Inpay’s expansion has earned it recognition as one of Denmark’s fastest-growing companies and one of Europe’s most rapidly advancing FinTechs. However, this growth brought challenges that meant the company needed to re-evaluate its approach to compliance. 

The limits of building in-house

Inpay started out with an in-house compliance solution built when the company was founded. This solution was based on simplistic transaction thresholds. As the company gained more customers and processed more transactions, the limitations of this approach became clear. 

Continually altering payment screening and transaction monitoring parameters to cope with increasingly complex transactions created a huge strain on Inpay’s IT capabilities. A lack of flexibility in the existing system threatened to restrict further growth, with resources constantly diverted to make the necessary adjustments. 

“We came from an in-house solution that essentially took ten years to build. The moment we started having a larger inflow of transactions and more complex scenarios, we were limited in what we could design.”

Lukas Andersen, MLRO and Head of Financial Crime Risk, Inpay

Inpay decided to look for external vendors so they could remain a growing company and turn compliance from a drain on resources into a competitive advantage. 

ComplyAdvantage offers streamlined implementation 

Important criteria in Inpay’s search for a RegTech vendor were: 

• Accuracy and flexibility when screening and monitoring customers and transactions. 
• Comprehensive, customized data dashboards. 
• An intuitive user interface. 
• Maximum uptime during the implementation process. 
• Secure data handling. 
• Cost per transaction. 

As Inpay conducted its selection process, our platform came out on top in each of these categories, with the ability to adapt its service to Inpay’s needs being a crucial differentiator. 

Inpay needed its compliance solution to integrate with a complex proprietary payments system and approached the partnership with a list of requirements, scenarios, and intended outcomes. The company’s compliance team worked closely with us to tailor a solution that satisfied these, with our team providing additional scenarios to enhance Inpay’s coverage without compromising its control over its tech stack. 

Since implementation in 2017, our teams have continued to work together to optimize Inpay’s regulatory compliance, with regular check-ins and feedback allowing any changes to be made quickly. 

“What really set ComplyAdvantage apart from the competition was the ease of implementation and the service level. Even in the introductory meetings, it was clear that we would be listened to and that we could set the direction of what we wanted, but with really great feedback from the ComplyAdvantage implementation team.” 

Lukas Andersen, MLRO and Head of Financial Crime Risk, Inpay 

Enhanced flexibility makes the difference

Thanks to fully customizable screening and monitoring parameters, Inpay has been able to tailor financial crime controls to its evolving risk profile and appetite. As the company targets new industries and markets, Inpay can adapt to changing risks by creating nuanced rules for different customer segments and customizing search profiles for ongoing monitoring purposes. 

This ability to make changes with minimal disruption is informed by in-depth dashboards allowing Inpay’s compliance team to analyze its performance, with our team on hand to create additional reporting capabilities if any gaps emerge. 

Comprehensive data has also been instrumental in helping Inpay build strong relationships with regulators. Enhanced data points have strengthened its suspicious activity report (SAR) filings, while real-time customer data updates ensure compliance with evolving sanctions lists and regulatory requirements for instant payments and verification-of-payee capabilities.

Demonstrating the value of compliance 

Since partnering with us, Inpay has seen improvements across all areas of transaction screening and monitoring, from effective risk management to enhanced operational efficiency. Inpay’s most recent regulatory audit identified zero areas of non-compliance, testifying to the effectiveness of our solutions. 

“ComplyAdvantage has not only been able to reduce the number of false positives we see, but also the time we spend on each alert.”

Lukas Andersen, MLRO and Head of Financial Crime Risk, Inpay 

In addition to mitigating risks and avoiding regulatory action, our partnership has enabled Inpay to streamline its compliance workflows. With a data-driven understanding of how long certain scenarios take to resolve, Inpay has optimized its resource allocation and staff training to the point where it can handle thousands of alerts with a relatively small team of analysts. 

This means Inpay has been able both to achieve specific compliance outcomes and refine its wider strategy. Equipped with data on the time and money saved on alerts, the company’s compliance team can clearly demonstrate efficiency and value in discussions with key internal stakeholders, showing how investing in compliance can drive growth.

“If you’re evaluating whether you want to build or you want to buy, what’s easy to forget is the return on investment. Any business that needs a reliable but innovative solution that can adapt to the dynamic landscape of cross-border payments should consider ComplyAdvantage.”  

Lukas Andersen, MLRO and Head of Financial Crime Risk, Inpay 

The post Inpay uses advanced payment screening and transaction monitoring to drive rapid growth appeared first on ComplyAdvantage.

Based in Singapore, Tazapay accepts payments from 173 countries across a diverse array of payment rails and channels. These span local payment networks such as PayNow, FedWire, and SEPA Instant Credit Transfers, as well as international channels like Visa, Mastercard, and Swift. Additionally, the company supports on- and off-ramp cryptocurrency transactions, allowing customers to exchange fiat currency for stablecoins or vice versa. 

With its extensive range of payment options, global customer base, and cross-border payment capabilities, Tazapay faces inherent risks associated with money laundering, terrorist financing, and sanctions violations. In light of these risks and the inefficiencies of its previous solution, Tazapay sought a more advanced transaction monitoring system that could streamline compliance, reduce its reliance on manual processes, and improve visibility into customer risk.

Manual solutions hold back compliance

As a rapidly growing innovator in cross-border payments, Tazapay operates in a complex regulatory environment where expectations vary significantly across jurisdictions. Streamlining compliance across diverging anti-money laundering (AML) regimes, therefore, is a front-and-center concern for Tazapay, as well as finding cost-effective solutions to help it meet its obligations effectively.

Initially, Tazapay relied on a blend of manual processes and limited in-house automation for transaction monitoring. While this approach allowed for basic compliance coverage, it became increasingly unsustainable as transaction volumes grew. 

The limitations of this manual-first approach became evident as Tazapay expanded into new markets and supported a broader range of payment channels. Key challenges facing the company included: 

• Analyzing alerts: The distribution of data across multiple locations hindered compliance analysts’ ability to evaluate alerts and customer risk profiles. 
• Alert overload: Identifying false positives relies on high-quality data – up-to-date, accurate, complete, and not duplicated. An overreliance on manual systems that could not automatically refresh data or tailor searches meant the company saw a spike in its false positive rate and a limited ability to address true positives.  
• Delayed alert escalation: Alert prioritization proved difficult with manual systems, reducing the speed of alert triage and escalation.  
• Limited customization: Tazapay could not automatically apply rules as part of its transaction monitoring, which meant compliance procedures were not tailored to its risks and suspicious transactions could be missed. 

The cumulative effect of these issues was a compliance process that could not scale alongside Tazapay’s growing business.

ComplyAdvantage meets evolving needs 

Recognizing the need for a more advanced transaction monitoring solution, Tazapay based its search on a defined list of criteria: 

• Advanced automation capabilities to reduce the risk of human error. 
• Improved efficiency via a holistic view of all customer risks on a single platform. 
• Minimize risk exposure by screening counterparties in real-time and against the most recent data. 

The company’s search for a more advanced solution led it to ComplyAdvantage’s Transaction Monitoring software, which delivers on all of these counts. Tazapay can now access ComplyAdvantage’s proprietary data, which is updated in real-time by automated systems to ensure red flags can be detected. To improve efficiency, integrated datasets allow Tazapay to view complete customer profiles on a single screen, removing the need to switch between different systems and datasets to understand customer risks in depth. 

Whereas a manual approach led to inefficient workflows, ComplyAdvantage has helped Tazapay adopt a precise, risk-based approach to compliance. Automated alert prioritization allows the company to tackle higher-risk cases first, and ComplyAdvantage’s comprehensive rules library – complemented by its self-serve rules builder – has enabled Tazapay to reduce false positives through customized transaction monitoring. 

Other decisive factors for Tazapay stakeholders were a pricing structure that delivered a strong return on investment, ComplyAdvantage’s strong reputation with regulators across different global markets, and a straightforward integration process.

The power of effective integration

With ComplyAdvantage, Tazapay now monitors transactions between its global merchants and the merchants’ customers, vendors, and suppliers. The company’s need to continue serving an international client base and growing its business made a streamlined onboarding process essential. ComplyAdvantage’s flexible, API-first integration with modular architecture allowed Tazapay to connect its new monitoring software to its existing tech stack and workflows. 

Setup took around two months from start to finish – faster than Tazapay anticipated – thanks to effective collaboration between ComplyAdvantage and Tazapay’s engineering team, with comprehensive API documentation ensuring business continuity. Since then, ComplyAdvantage’s combination of high-quality proprietary data and in-depth support with implementation has been key in upgrading Tazapay’s transaction monitoring. 

“The ComplyAdvantage team has been exceptionally responsive and proactive in addressing our questions and requests for assistance. Their willingness to go the extra mile made the entire process much smoother and I was consistently impressed by their depth of knowledge and expertise. Their insights and knowledge were invaluable and truly stood out.” 

Toh Hwee Min, MLRO, Tazapay 

Streamlined compliance and enhanced insights 

Since partnering with ComplyAdvantage, Tazapay has benefitted from real-time updates to sanctions lists and politically exposed person (PEP) data. Rather than manually double-checking the accuracy of the data themselves, Tazapay’s compliance staff receive periodic notifications from ComplyAdvantage alerting them to the latest updates. 

The new system provides enhanced visibility into transactional patterns, enabling Tazapay to track trends at both the individual customer level and across its entire customer base. This insight helps the company take proactive steps to manage risk, ensuring better case escalation and faster compliance decision-making.

For Tazapay’s compliance team, success is defined by a period-on-period improvement in the quality of their work, leading to a simplified customer onboarding experience, accurate risk identification and scoring, and effective implementation of measures to mitigate those risks. 

ComplyAdvantage’s platform flexibility has also empowered Tazapay to create customized rules that address the specific risks it faces, enabling the detection of suspicious activity with greater accuracy. Key stakeholders also appreciated the ability to easily integrate monitoring with payment screening, allowing Tazapay to immediately deal with its exposure to customer risks, particularly around sanctions, without having to move across siloed datasets and systems. 

“ComplyAdvantage’s transaction monitoring solution is exactly what we were looking for. The results have been accurate monitoring and the ability to stop specific transactions in real time. We are now confident that all transactions are screened and monitored, and we are aware of many more transactions that require further investigation.”  

Toh Hwee Min, MLRO, Tazapay 

The expanding reach and complexity of the payments industry, bolstered by new and innovative payment rails, continues to offer both challenges and opportunities to Tazapay – making smart transaction monitoring crucial in unlocking revenue opportunities while achieving regulatory compliance. 

The post Tazapay implements advanced transaction monitoring in just two months appeared first on ComplyAdvantage.

Given the volume of transactions it screens and new real-time payments regulations, PXP needed a customer and payment screening solution that could keep up with daily sanctions and watchlist updates. This was critical in maintaining compliance and the integrity and speed of their payment processes. 

Compliance builds the foundation of trust, and in the realm of financial services, particularly with instant/real-time cross-border payments and eCommerce, trust is paramount.

Roman Gutchenko, Compliance Manager & MLRO at PXP

Prioritizing precision, efficiency, and global expertise

During the vendor selection process, PXP prioritized suppliers known for their solid reputation, quality customer support, flexible solutions, and global presence. The company chose ComplyAdvantage because it excelled in these areas compared to competitors.

PXP was particularly drawn to ComplyAdvantage because its solutions use fuzzy logic to identify potential risks, reduce false positives, and correctly identify true positives. Additionally, ComplyAdvantage’s fast API response times were key in PXP’s choice, allowing them to keep operations smooth and dependable even when sanctions lists change very quickly. 

Increasing operational efficiency

By implementing ComplyAdvantage’s solutions, PXP was able to add an extra layer of due diligence to its compliance workflow, which was crucial for maintaining the integrity of its operations without slowing down the payment processes. This allowed for a smoother verification process, streamlining operations and making it significantly easier for PXP to manage its business model and operational processes more effectively.

Additionally, incorporating adverse media screening into the compliance process has provided PXP with deeper insights for know your customer (KYC) activities, helping its compliance team make informed decisions and maintain the integrity of its operations.

Adverse media is a great source of relevant insights for KYC or partner due diligence. It adds much more value than Google search results.

Roman Gutchenko, Compliance Manager & MLRO at PXP 

Navigating international sanctions regimes

To ensure sanctions compliance, PXP uses ComplyAdvantage’s solutions to screen payments across multiple global sanction lists in real-time, including the UK HM Treasury’s consolidated list, the Office of Financial Sanctions Implementation (OFSI) asset freeze targets list, and the Office of Foreign Assets Control’s (OFAC) specially designated nationals list. 

Given our connections with entities outside the European Economic Area (EEA), it’s critical for us to comply with international sanctions regimes. To address this, we determine which watchlists impact us and leverage ComplyAdvantage to ensure our compliance with the relevant regimes.

Roman Gutchenko, Compliance Manager & MLRO at PXP

In addition to screening payments, PXP uses ComplyAdvantage to thoroughly vet the merchant entities involved in these transactions. This vetting process includes a detailed examination of the entities’ directors, shareholders, ultimate beneficial owners (UBOs), and authorized signatories to identify potential risks of money laundering, terrorist financing, or other illicit financial activities.

As a result, PXP’s Compliance Manager & MLRO Roman Gutchenko “absolutely recommends” ComplyAdvantage to similar firms looking to increase the effectiveness and efficiency of their compliance programs.

To other companies considering using ComplyAdvantage’s solutions, I’d say this: If you are in doubt and still looking, you can stop here. This solution is a golden standard in the industry.

Roman Gutchenko, Compliance Manager & MLRO at PXP 

The post PXP mitigates sanctions risks with real-time customer and payment screening appeared first on ComplyAdvantage.

As part of AML Unplugged, a new and informal networking forum for compliance professionals, ComplyAdvantage hosted a conversation between three industry experts: Iain Armstrong, our Regulatory Affairs Practice Lead, Jessica Cath, Head of Financial Crime at Thistle Initiatives, and Simon McFeely, Managing Director at Finvisor.co.uk. 

In a wide-ranging and informative discussion, Iain, Jessica, and Simon discussed how firms can tackle the issue of APP fraud and get their compliance setup ready for instant payments while continuing to drive innovation. 

This article explores some of the tips and insights from the conversation, guiding firms processing cross-border payments on how to grow their business, not their financial crime risk. 

1. Prepare for changes in consumer expectations

The rise in APP fraud led to £459.7 million in losses in 2023 and has driven major regulatory changes. Firms in the UK now have to reimburse APP fraud victims up to a maximum of £85,000, and expectations are that the EU’s proposed Payment Services Directive 3 (PSD3) will include similar measures. 

Given the dominance of instant transactions, consumers are unlikely to demand a shift in emphasis from speed to security of payments. Our panel agreed that a more likely change will be an expectation for fast reimbursement processes in fraud cases. The regulations specify a maximum of five days, giving firms little time to investigate fraud claims. 

This poses challenges for financial institutions (FIs). In addition to dealing with pressure from customers to reimburse them immediately, they must address the new risk of fraudulent APP fraud reimbursement claims. While the regulatory balance between consumer duty and fraud reductions is difficult to achieve, it is clear that firms’ consumer duty obligations and their need to strengthen anti-fraud controls are, in practice, the same. The cost of fraud is likely to rise for firms as they risk spending more on reimbursement and being targeted by criminals. 

In response, firms should ensure they have robust record-keeping in place, both for their compliance policies and procedures and for individual APP fraud cases and claims. Any decisions made should be backed up with clear documentation to avoid regulatory issues. While firms should draw up their policies based on their expected fraud risks, they should also recognize that exceptions to any rule will always exist and that retaining evidence supporting decisions in these cases is particularly important. 

Given the pressure mandatory reimbursement creates for firms, they may be tempted to implement hard rules, such as stopping all transactions over a certain amount or increasing the frequency of enhanced due diligence (EDD) checks. However, this will only cause customer friction and reduce the efficiency of the compliance process with slower payments and mounting case numbers. Instead, firms should work to understand their customer base to know the specific risks they face and risk-assess their business. 

A Guide to Financial Crime and SEPA Instant Payments

SEPA instant payments are changing the EU payments landscape. Our essential guide for compliance officers explains how to use compliance as a growth driver.

Download your copy

2. Calibrate sanctions solutions to customer risk 

Sanctions compliance is top of mind when it comes to challenges for cross-border payments: it ranked alongside APP fraud as one of the top two concerns of firms offering cross-border payments in our survey of AML Unplugged attendees. 

To mitigate concerns in this area, firms must build their solutions around the specific risks they face. While the idea of a risk-based approach is not new to compliance professionals, our panel agreed that weak risk assessments remain an issue for some FIs. In some cases, they resemble box-check exercises or surface-level assessments rather than genuine considerations of risk. 

Simply identifying that a firm may be exposed to sanctions risks is not enough. Instead, firms should look in detail at where their actual sanctions risks lie, taking into account their products, customers, and transaction flows, and outline the steps they will take depending on which risks they are exposed to. Importantly, FIs should update risk assessments regularly rather than continuing to rely on an initial evaluation. 

The sanctions landscape has changed significantly in the last few years, with a huge number of new designations coming into force. One-size-fits-all policies will not fulfill compliance requirements. In practice, sanctions risks will look very different from one jurisdiction to another. The sanctions screening solutions that work are not just plug-and-play but calibrated to an organization’s constantly evolving customer base and risk profile. 

3. Don’t overlook the power of training 

Maintaining the right level of compliance expertise is a related challenge to carrying out fit-for-purpose risk assessments. Smaller and mid-size firms, making the most of limited headcounts and resources, can end up taking a broader approach to anti-money laundering, rather than looking at individual predicate crimes. Specific expertise in sanctions, for example, can be weak until a firm reaches a certain size. 

For these firms, employee training can be an important step in meeting compliance requirements while driving business growth. Employees across the firm should have a strong knowledge of compliance policies, know how to identify risks, and know when to escalate cases to compliance officers or teams. This is especially important for those not in specialist sanctions roles but where mistakes still carry sanctions risks. 

Like risk assessments, employee training can sometimes be overlooked or seen as a formality. Because budgets can be tight, especially at smaller firms, staff only undergo basic training until a problem occurs – at which point any increased training comes too late to solve it. However, this ignores the fact that training can help budgets go further. Firms without the resources to hire large, experienced compliance teams can benefit from embedding effective in-house training early on in their growth, ensuring a strong level of expertise across the organization. 

Just as important, however, is that firms make specialist appointments in important compliance roles. A suitably qualified and experienced officer should always oversee sanctions programs. While specialist sanctions screening tools are essential for firms, firms need to build an effective team to use them. In the increasingly complex world of sanctions compliance, the key to success for firms is to back up detailed risk assessments with the right people, processes, and technology. 

4. Test your screening solutions and data 

New regulations around APP fraud and instant payments only increase the pressure on FIs to optimize their compliance software. Firms should ensure their customer screening and payment screening measures are capable of processing instant payments securely and at scale, with the SEPA ICT regulations specifying a maximum of ten seconds for payment processing. Without proper testing and validation, firms risk not being able to balance their business and compliance objectives in this way. 

Firms should also ensure their screening software is equipped with the correct data – meaning data that is, accurate, complete, relevant, and current. The SEPA ICT regulations direct payment service providers (PSPs) to conduct daily customer screening so that they can process real-time payments more efficiently by avoiding the need to screen each individual payment as it goes through. Meanwhile, major fines for large FIs demonstrate the serious risks of not conducting proper checks against all relevant and up-to-date sanctions lists. 

Mistaken or missing data can lead firms to inadvertently transact with sanctioned entities, while duplicated or irrelevant data can cause false positive rates to spike, slowing down payments and compliance processes. Firms should identify and address any gaps in their data and ideally implement a solution that allows them to receive updates to sanctions lists in real time. 

The post Four ways for businesses to drive innovation while mitigating risk in the age of instant payments appeared first on ComplyAdvantage.

In light of these developments, this article will shed light on the evolving EU payments landscape by exploring:

• What is SEPA, what are the benefits it offers, and what are the countries within the SEPA zone?
• The SEPA legal framework and the regulations that support it.
• How SEPA is connected to the EU’s instant payments regulatory reform.

What is SEPA?

SEPA is a framework established by the EU that harmonizes euro-denominated payments across participating countries. The framework’s main objective is to create a more efficient market for payments across Europe by allowing for seamless euro transactions, eliminating the distinctions between domestic and cross-border payments.

How do SEPA payments work?

SEPA payments are any euro-denominated payments made between accounts in the SEPA zone using standardized procedures and formats, including:

• Credit transfers.
• Direct debits.
• ATM withdrawals.
• Payments by debit and credit cards.
• Money remittance.

What is a SEPA mandate?

A SEPA mandate is a foundational element of SEPA payments, serving as the payer’s permission for their bank account to be debited. Initially, SEPA mandates had to be signed on paper. However, in 2012, the European Council wanted to harmonize payment systems in euros. As a result, Regulation (EU) 260/2012 was passed into law, which promoted the transition to digital mandates. 

The electronic mandate is essentially evidence for billers to justify debits and protect against any claims that unauthorized transactions have taken place. If such transactions do occur, payers can request refunds within 13 months.

The benefits of using SEPA payments

SEPA payments offer financial institutions numerous advantages, including:

• SEPA payments typically involve lower fees than traditional cross-border payments, resulting in greater cost efficiency.
• Transactions within the SEPA network are processed quickly, often within one business day, ensuring timely payments and efficient cash flow management.
• SEPA enhances convenience and simplifies payments by standardizing procedures across all participating countries. 
• SEPA payments come with clear pricing and fewer hidden costs, making it easier for users to understand the fees involved. 
• Enhanced security measures and robust regulatory protections are integral to SEPA payments, ensuring transactions are secure and mitigating the risk of fraud.
• SEPA establishes uniform payment formats and procedures. This standardization facilitates smoother and more efficient transactions, reducing errors and processing times.
• SEPA covers all 27 EU member states and several non-EU countries, making it easier for businesses to expand their operations across Europe.

What are the SEPA countries?

The SEPA zone encompasses 36 countries, including EU member states and additional countries that have opted to participate in the initiative. The countries in SEPA are:

SEPA legal framework and regulations

A robust legal framework underpins the SEPA initiative to ensure smooth operations and compliance across all member states. The foundation of SEPA lies in several key regulations and directives:

1. Regulation (EU) No 260/2012 sets the technical and business requirements for credit transfers and direct debits in euros.
2. Payment Services Directive (PSD2) enhances consumer protection, promotes innovation, and improves the security of payment services. 
3. E-money Directive (EMD2) governs the issuance of electronic money and the establishment of e-money institutions, ensuring they operate under a harmonized regulatory framework.

What are the five SEPA payment processing schemes?

Building on this legal foundation, the European Payments Council (EPC) developed five distinct SEPA payment processing schemes, each designed to cater to different types of transactions.

1. The SEPA Credit Transfer (SCT) scheme enables the transfer of funds in euros between accounts in the SEPA zone – ideal for one-off payments such as salary payments, supplier invoices, or any general payment where a paper-based process can be eliminated.
2. The SEPA ICT scheme provides for near-instant euro transfers between accounts within the SEPA zone – suitable for urgent or time-sensitive transactions, such as emergency funds transfers or real-time payment needs. 
3. The SEPA Direct Debit Core (SDD Core) scheme allows payees to collect funds from a payer’s account, given that the payer has granted prior authorization – commonly used for recurring payments such as utility bills or subscriptions. 
4. The SEPA Direct Debit Business-to-Business (SDD B2B) scheme is similar to the Core scheme but requires both the payer and the payee to be registered as businesses and offers a shorter refund period. 
5. The one-leg out instant credit transfer (OCT Inst) scheme is designed to facilitate instant credit transfers where one participating financial institution is outside SEPA. This scheme enables cross-border payments to or from non-SEPA countries, ensuring fast and efficient transactions.

EU instant payments regulatory reform 

Despite three of these five schemes focusing on instant payments, the market remains fragmented. In fact, in 2023, only about one in ten euro credit transfers in the European Union were processed as instant payments. 

To promote real-time payments in Europe, the European Council has prioritized establishing a fully integrated instant payments market. As mentioned previously, a new regulation (Regulation (EU) 2024/886) was introduced in early 2024 to achieve this, amending the SEPA ICT rulebook and setting out the following requirements for firms:

• PSPs must offer instant payments – completed within 10 seconds – through the same channels used for initiating other credit transfers.
• The payer’s PSP must verify the payee’s details before clearing payments. If discrepancies are found, the payer must be notified and given the choice to cancel the transaction or proceed despite the discrepancies.
• Firms must screen payees against sanctions lists whenever new announcements or updates to existing sanctions are made. These screenings must occur before payment authorization and should not interrupt the execution of instant payments.
• Firms are obligated to report specific details related to the charges associated with credit transfers, ICTs, and payment account activities. 
• Firms must disclose the volume of national and cross-border transactions that were rejected due to sanctions screening.

A Guide to Financial Crime and SEPA Instant Payments

The drive for innovation is changing the payments landscape in Europe. This report is an essential guide for European compliance officers operating in the SEPA region.

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Challenges of new instant payments regulations in Europe

The introduction of new instant payment regulations in Europe presents several compliance challenges for FIs across the SEPA zone. These include:

1. Upgrading payment infrastructures

By January 9, 2025, all PSPs in the EU must be able to receive instant payments. By October 9, 2025, PSPs must also offer the facility to send instant payments at an affordable rate. Many firms may find their current payment infrastructures need significant upgrades to keep pace with these deadlines.

2. Integrating financial crime controls

Integrating refined financial crime controls may be challenging as firms transition to SEPA ICT. Compliance processes – such as know your customer (KYC), name screening, payment screening, and fraud detection – each involve distinct applications that must be integrated to ensure effective compliance. The primary challenge here lies in synchronizing these various applications within the incredibly fast-paced environment of instant payments. Each process needs to function efficiently with the others to avoid delays that could negatively impact the speed of transactions. 

3. Enhancing sanctions screening

Under the new regulations, banks and PSPs must verify whether their users are subject to targeted financial restrictive measures (on a daily basis at minimum). The challenge here lies in balancing the need for thorough sanctions screening with the demands of processing payments quickly. 

How to comply with the EU’s evolving instant payments regulations

As the EU continues to update its regulations to standardize cross-border instant payments, firms will be faced with new requirements under a tiered implementation schedule. Some top tips for firms to ensure compliance include:

• Continue to enhance existing AML/CFT practices by updating risk assessment protocols, employee training programs, and transaction monitoring systems to detect and report suspicious activities promptly.
• Verify payee information thoroughly before payment authorization, including cross-referencing payee details with official identification documents and maintaining records of verification processes.
• Regularly update sanctions screening processes to reflect the latest EU and international sanctions lists. Screen payment service users (PSUs) against these lists upon any updates rather than during payment execution to avoid delays and ensure compliance.
• Set up robust monitoring and reporting systems capable of generating detailed compliance reports. These systems should track all transactions, flag anomalies, and ensure the timely submission of mandatory reports to regulatory bodies in accordance with EU standards.
• Utilize advanced technology solutions to efficiently manage compliance, scalability, and screening processes. 

The post What is the Single Euro Payments Area (SEPA)? | A detailed guide appeared first on ComplyAdvantage.

Against this backdrop, what effective risk management strategies can compliance leaders implement when working with interconnected financial systems to ensure they don’t become a blocker for innovation? A webinar in ComplyAdvantage’s 2024 State of Compliance series addressed this challenge, featuring experts from our Regulatory Affairs team, LFP Risk Solutions, RedCompass Labs, and Kroll.

This article considers some of the key insights shared in the session, exploring practical approaches to balancing innovation with robust risk management.

1. Prioritize real-time transaction monitoring

The transition to open banking has introduced an environment where transactions occur at unprecedented speeds, making real-time transaction monitoring a critical component of financial crime prevention. 

Traditional post-transaction analysis methods are no longer sufficient. Instead, FIs must invest in systems that can analyze transactions as they happen, enabling immediate detection and response. Key strategies for enhancing real-time monitoring include:

• By analyzing transaction patterns, spending habits, and historical data, firms can develop a comprehensive profile of typical customer behavior. This allows them to spot anomalies like unusually large transfers or atypical spending patterns that may signal fraud or other financial crime.
• Integrating various financial systems, such as accounting ledgers and crime detection tools, enables data cross-referencing, providing a holistic view that enhances the accuracy and effectiveness of monitoring efforts.
• Regularly reviewing and updating risk profiles is essential to adapt to changes in customer behavior and emerging threats, ensuring monitoring systems stay ahead of new financial crime tactics.

2. Choose the right technology providers

The right technology can significantly enhance an FI’s ability to detect and mitigate financial crime, while the wrong choice can leave it vulnerable to emerging threats. With the proliferation of sophisticated fraud techniques such as synthetic identity fraud, it is imperative to partner with providers that offer advanced detection capabilities.

Institutions should seek out technology solutions that can identify such modern threats and are adaptable to their specific needs. This includes customization options that align with unique risk profiles, business models, and regulatory requirements. Agile and flexible technology is crucial as it allows for tailored approaches to financial crime prevention, addressing the particular challenges that each institution faces.

You don’t want to rely on a one-size-fits-all approach. Think about your specific risk profiles, your business models, and regulatory requirements. How can that technology be customized to fit what you need and what you’re looking for?

Luisa Franco, Founder & CEO at LFP Risk Solutions

Scalability is another critical factor. As FIs grow and their transaction volumes increase, the technology they rely on must be able to scale accordingly. This helps to ensure the institution’s defenses remain robust, even as the complexity of its financial operations expands. Continuous monitoring and real-time reporting capabilities are also essential, enabling firms to quickly identify and respond to suspicious activities and comply with regulatory expectations.

Managing financial crime risk in a world of open banking

Explore how firms can unlock open banking’s promise of transparency and innovation while implementing stringent and effective risk management processes.

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3. Leverage AI and machine learning

Artificial intelligence (AI) and machine learning (ML) have become indispensable tools in the fight against financial crime, offering capabilities that surpass traditional methods. In the open banking environment, where vast amounts of data are generated every second, these technologies can process and analyze information at a scale and speed beyond human capacity.

There’s a real potential for banks to have access to vast amounts of additional customer and transaction data. To capitalize on more effective ways to identify risk and criminal behavior, they’re going to need to bring machine learning and artificial intelligence to the table in a meaningful way.

Mike Bowman, Managing Director, Forensic Investigations & Intelligence at Kroll

To effectively leverage AI and ML, institutions should focus on:

• Analyzing large datasets to identify patterns and anomalies indicating fraudulent activity, even when traditional methods fall short.
• Using adaptive ML models that improve over time, ensuring detection systems remain effective as financial crime tactics evolve.
• Automating multiple aspects of financial crime detection, such as flagging suspicious transactions and generating reports, thereby increasing efficiency and reducing the likelihood of human analyst burnout.

4. Commit to continuous improvement

As financial services become more interconnected through open banking, the need for comprehensive financial crime risk management approaches has never been greater. Financial institutions need to move beyond traditional, siloed approaches to risk management and adopt holistic frameworks that integrate advanced technology with robust organizational practices.

A key component of this approach is the commitment to continuous improvement. Criminals change their tactics rapidly in an attempt to avoid detection and regulatory requirements are frequently updated to address these new challenges. Firms must regularly review and refine their risk management practices to remain effective, ensuring they are equipped to handle current and emerging financial crime threats.

We need to be mindful of crime types such as APP fraud, pig butchering, and emerging forms of drug trafficking. Although there are similarities, there are also differences in the patterns of these crimes. Therefore, it’s important to use the models carefully, validate and correct them as needed, and be prepared to respond as we receive alerts about these crimes.

Jonathan Bell, President & Head of Client Relationships at RedCompass Labs

Collaboration and information sharing are also critical elements of a successful risk management strategy. By working together, financial institutions, regulators, and technology providers can share insights into emerging threats and best practices, creating a more unified and effective front against financial crime.

5. Address data privacy and regulatory compliance

Managing data privacy and ensuring regulatory compliance is critical in the open banking environment, where data is shared across multiple platforms and institutions. As financial institutions collect and process vast amounts of customer data, they must implement robust measures to protect this information from breaches and misuse.

You want your business to be synonymous with security and integrity. One of the things with open banking is that it’s very easy, and you can be very nimble in changing the app you’re using. Therefore, security, making sure you’re protected against fraud, and making sure you’re not working for an organization where products are being used for money laundering or some other predicate crime, helps differentiate your offering.

Andrew Davies – Global Head of Regulatory Affairs at ComplyAdvantage

To address data privacy and regulatory compliance effectively, institutions should:

• Implement stringent data protection measures to protect customer information when it is shared across various platforms, preventing breaches and misuse.
• Regularly review and update practices to adhere to new regulatory requirements related to open banking and financial crime prevention. 
• Work with other institutions, regulators, and technology providers to share insights and strategies, improving the collective ability to manage risks and protect consumers.

The post Managing financial crime risk in the age of open banking: 5 top tips for compliance teams appeared first on ComplyAdvantage.

• What payment screening entails.
• Why it can pose significant challenges.
• How technology can help.

What is payment screening?

Payment screening is the process of analyzing, verifying, and validating every incoming or outgoing transaction. Its purpose is to understand the risk of impropriety or criminal activity in any given payment. By screening payments, FIs can rapidly decide whether to escalate a potentially illicit transaction or allow a legitimate payment to go through.

This allows firms to remain compliant with anti-money laundering and counter-terrorist financing regulations (AML/CFTF) worldwide while protecting their customers and themselves from criminal attempts to siphon money or abuse payment rails. Because of this, FIs of all sizes must be able to screen every type of digital payment, from standard credit card transactions to faster payment schemes like FedNow and Instant SEPA credit. In our State of Financial Crime 2025 survey, 100% of businesses said they were confident about meeting SEPA requirements – but only with significant overhauls of their tech stacks and personnel. 

The difference between payment screening, transaction monitoring, and transaction screening

Transaction monitoring refers to all the activities an FI undertakes to observe, record, and respond to customer interactions with its services. Transaction screening looks at individual transactions, such as payments, before they’ve been approved to stop especially high-risk activity. Payment screening is a facet of transaction screening, but it only deals with payments before they are processed. 

Each screening process involves similar steps but can vary based on the specific risk factors involved in the transactions being screened. 

Payment screening regulations

Payment screening is necessary because FIs worldwide are subject to many regulations and recommendations to tackle criminal activity like money laundering, terrorist financing, and fraud.

These regulations vary between jurisdictions, but they invariably require that firms demonstrate a capacity to monitor and screen payments. Prominent regulations include:

• The Second Payment Services Directive (PSD2) in the EU
  An integral European regulation established in 2018 for electronic payment services, PSD2 aims to improve the conditions for more consumer choice while simultaneously reducing fraud. The call for Strong Customer Authentication (SCA) is central to its directive.
  Notably, the UK remains aligned with the guidelines and recommendations in PSD2 to maintain steady relations with the EU.

• The Electronic Fund Transfer Act (EFTA) in the US
  Several federal agencies, including the Securities and Exchange Commission (SEC), Federal Deposit Insurance Corp (FDIC), Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), as well as state-run agencies, oversee the regulation of financial activity in the US.
  However, EFTA has played a central role in establishing the rights, responsibilities, and liabilities of consumers and those who offer payment services.

• The Payment Services Regulations 2017 (PSRs 2017) in the UK
  This primary legislation governing payment services in the UK aims to improve consumer protection and competition among FIs. It’s changed the requirements for client documentation, communicating with clients, and offering assistance to victims of fraud.
  In line with the EU’s calls for SCA, the Financial Conduct Authority (FCA) set out further rules for banks and payment service providers in 2021 that establish this requirement.

• Regulations on the supervision and administration of nonbank payment institutions in China
  Coming into effect on May 1, 2024, new regulations will bring modern digital payment providers under the scrutiny and rules of the Ministry of Justice and the People’s Bank of China (PBOC).
  The rules aim to strengthen user information protection and the general protection of users in light of the recent popularity of hundreds of new payment services and providers in the region.

Common risks associated with payments

Some common issues to look out for when processing payments include:

• Identity theft: This is when a criminal steals personal information and banking details to make purchases online, masquerading as an institution’s customer.
• Friendly fraud: This is when a customer uses their own card to make a purchase but then disputes the charge with the FI without a legitimate reason to do so.
• Authorized push fraud: This is when criminals coerce or manipulate victims into depositing money into their accounts through unscrupulous means.
• ‘Clean’ fraud: This is when a criminal uses customer credentials to make a purchase but then uses stolen payment information to evade fraud detection protocols. It’s particularly hard to detect.
• Money laundering: This is when a customer or criminal makes payments as part of a larger conspiracy to obfuscate the origin or destination of money in a bid to make that money seem legitimate.
• Terrorist financing: This is when a payment is made to a specific party for the purposes of financing terrorist activity while disguising itself as a more innocuous transaction.

The core elements of a payment screening process

An effective payment screening process involves coordinating several different components. These include:

• A clearly-defined risk-based approach (RBA): As is the case with all anti-money laundering and counter-terrorist financing (AML/CTF) efforts, firms need to translate their risk tolerance into clear policies and procedures. Both what needs to be done and the thresholds beyond which this might change need to be laid out in explicit detail.
• Clean, up-to-date, connected data: To ensure optimal screening decisions are being made at scale, businesses need the data informing those decisions – customer histories, third-party inputs, sanctions data – to be reliable. This is particularly essential when trying to automate the payment screening process but just as vital for escalations.
• Updated employee training: Whether they’re implementing automation in the screening process or handling exceptions when they arise, employees need to be routinely trained in the most relevant procedures, scenarios, and regulations. It’s equally important that this training is constantly updated and aligned with the firm’s risk-based approach.
• Intuitive, intelligent technology: Payment screening software needs to update as rapidly as data feeds do while still being intuitive enough to ensure compliance teams can manage cases at speed. This requires a combination of automation and interface design.
• Continuous auditing processes: To continue improving the payment screening process, firms need an independent function dedicated to auditing every aspect of it. The goal should be to identify weaknesses, suggest changes, and oversee the prompt implementation of these improvements.

How does the payment screening process work?

Once the initial payment message has been sent or received, the payment screening process begins. The diagram below details how ComplyAdvantage’s payment screening solution works, and the process can be broken down into five distinct stages.

Stage 1: Customer authentication and data verification

During the initial stage of a transaction, it is essential to gather all relevant data related to the payment message for validation. This includes the transaction amount, information about the sender and receiver, their respective locations, and any other essential details required for the payment to proceed smoothly.

Similarly, it’s important to verify the authenticity of the customer credentials to ensure that only legitimate transactions are processed. Therefore, both sets of data need to undergo a rigorous authentication process backed by robust technology and security protocols to minimize the risk of fraudulent activities.

Stage 2: Risk-based customer due diligence

Next, a risk assessment needs to be conducted to determine the probability of criminal activity based on the various degrees of customer due diligence outlined in the firm’s risk-based approach and how they apply to the specific customer in question.

This involves an evaluation based on the customer’s previous patterns of transacting, generalized patterns in historical data that indicate crime, the jurisdictions in question, and any other notable suspicions.

Stage 3: Sanctions, watchlist and PEP screening

Then, businesses need to scan sanctions lists, watchlists, and politically exposed person (PEP) lists (maintained by regulators worldwide) to identify potential matches with the sender, receiver, or related organizations.If the payment is legitimate, these initial checks should take only a few milliseconds. However, if there is any indication of illegitimacy, then the case must be escalated.

Stage 4: Escalation

If any of the preceding three stages raises a red flag that warrants further review, businesses will then escalate the payment in question to a dedicated team that specializes in conducting enhanced due diligence (EDD) processes. If this specialized team agrees that the payment is suspicious, it may be declined at this stage. However, after further review, the payment may be approved for processing.

Stage 5: Reporting

Finally, if a payment, sender, or receiver is flagged as suspicious, the firm needs to supply the corresponding documentation to the relevant authorities immediately.

More importantly, businesses also need to maintain regular and detailed records of all these stages regardless of the outcome of any investigation for auditability and collaboration with regulators.

The challenges of payment screening

Payment screening helps FIs overcome some serious risks. However, given the complexity of all the moving pieces involved in these procedures, it brings unique challenges, including:

• Speed: Through the lens of customer experience, the biggest challenge with payment screening is that it threatens the speed at which customers can get what they want. The value proposition for digital financial services is increasingly about convenience, so legitimate payments need to be validated in milliseconds.
• False positives: Operationally, one big challenge compliance teams face with payment screening is being swamped by false positives. Inadequate screening errs on the side of caution and stops even mildly suspicious transactions, but this overburdens the compliance team and severely hinders most customers’ experience.
• Staying up-to-date with sanctions lists: One of the biggest challenges for payment screening is to be able to continuously update watchlists, sanctions lists, and PEP lists from around the world. A fast screening process is ultimately no better if it’s unable to keep up to date with the latest developments in international crime.
• The complexity of the process: For the compliance teams escalating and reporting on cases, payment screening can create a convoluted workflow, given the number of moving parts involved. Professionals can quickly become tied in knots between disparate data feeds and applications for cases, relationships, and reporting.
• Maintaining auditability: At a regulatory level, payment screening presents firms with an additional challenge in terms of documentation. Ideally, every step is naturally recorded and made available for later review. But in reality, many firms struggle to provide the kind of transparency auditors need.

The importance of technology in payment screening

Given these challenges, firms must leverage advanced applications of technology like artificial intelligence (AI) and machine learning (ML) to automate and scale aspects of their AML payment screening processes. By automating fundamental steps like customer authentication and sanctions screening, firms can come closer to that necessary balance between speed and security.

Even when cases are escalated and need manual review, software can play an integral role in providing compliance teams with an intuitive workflow for rapidly managing anomalies.

Similarly, software can help teams document the necessary parts of each screening process so that they don’t have to undertake additional retrospective effort when reporting to regulators.

Payment screening with ComplyAdvantage

FIs of all sizes rely on ComplyAdvantage for intelligent, swift payment screening at scale. The platform uses a proprietary search matching algorithm to extract the full name and date of birth (if available) of the entity to be screened against an up-to-date and human-validated sanctions database. Firms can customize the payment screening platform to screen any entity, not just the counterparty, as long as a unique identifier is provided. 

Among the top benefits experienced by firms using Payment Screening by ComplyAdvantage include:

• The ability to process 99 percent of transactions in under half a second through the use of data-optimized screening algorithms, cloud technology, and integrated data and case management.
• Reduced false positives using risk-optimized matching algorithms, allowing compliance teams to focus on real threats.
• System-wide updates every hour based on market-leading data from human-validated sanctions lists, watchlists, and PEP lists, even during crises.

The post What is payment screening? A complete guide appeared first on ComplyAdvantage.

An effective and dynamic partner

Given Australia’s stringent regulatory and audit requirements, Beem required a solution to help it stay compliant while screening high volumes of customers daily.

Previously, the company had struggled with several screening issues that were slowing down customer onboarding times, reducing customer satisfaction. Manual processes, for example, had led to a backlog of alerts, consuming too much analyst time.

To combat this, Beem needed a dynamic solution that offered effective customer screening services suitable for its business and jurisdiction. After searching the market, the firm met with ComplyAdvantage in 2019 and began a long-term partnership. 

“During the vendor qualification process, we were particularly impressed with the search levers, search profiles, and the easy application programming interface (API) integration that ComplyAdvantage offered.”
Jason Backhouse, General Manager Open Payments 

Reducing alert remediation times to increase efficiency 

ComplyAdvantage’s implementation specialists collaborated with Beem from the outset to understand its business model and unique challenges. Once they finished their deep dive, they presented the firm with a bespoke suite of solutions based on their findings.  

Before partnering with ComplyAdvantage, Beem was experiencing high match rates of eight percent. However, after adopting a risk-based approach using ComplyAdvantage’s customer screening and transaction monitoring solutions, Beem reduced its match hit rate to 1.2 percent by December 2023, contributing to a 10 percent increase in its AML program’s efficiency.

Automated workflows via ComplyAdvantage’s RESTful API were also introduced to improve the firm’s overall operational efficiency by freeing analysts’ time. This enabled them to resolve legitimate sanctions hits within one working day, resulting in faster onboarding and improved customer satisfaction.

Beem & ComplyAdvantage: Key benefits in numbers

• Lowered the time taken to clear new customers to within one business day.
• Lowered match hit rate to under 1.2 percent.
• Minimized time to clear new cases.
• Increased overall efficiency by 10 percent. 

Taking new risks

While both parties are pleased with the ongoing success of the partnership, new risks are always emerging. With this in mind, ComplyAdvantage’s customer success and Beem’s compliance teams continuously review their operational efficiency and hold enablement sessions to equip Beem with the latest product and feature releases – creating a positive and sustainable experience for its customers.

“Through our years of partnership, ComplyAdvantage has enabled Beem to perform at the top of our compliance game. Their commitment to excellence and our business allows us to focus on providing a better experience for our customers while maximizing security and trust in our platform and meeting the requirements of our regulators.”
Jason Backhouse, General Manager Open Payments

A collaborative approach, combined with ComplyAdvantage’s dedicated account management and support, has led to a thriving long-term partnership that has helped Beem save time, stay compliant, and continue to scale and grow as a business.

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Before working with ComplyAdvantage, BigPay had a manual, ad hoc screening process. It needed to implement a more efficient one – fast – to meet its regulatory obligations. The reliance on manual processes also meant the firm faced the challenge of cumbersome batch processing during its annual customer rescreening, something that became increasingly difficult as the firm – and its customer base – grew.

BigPay also needed a solution that could be tailored in line with its risk-based approach:

“We had issues with customizability, as most platforms offer a standardized list of searches. We planned to have full control over the range of lists we used depending on the use case, transaction type, and country.”

Ashwin Nazareth, FinCrime Operations & Disputes Principal, BigPay

Integrated, customized screening and monitoring

The firm needed a flexible, unified platform that could scale across multiple markets and handle volume spikes during periods of peak demand. But with its previous solutions, streamlining these complex processes wasn’t possible – it involved too many touchpoints and manual processes. What’s more, BigPay needed a solution to automate workflow processes for name screening and adverse media searches, freeing up analyst time for more in-depth investigations.

That’s where ComplyAdvantage’s customer screening and transaction monitoring came in. BigPay was able to custom-build a single proprietary interface connecting multiple tools, trackers, and databases via a single API. The financial services firm also set up unique screening profiles for its individual markets, providing proportional controls for different products and transaction types – such as remittance and e-money. Accessible search profile configuration and fuzziness fine-tuning streamlined the process of aligning with new regulations.

“We now have the benefit of researching sanctions, PEPs, and adverse media all at the same time from a large number of sources rather than using multiple tools and databases. The time saved comes from only having to research the alerts, rather than wasting time looking for them.”

Ashwin Nazareth, FinCrime Operations & Disputes Principal, BigPay

Collaborative risk management

Throughout the process, BigPay has been able to partner with its customer success manager at ComplyAdvantage, who applies industry-wide best practices to ensure the solution is performing well and saving time in key areas.

“Customer support has been fantastic, especially with a dedicated account manager who resolves our issues promptly and keeps us up to date on our account performance,” said Nazareth. This included advice on “where we should be focusing our innovation and technological enhancements. In fact, two of our major time-saving innovations came directly from recommendations during the account review cycles.”

In the next few years, BigPay wants to sharpen its focus on key typologies affecting virtual financial services, such as fictitious identities, mule accounts, and scams. Nazareth also noted the increasing importance of collaborative data in financial crime risk management, both within the financial services industry and between financial firms, law enforcement, and regulators. Trends like these will only increase the need for the kind of high-quality, holistic data ComplyAdvantage provides.

“There’s no other solution currently on the market quite like ComplyAdvantage,” commented Nazareth. “And what it can do, it does exceptionally well.”

The post BigPay improves analyst efficiency with integrated customer screening & transaction monitoring appeared first on ComplyAdvantage.

Additionally, implementing instant payment services into an existing tech stack can be costly and time-consuming, preventing many US-based FIs from making the transition. Over time, this has caused stagnation in the industry as each organization on both sides of a transaction must have the same technology in place to benefit from instant payments. As a result, real-time payments nationwide only accounted for one percent of all payments in the US in 2022.

In July 2023, the US Federal Reserve introduced an alternative payment service for FIs. Since going live, it’s been described by Forbes as a possible game-changer and “a safe and faster option that has government backing.”

This article explores the new payment service, how it works, and the benefits of the FedNow system.

What is FedNow?

FedNow is an instant payment service designed to provide individuals and businesses with the ability to send and receive money in real-time, 24/7. Described by the US Reserve as “a flexible, neutral platform that supports a broad variety of instant payments,” the system aims to enhance the speed and efficiency of electronic funds to be available for use within seconds rather than hours or days. 

American FIs that adopt the FedNow service can offer their account holders year-round instant access for transactions, including holidays. Initially, banks can use FedNow for account-to-account transfers and bill payments. In the future, additional features will be added, such as a request to pay, according to the executive of the FedNow program, Ken Montgomery.

What are FedNow’s main features?

The main features of FedNow are:

• Funds are available to the beneficiary within seconds.
• Available 24 hours a day, seven days a week.
• Functions at weekends and during public holidays.
• Available with participating banks and credit unions only.
• Only for use domestically within the US.
• Maximum transfer amount of $500,000 ($25,000 at launch).
• Default transfer limit of $100,000. However, FIs can choose to set their transfer limits.

Find out more about FedNow from the Federal Reserve.

How does the FedNow program work?

FedNow works like other interbank instant payment services, such as ACH payments. However, rather than going through the international clearing house as ACH payments do, FedNow payments will be cleared and settled instantly. FedNow will use the Federal Reserve’s FedLine network of over 10,000 FIs that already have Federal Reserve accounts. Payments will also be processed individually rather than in a batch.

With other types of payments, there is a “lag” behind the scenes, so while a beneficiary may get the money immediately (within business hours), it may not yet have been cleared and settled by their bank. This creates a situation where banks are exposed to credit risk.

FedNow has been designed with retail payments in mind. Other industries that may benefit from FedNow include real estate, automotive, and the gig economy. It may even be used to send money instantly to disaster zones in an emergency.

The FedNow service will adhere to ISO 20022 best practice, which aims to improve payment speed, traceability, and transparency.   

Who can use the FedNow service?

Any US FI can make use of the FedNow program, regardless of size.

Since 2021, the Federal Reserve has been running a pilot program with over 100 US banks, including the US Department of Treasury’s Bureau of Fiscal Service. 57 organizations signed up as early adopters and became certified before the FedNow launch date, including JPMorgan, Chase, BNY Mellon, and US Century Bank. These financial organizations have already been sending test payments to one another using the FedLine infrastructure.

One of the pilot participants, 1st Source Bank said FedNow will give them a chance to set themselves apart from the competition, and offer customers immediacy, which is a need “that surrounds us every single day”. 

The benefits of using the FedNow system

The core advantage of the FedNow system is the faster payments ecosystem it will facilitate, especially as adoption of real-time rails increases among FIs. 

Additional benefits include:

• Inclusivity: Open to any US FIs regardless of size or location.
• Convenient: Offers streamlined and rapid transactions.
• Enhanced flexibility: Gives firms and their customers greater flexibility in managing their money.
• Prevents fees: Customers can make time-sensitive payments and avoid going into their overdraft, and incurring late fees.
• Reduced risk exposure: Firms can significantly reduce their credit exposure and risk.
• Economic gains: Fosters competition across the payments space.
• Better business finances: Businesses can improve their cash flow and reconciliation processes.
• Optimized operations: Firms can increased efficiencies within their payments teams.
• Integrated fraud prevention: Fraud tools built in, such as the option for firms to set lower transfer limits.

Challenges of using FedNow

Following the FedNow launch, one challenge may be that not all US FIs are certified. To use the payment rail, firms must first complete testing and certification for the service, which involves confirming their ability to transmit and process ISO 20022 messages and attesting they can meet the requirements to operate in a 24x7x365 instant payments environment. As of June 2023, 57 organizations were named by the Federal Reserve as certified as ready for FedNow service. 

Other possible challenges of using FedNow include:

• Participation fee and fees per transfer.
• Will not support payments over $500,000.
• Can only be used within America – no international payment options at launch.
• Neobanks will not be able to offer the FedNow service to their customers.
• Banks with legacy systems may have a challenging integration journey.
• FIs will need to incorporate FedNow into their existing fraud management programs.
• FedNow will gain attention from fraudsters, according to Nick Stanescu, senior vice president and business executive for FedNow. However, the service will quickly evolve its suite of fraud prevention and detection tools by, for example, allowing firms to activate a setting that rejects unusual or suspicious payment based on observed patterns.

Key takeaways

FedNow’s network and credit exposure removal has the potential to revolutionize global payments. In response, FIs will need to be “fraud wise” which includes having strong transaction screening and fraud detection solutions, as well as educating customers about phishing and other scams. When assessing solutions, firms looking to utilize the FedNow system should make sure it is covered as a payment rail. For example, with ComplyAdvantage, firms can access comprehensive payment coverage, including FedNow, ACH, Swift MT, SEPA, Direct Debit, Faster Payments, and SEPA ICT.

The level of investment and support in FedNow from the Federal Reserve suggests that the instant payments trend is only going to grow.

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