtual numbers and cards for purchase provides you with an extra layer of security, if you generate numbers and forget to use them, there’s a chance that someone will be able to steal the numbers before they expire.

Conclusion: Use of Virtual Debit Cards

You should keep in mind that virtual debit cards aren’t plastic, while they’re known as “cards”, they’re just random numbers that are linked to your existing debit and credit cards or bank account. 

No one can use these numbers to make purchases in a physical store using the numbers and you can limit them to single purchases from specific suppliers or merchants. Some businesses use multiple numbers for multiple vendors and only authorized vendors can use these cards.

virtual debit cards use

Maintaining Security in Financial Institutions: How Essential is KYC?

The 9/11 attack on American soil shook the nation to its core, and the perpetrators used The Hudson United Bank of New Jersey to fund this attack. According to the 9/11 commission, proper money-laundering safeguards within the financial industry at the time weren’t designed to detect or disrupt the type of deposits, withdrawals, and wire transfers that helped the attackers to commit the crime. After the attack of 9/11 KYC laws were introduced as a part of the Patriotic Act as a means of preventing financial activity and crime.

Why is KYC Implemented for Banking Institutions?

Know Your Customer (KYC) laws were introduced as part of the Patriot Act as a means of preventing terrorism financing and financial crime such as money laundering. As criminals use fake or stolen identities to commit financial fraud, banking institutions have to find a way to distinguish between fake and legit customers. That’s what KYC policies help achieve, the policies require financial institutions to conduct a series of tests to get to know their customers. This should help financial institutions to understand if the customers are who they say they are. 

This makes KYC and Customer Identification Procedure (CIP) vital for banking and with more and more banks supporting online customer onboarding, KYC is becoming even more crucial. Banks, financial institutions, and other businesses need to find technologies that can streamline the customer onboarding and KYC procedure and eliminate the risk of fraudsters getting access to financial systems.

Why is KYC Compliance Mandatory?

For decades, the United States Department of Treasury has had legislation guiding financial institutions on detection and prevention of money laundering. The BSA (Bank Secrecy Act) of 1970 requires financial institutions to maintain specific records like cash transactions exceeding $10,000 and also report suspicious transactions that they think could be linked to money laundering, tax evasion, or any other criminal activities. 

Recently in 2016, the regulatory body ‘FinCEN’ issued new rules that outlined how to strengthen the customer due diligence and Anti-Money Laundering strategies. This also requires financial institutions to perform due diligence so they can better understand who their customers are and what kind of transactions they conduct. Any transactions from their ordinary transaction habits can be marked as a red flag. 

To successfully comply with KYC regulations, banks all over the globe spent over $100 billion in 2016 and the cost has since risen by 10% in 2021. Regardless of the growing cost of compliance and huge investments, over $26 billion were imposed as fines in the last decade to financial institutions for non-compliance with KYC and AML laws.

Common KYC Procedure of Financial Institutions

To make the CDD (Customer Due Diligence) process more robust and meet the KYC requirements, FinCEN outlined 4 basic elements for an effective KYC procedure. The 4 elements are:

  • Identifying and authenticating the identity of customers
  • Identifying and authenticating the identity of beneficial owners of legal entity customers (Ultimate beneficial owners).
  • Understanding customer nature and purpose of customer relationship for building a risk profile.
  • Transaction monitoring, monitoring, and updating customer information based on customer risk profile. 

What do Customers Have to Provide During Onboarding?

To keep with the regulations, financial institutions have to collect and authenticate identity information while onboarding new customers. Different financial institutions have different requirements when it comes to identity information. 

Individual customers who visit the bank for account opening will bring some ID documents (driver’s license, passport, etc), proof of address document, and any other document that is required. The banker then authenticates the documents to verify that the customers are who they claim to be. For onboarding businesses, banks ask for additional information to verify the identity of beneficial owners. Most financial institutions also require a profit and loss statement from businesses.

Opening a new account online significantly toughens the process as banks have to verify digital documents like driver’s license, proof of address documents, and others. Building a trustworthy link between a digital ID and an actual person requires a strong customer ID verification process to eliminate fraudsters from the customer onboarding process. This verification process may include biometrics verification, facial recognition, online document verification, and machine learning technologies for verification.

Use of Technologies for KYC Verification

Companies all over the world are using biometrics verification, manual verification, and online document verification software to comply with KYC regulations, prevent online fraud, and provide a better customer experience for customers.

The technologies can be used to enhance trust among customers and also create a seamless onboarding experience.

common kyc procedure of financial institutions

Blockchain Technology, and how does it work?

You must have heard about “blockchains” in the context of Bitcoin, Ethereum, and other cryptocurrencies. You probably must have also seen how many people have been raving about this technology. But why, what exactly is so special about this technology? Its link with cryptocurrencies has also led to many people believing that blockchain is Bitcoin. So they think that they’re getting excited about cryptocurrency. But nope, blockchain is a technology that is used in the implementation of these cryptocurrencies.

So, if you’re a newbie to this amazing new technology, read ahead and know about blockchain and its development process better.

What is blockchain technology?

Blockchain technology, also called Distributed Ledger Technology (DLT), is a decentralized digital ledger. It is a system of recording information so that it is difficult, if not impossible, to change, hack or cheat the system.

Primarily, it is a digital ledger of transactions distributed across the entire network on computer systems on the blockchain. Each block in the chain holds information on the transactions. Every time there’s a new transaction, it is recorded on the ledger of every participant. So, it is a decentralized database that is managed by the participants and hence the name, distributed ledger system.

This technology has three main ideas: unalterable history of transactions, transparency in use, and cryptographic signature. An analogy to understand this technology better is Google Docs. Suppose you create a document and share it with your friends. Here, the document is distributed and not copied and transferred. So, this way, you’ve created a decentralized distribution chain where everyone is accessing the document simultaneously.

There’s no waiting for a person to finish making changes so that others could start. All the modifications in the document are recorded in real-time, so all the changes are transparent. Blockchain is, of course, more complex, but the analogy explains the three main ideas of the technology.

Key Elements of a Blockchain:

  • Distributed ledger technology: All the blockchain participants have access to the distributed ledger and its records. The transactions are recorded only once with the shared ledger, so there are no efforts wasted in duplication.
  • Immutable records: once a transaction is recorded, no participant can make any changes in the ledger. Even in the case of an erroneous trade, a reverse transaction is made, and both are recorded.
  • Smart contracts: A set of rules are auto-implemented for speedy transactions.

How does blockchain technology work?

  • Each transaction is recorded as a “Block”:

A transaction implies a movement of a tangible (product) or intangible (intellectual) asset. So the block holds all the transaction data and answers everything- who, what, when, where, amount, and even the condition (temperature).

  • Each and every block is connected to the block before and after it

The blocks form a chain of data as the ownership of the asset changes. The blocks are securely linked together & record the exact time and sequence of transactions. There’s no scope for any alteration or any new block inserted between two linked blocks.

  • Transactions are chained together: blockchain

Each new block strengthens and verifies the previous block and hence, the entire blockchain. So, the blockchain shows its key strength, immutability, and brings forth a trustworthy ledger.

What are the types of consensus protocols?

Consensus protocols are used to validate transactions in a blockchain. A few are mentioned as follows:

  • Proof of Work (PoW): it is the original consensus algorithm in the blockchain network. It is used for a transaction’s confirmation and creation of a new block to the chain.
  • Proof of stake (PoS): it is used to reach distributed consensus and validate transactions. There are several other forms of Proof of Stake protocols like Delegated PoS, which improves the speed of block creation and leased PoS, which consumes less energy. 
  • Proof of elapsed time (PoET): this algorithm works on permissioned blockchain, and you need permission to access the chain. It covers transparency with a specific technique and assures secure login.
  • Byzantine Fault Tolerance (BFT): as per this algorithm, two nodes in a network can securely interact knowing that they display the same data. There are several other forms of BFT, like Practical BFT, Delegated BFT, simplified BFT and Asynchronous BFT.

What are the applications of blockchain technology?

Applications of a blockchain are as follows:

  • Smart Contracts: it is a code that is auto-executed when specific conditions are met during a transaction.
  • Sharing economy: you can directly engage in a transaction without the involvement of a third party (e.g., banks).
  • Supply chain audits: you can easily cross-check the claims made by the companies about their products. With the help of distributed ledgers, you can easily & quickly trace the products within the supply chain in real-time.
  • Intellectual property protection: with the help of smart contracts, you can protect copyrights & automate content sales. Thereby protecting your intellectual property.

What are the types of blockchain platforms?

Many types of blockchain platforms are available, each satisfying a particular development need. Some of the major blockchain platforms are:

  • Ethereum: open-source blockchain platform on which you can run smart contracts on a custom blockchain.
  • EOS: with EOS, you can design vertical & horizontal scaling of decentralized apps (DApps).
  • Stellar: it is an open-source distributed payment ledger that allows you to connect with payment systems.

What value does blockchain add to your platform?

  • More Transparency: the history of transactions is always transparent with blockchain. It is a distributed ledger, and all the members share the same updates in a ledger. The consensus on the network validates all the updates. Thereby, the data is secure & accurate.
  • Enhanced Traceability: you can easily track and manage your supply chain.
  • Increased Speed: the current processes are paper-based and time-consuming as they involve third parties & duplication of efforts. All these problems are eliminated with blockchain, and processes pick up speed. 
  • Reduced Costs: with blockchains, third-party involvement is eliminated. You also don’t have to engage in making documentation or checking them before transactions. And that results in cost elimination.

What is the blockchain development process?


You can refer to a custom software development company that can help you through the development process. The blockchain development process involves 9 stages:

  • Goal identification

Make a problem statement listing all the issues you wish to resolve with your proposed solution. The solution should be beneficial and improve your business. Analyze whether you should switch to blockchain technology or make a new application from scratch.

  • Select the right blockchain platform

Once you’re sure you need a blockchain solution, you need to select the right blockchain platform. The chosen platform should meet your business requirements. The choice should be driven by the problems you want to resolve, like consensus mechanisms.

  • Brainstorming ideas

The next step involves drafting business requirements and brainstorming ideas. Decide which technology components should be added as on-chain or off-chain entities on the proposed blockchain system. Create a roadmap to build the project in time. Create DFDs, conceptual workflows, and other documents to create your blockchain application.

You should decide on the language you’re going to use to develop the frontend, backend, and servers as well. For example, you can choose angular development or React Js web development services for the frontend.

  • Proof of concept

With proof-of-concept, you decide the practical applications and viability of a project. You can do that by either developing a prototype or via theoretical buildup. In the theoretical build-up, you theoretically make up different use cases to understand the feasibility of the application and explain the project’s scope and parameters.

  • Visual & technical designs

This step involves designing the look & feel of your application and making technical designs to understand the application’s technology architecture. So, you’ll create a user interface for each component of your application. You will also design APIs to integrate the UI to run an application in the back-end.

  • Development

At this stage, the actual development of your application will start. The developer needs to stick to the decided design and blueprint of the application.

The development of blockchain technology is a challenging task which is why it takes a lot of time to build it. Since blockchains are immutable ledgers, it is almost impossible to correct any corrupted data. Even to deliver a fix, you need to coordinate with all the parties in the blockchain.

So this step needs to be executed with extreme care.

  • Testing

At this stage, you’ll test whether the developed application does exactly what it is expected to do—nothing more and nothing less. Testing blockchain applications is similar to testing normal applications with a few more metrics added. For example:

  • Chain size: longer chain implies more data in it, and that implies more space requirement in the datastore. We need to determine how much space a blockchain can take after a period of time.
  • Throughput: what is the number of transactions per second (TPS). A high TPS is good, but that also means a more network load and the inability of every node to catch up.
  • Security & cryptography: code needs to be checked regularly to ensure its flawless.
  • Data integrity: all the data on the blockchain should be consistent.
  • Data propagation: distribution of data from one node to another without disruption.

Multiple software testing methods can be employed, like manual and automation testing. 

  • Deployment

The deployment phase refers to deploying the final developed blockchain application to the customer.

  • Maintenance

The maintenance stage involves providing training, customer support, and launching updates.

Blockchain technology offers a myriad of benefits, it is secure, reliable, speeds up business transaction processes, and so much more. The idea of incorporating blockchain technology in your business is appealing and indeed good. But you should know that it takes a lot of time to build an application and for everyone to warm up with it. Building blockchain software is an extensive process, and so you need to clearly define your requirements and then start with the process.

blockchain