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Payments are moving faster than ever. Domestic instant payment schemes and emerging cross-border rails are transforming expectations of speed and convenience. According to recent surveys, 86% of businesses and 74% of consumers said they used faster or instant payments in the past month. But while instant payments unlock liquidity and efficiency, they also compress the time financial institutions have to detect and prevent financial crime.
In anti-money laundering (AML), lag is a liability. If compliance teams at financial institutions take too long to detect an anomaly, criminals already have the advantage.
Pre-validation: compliance before the money moves
When payments settle instantly, there’s no window to block suspicious activity. The most effective safeguard to prevent illicit transactions is pre-validation, i.e., screening and risk assessment before a transaction even initiates.
Pre-validation means knowing:
- who is sending funds,
- who is receiving funds,
- and what wallets or accounts are involved.
This shifts compliance from a reactive process to a proactive safeguard.
Faster rails require faster detection
Reducing friction on the front end (what customers see) inevitably introduces friction on the back end if compliance can’t keep pace. Faster rails without faster detection simply create blind spots.
To get this right in the present, financial institutions should have AML controls that:
- Operate in real time with reduced false positives.
- Are explainable and auditable, giving regulators confidence in decisions.
The question is whether AML and sanctions controls can evolve just as quickly. The institutions that succeed will be those that embrace a multiconfiguration approach to screening. But what is this?
Multiconfiguration for a tailored approach to screening
A single, one-size-fits-all approach to screening no longer works; especially in instant payments, where speed and precision must coexist. Multi-configuration capabilities enable financial institutions to apply different screening strategies for different risks:
- Sanctions vs. PEPs: Using multi-configuration settings according to the risk appetite of each business, sanctions checks can be run at the strictest settings in real time, while PEP checks can use internal watchlists and risk-based thresholds.
- High vs. low-value payments: Large, cross-border transfers might trigger enhanced due diligence as per a risk-based approach, while low-value domestic payments flow with lighter checks.
This layered approach reduces unnecessary friction, keeps false positives under control, and ensures institutions focus resources where risk is greatest.
AI-driven transaction screening
Artificial intelligence can be applied pre-alert (to improve match quality) and post-alert (to support analyst decisions). By learning what ‘normal’ looks like for a customer or wallet, AI can flag activity that deviates from expected behaviour within seconds. This will also help identify wire stripping to avoid detection by screening through altering or tampering with payment details to obscure the identity of sanctioned entities, countries, or individuals.
Post-alert, a well implemented AI solution will recommend whether to review or discount an alert based on match quality and available attributes (e.g. date of birth, ID, nationality). This results in faster triaging and less manual workloads.
Sandboxes for regulatory confidence and analyst autonomy
The regulatory environment around payments is fast evolving. As the New York State Department of Financial Services (NY DFS) Part 504 requires institutions to periodically review and update AML monitoring and filtering programs to reflect regulatory changes, detection scenarios and thresholds. Sandboxes provide the environment to test models safely before committing changes to the live environment, so analysts have the autonomy to move fast with changing regulations. It can be used to:
- Demonstrate how real-time pre-validation works in practice;
- Trial AI-driven screening models against instant payment scenarios and;
- Evidence to regulators with an audit trail that their systems operate at speed while keeping risk within tolerance.
The version control features of sandboxes provide necessary documentation that articulates an institution’s detection scenarios, underlying assumptions, parameters and thresholds at any point of time.
Payment institutions looking to gain a competitive advantage in the market and improve customer experience must choose AML solutions that help them balance these needs while meeting regulatory expectations.
Learn about five key AML buying considerations for payments firms
Photo by Martin Martz on Unsplash
