Payment Screening: Complete Guide for 2024

According to Statista, payment fraud led to 1.59 billion-dollar losses in the US alone in 2022. Meanwhile, global e-commerce losses to online payment fraud were estimated at $41 billion in 2022. 

As fraud continues to grow, there is an urgent need for reliable transaction monitoring and payment screening tools for all types of businesses. We’ve already covered transaction monitoring in-depth. But what about payment screening? Read on to learn everything you need to know. 

What is payment screening?

Payment screening is a financial security measure used to detect and prevent fraudulent transactions, usually during the onboarding process. It is used by financial institutions and other businesses to analyze and review financial transactions for fraud detection and/or compliance with regulations. 

Payment screening involves assessing transaction details and patterns, such as their size, timing of withdrawals, and background of parties involved. This helps in preventing fraudulent transactions, ensuring regulatory compliance, and maintaining the security of financial systems.

Payment screening vs transaction monitoring

Both transaction monitoring and payment screening happen in real time and are aimed at detecting fraudulent transactions. However, there are differences.

Payment screening is typically done at specific moments in the customer lifecycle, such as the onboarding process or when large transactions are attempted. 

Transaction monitoring typically involves ongoing analysis of a customer’s entire transaction history and behavior over time to gain a comprehensive view of their financial activities. This process is more retrospective than payment screening, as it focuses on the overall financial activity of an account rather than specific individual transactions.

Both transaction monitoring and payment screening can successfully identify:

• Fraudulent activities
• Sanctions evasion 
• Money laundering 
• Terrorist financing

In addition, transaction monitoring and payment screening enable setting specific rules for checking transaction data.

Stages of the payment screening process

The payment screening process typically involves several steps (which can be adjusted) to identify potentially fraudulent transactions:

• Data collection. Relevant information about the transaction is gathered, including transaction amount, involved parties, transaction history, and so on.
• Rule-based screening. These rules are often based on known patterns of fraud or suspicious activity. For example, the system can flag transactions that deviate significantly from a customer’s typical spending behavior or involve high-risk countries.
• Real-time analysis. Transactions are examined to determine whether they’re fraudulent. This involves evaluating factors like location, parties involved, payment methods used, etc.
• Scoring and risk assessment. A risk score is assigned to the transaction, with a higher score indicating a higher likelihood of suspicious activity and necessity for review. 
• Manual review and decision. Transactions with higher risk scores undergo manual review by fraud analysts or Money Laundering Reporting Officers (MLRO). These individuals assess relevant additional information, possibly contacting customers or verifying details, to make an informed decision about whether to approve, deny, or escalate the transaction.
• Documentation and reporting. The results of the payment screening are then documented and saved in reports for regulatory compliance and internal auditing purposes. If a business suspects a case of money laundering, an MLRO has to submit a Suspicious Activity Report (also known as a Suspicious Transaction Report) to their local Financial Intelligence Unit (FIU).

Benefits of payment screening in AML

Payment screening helps businesses identify, prevent, and report illicit activities as follows:

• Fraud detection. Payment screening helps identify and prevent fraudulent transactions by analyzing patterns, deviations, and anomalies in payment data. 
• Risk mitigation. By screening payments in real-time, financial institutions can assess the risk associated with each transaction and take prompt action to mitigate potential threats. This proactive approach helps prevent money laundering activities before they can escalate.
• CDD and compliance with AML regulations. AML regulations require financial institutions to implement measures to detect and prevent money laundering, including CDD. Payment screening aids in compliance by providing a systematic and thorough process for monitoring transactions.
• Real-time monitoring. Real-time payment screening enables immediate identification of suspicious activities, allowing for timely intervention and prevention of potential money laundering. 
• Reduced false positives. Advanced payment screening systems leverage sophisticated algorithms and machine learning to reduce false positives. By accurately distinguishing between legitimate and suspicious transactions, companies can enhance the efficiency of AML efforts and reduce the burden on compliance teams.
• Data analysis and reporting. Payment screening generates valuable data and reports that can be used for trend analysis, audit trails, and regulatory reporting. This documentation is essential for demonstrating compliance with AML regulations and providing insights for continuous improvement.
• Early detection of issues. Early identification of suspicious activities allows for timely intervention and resolution, preventing further escalation.
• Regulatory reporting. Payment screening helps generate reports required for regulatory purposes..

Solutions

Sumsub’s Transaction Monitoring solution helps businesses detect and prevent fraudulent transactions while staying compliant with AML regulations. Sumsub’s continuous monitoring ensures ongoing security even after the initial onboarding process is complete, as 70% of fraud cases happen after the initial checks are passed.  Here’s what it can prevent:

1. Fraud cases

By swiftly detecting fraudulent transactions, institutions can prevent financial losses associated with fraudulent activities, such as unauthorized transactions and account takeovers. This not only minimizes financial losses for companies, but also protects their reputation and customer trust.

2. Money laundering and terrorist financing

AML regulations require financial institutions to detect and report suspicious transactions related to money laundering and/or terrorist financing (ML/TF). Transaction Monitoring employs advanced algorithms using AI and Machine Learning to detect unusual or high-risk transactions that could be related to ML/TF. By identifying and submitting SARs promptly, financial institutions reduce the risk of money laundering, which can lead to significant financial and reputational damage.

3. Regulatory penalties

Sumsub’s Transaction Monitoring ensures that financial institutions maintain full regulatory compliance, reducing the risk of costly penalties and regulatory actions.

4. Chargebacks

Chargebacks happen when customers dispute a transaction and request a refund from their financial institution. Transaction Monitoring helps in identifying problematic transactions at the outset, reducing the likelihood of  disputes that can harm customer relationships.

FAQ

• How does payment screening work?

  Payment screening works by analyzing transaction data in real-time, applying predefined rules and algorithms to identify potentially fraudulent or suspicious activities.

• What is sanctions payment screening?

  Sanctions payment screening is a financial security process that involves checking transactions against government-issued lists of sanctioned individuals, entities, or countries to ensure compliance with international sanctions regulations.