AML Compliance for High-Growth E-wallet Markets

The number of registered mobile money accounts grew by 12.7% globally in 2020, reaching 1.21bn accounts according to industry association GSMA. This was double the forecasted growth rate, and frames the remarkable potential of the global e-wallet market. A comprehensive mobile money risk management solution also protecting revenue can help enterprises ensure a safe, secure ecosystem with strict AML compliance in this high-growth landscape.

COVID-19 undoubtedly had an amplifying effect on use of digital money tools such as e-wallets, as people around the world shifted to virtual and digital solutions for their everyday needs. Research by the University of Zurich indicates daily downloads of digital finance and financial technology applications increased by almost one-third (32.8%) across 71 assessed countries during COVID-19.

This accelerating adoption presents a transformational opportunity for financial access, but stresses an important and emerging challenge for anti-money laundering (AML) compliance and financial risk and regulation.

As we look beyond the pandemic, the impact of these trends is becoming clear. In its Global Payments 2021 report, Boston Consulting Group (BCG) highlighted that:

…the move away from cash will remain a prevailing trend and that digital payments will become the default method for a growing number of consumers in the years ahead.

A major global study by payment provider Boku revealed that by the end of 2020 there were over 2.8bn mobile wallets in use globally, with that number expected to skyrocket to 4.8bn by 2025. With over 60% of the world’s population expected to hold some form of e-wallet by 2025, ensuring a safe, secure, and trusted ecosystem is a key priority for regulators.

Managing the scale of change for e-money and AML

The pace of change in this already-booming financial market is huge, with mobile wallets displacing cash in the fastest growing markets such as Southeast Asia, Latin America, Africa and the Middle East. More than 1.5bn mobile wallets are expected to be in use in Asia Pacific alone by 2025.

According to GSMA, the global value of daily mobile payment transactions exceeded USD2bn in 2020, with expectations that will rise to over USD3bn by the end of 2022. Each of those daily transactions doesn’t just create a financial event, but another datapoint that operators need to be aware of for a smooth, regulatory-compliant mobile payment solution.

When you consider the sheer scale and pace of e-wallet adoption, it’s clear why regulators are keen to ensure appropriate measures are in place to maintain this opportunity while ensuring safeguards for users, something which has been particularly important during the COVID-19 pandemic.

In the European Union, often seen as a leader in financial regulation, e-wallet operators must register as electronic money institutions (EMI) under the Payment Services Directive (PSD2), with around 450 of these institutions registered by 2022. These institutions are subject to strict AML rules, as with traditional financial providers, including a limit of up to EUR100 stored on anonymous accounts.

As with any AML risks, the key to addressing them is around good information — and that ultimately means good data. Customer due diligence (CDD) and know your customer (KYC) should clearly verify the identity of a customer or applicant. This helps screen out bad actors or sanctioned individuals who can create money laundering risks for operators.

Monitoring transactions is vital to ensure providers understand, at the most basic level, who is transferring money, and where it is going. Deeper understanding should include high-risk events like rapid transfers or withdrawals, thresholds, multiple accounts under similar users, and other such flags for money laundering risks.

Regulation is a minimum requirement

Legislation can often move ponderously through regulatory and decision making pathways, meaning even the most innovative regulatory frameworks are likely failing to keep pace with the rapid rise of e-wallets.

Such is the challenge for regulators, that the UK’s own Treasury flagged e-wallets as a ‘medium risk’ for money laundering largely as a result of the rapid evolution of the industry creating challenges for identifying and detecting high-risk events.

Regulation should always be seen as a minimum requirement — it’s the minimum an enterprise must do to stay in order to stay the right side of the rules. But with regulators struggling to keep up, the likelihood that doing the bare minimum today won’t be suitable for tomorrow. This is why adaptive, scalable solutions that enable you to adapt to changing business conditions are key, not just for your business, but for your customers.

A mobile money solution designed to offer a complete AML solution should utilize KYC/CDD standards to meet statutory requirements starting from validating customer data, transaction monitoring, and AML reporting. It should allow for processing of any type of mobile money transaction such as top-ups, payments, money transfers and transactions, and withdrawals.

An advanced mobile money solution will utilize a variety of methods for secure fraud protection and AML monitoring, designed around neural network ML technology, link analysis, and complex rule monitoring, to quickly and effectively identify potential risks. Sophisticated link detection solution will help identify fraud risks and high-threat linkages across activities and actors, identifying fraudsters, matching names against existing sanction lists to ensure that operators comply with AML rules as well as those for combating the financing of terrorism (CFT). The fast-moving situations with sanctions resulting from the conflict in Ukraine shows how important a dynamic and adaptive solution can be in this modern landscape.

The objective of such solutions is to enable enterprises to assess all prospective customers at the outset, identifying key risk factors as part of appropriate application due diligence. They also provide on-going monitoring through the customer lifecycle, assessing day-to-day activities and transactions for signs of fraud. For the user, they should provide clear, visual outputs that enable informed decision making, as well as the ability to export custom reports in formats required by statutory agencies.

The global mobile money market offers a remarkable opportunity to transform financial access and ease of transactions in coming years. With that growth, however, comes an increasing burden for AML and regulatory compliance. A flexible, adaptive solution that allows you to meet today’s regulatory requirements, while providing the flexibility to scale and evolve to meet changing market needs is key.

This article was originally published on the website of Neural Technologies. It has been reproduced with their permission.

George Bolt
George Bolt
Dr. George Bolt is one of the founders of Neural Technologies where he serves as their Head of Analytics as well as being Product Manager for their revenue protection and data integration lines. He is an expert in applied neural computing and is widely recognized in the field of fraud analysis with advanced analysis techniques application (AI/Machine Learning). The University of York presented him with his doctorate following his extensive research into fault tolerance of neural computing. As an inventor, George’s name is linked with dozens of patents relating to fraud detection and data analysis.