6 Reasons to Own Transaction Monitoring
October 05, 2021
Thinking about outsourcing your fraud and AML transaction monitoring to a vendor?
Doing so can be a good short-term strategy, if you need to set up a monitoring program quickly, or stop the bleeding from high fraud rates.
Over time, transaction monitoring is a practice area you won't want to outsource – it is core to being a financial institution and scaling your business successfully.
These are some of the reasons you should own your transaction monitoring strategy.
1. Plugging Your Unique Gaps
Vendors with monitoring services are good at preventing common, simple exploits. However, they won't help much with weaknesses created by your unique risk factors. The mix of the customers you service, the products you offer, and the geographies you operate in create risks unique to your business – these weaknesses are what criminals seek. The only way to provide protection for your unique set of risks is to own your transaction monitoring decisions. If you’d like to learn more about conducting a risk assessment, our article has more information.
2. Avoid Insulting Your Good Customers
If your transaction monitoring program isn't specific enough to your business, it could end up blocking too many of your good customers. Having a legitimate transaction blocked or delayed is a frustrating experience for your customers, and you limit your ability to control this if you outsource monitoring to a vendor.
3. A Strong Monitoring Program Is a Competitive Differentiator
If the purpose of your business is to facilitate transactions in some form, your ability to monitor and make decisions about those transactions will be a major part of your competitive differentiation. The best companies in banking and finance own their transaction systems, end-to-end.
4. Optimize Your Profit Margins
Your business model is probably attached to facilitating transactions. Fraud loss and compliance costs are normal expenses of that business model, and you'll want to minimize these expenses as you scale. Outsourcing your monitoring program to a vendor is one of the most expensive ways to operate and will make it hard to turn a profit.
5. Enable Your Company to Scale
Your company is agile and dynamic – financial criminals are, too! Transaction monitoring is never a set-it-and-forget-it exercise. You'll want to adapt and respond to new risks as your company grows. If you outsource, there is no guarantee that the vendor will work with you to refine, adapt, and upgrade your monitoring system over time. The best way to do this for a transaction-based business is to own your monitoring algorithms and decisions.
6. Don't Drown Your Compliance Team in False Positives
Your compliance team is obligated to review alerts that arise from anti-money laundering monitoring. Sadly, the industry status norm is that most of these alerts will be false alarms – "false positives" in the formal terminology. You want some level of false positives, as it indicates that you're taking a cautious stance on AML. But compliance teams often get overwhelmed by monitoring vendors that generate enormous amounts of false positives, sometimes more than 99% of all alerts! The only way to mitigate this avalanche of misleading alerts is to own the monitoring practice area and optimize it continuously.
Transaction monitoring is really about making automated decisions about your transactions – to block, review, or allow the transaction to go through. There are many strong vendors in the finance industry that can help you gather the information and risk signals to help you make those decisions, but you don't want to outsource the decision itself.
This article on our blog goes into more detail about transaction monitoring and further factors you should consider if thinking about outsourcing.
Hummingbird is designed to complement your transaction monitoring practice area. The platform handles the related investigation workflows, data collection, SAR reporting, and decision feedback loop needed for a strong monitoring program.
Our expert advisory staff can also help you design a roadmap for your monitoring program – we've been operators at some of the largest financial institutions in the world.