Raising the stakes

An unprecedented raft of changes have combined to force the hand of financial industry players, when it comes to transaction intelligence, says Intix’s

André Casterman

If the world of finance were a game of poker, things would be getting extremely tense by now. Banks and other institutions have been dealt an unexpected set of hands, one after the other, which have them scrabbling to catch up when it comes to compliance.

Regulators are requesting ever-more complex information from financial services players in response to industry changes and pressure points – from the rapid growth in low-value transaction volumes catalysed by the COVID-19 pandemic, to the need to comply with international sanctions lists after Russia’s invasion of Ukraine. And the rising cost of living is resulting in increased financial crime attempts.

Amidst these historic challenges, the mantra ‘know your data and how to use it’, is perhaps the best piece of advice for banks, which are coming under increasing pressure over their transaction reporting. To stay ahead in this game, they need to find a way to leverage transaction data into a competitive advantage – with as little friction as possible.

“It’s not just about all transactions above $10,000, for instance. It’s much more fine in terms of selection criteria,” explains André Casterman, chief marketing officer for transaction tracing experts Intix. And banks really want to automate: they have already automated a lot of those processes but now need to pull more data from other systems to address those regulatory requirements.”

Belgium-based Intix prides itself on helping customers ‘trail, trace and know’ their data. Its technology tools help companies improve their compliance, auditing, payment transparency and overall operational efficiency.

Such benefits are of obvious value in themselves but are becoming compulsory requirements as regulators become more active amid major changes to the industry since the 2008 financial crisis.

One of the most obvious changes has been increasingly strict anti-money laundering (AML) and counter-financing of terrorism (CFT) legislation in recent years – both of which can vary widely, according to jurisdiction and risk environment.

Since June 2021, financial institutions in the European Union (EU), for instance, have been required to implement the sixth iteration of the bloc’s AML directive, which sought to standardise and strengthen AML and CFT regulations. The EU is currently working on the seventh version, which is only likely to see the rules get tougher.

UPPING THE ANTE

But ever-changing and evolving legislation isn’t the only challenge that banks are facing when it comes to payments and transaction reporting, particularly in Europe.

Banks and payment providers in the EU and the UK have already had to comply with strong customer authentication (SCA) rules, which dictate that any online payment over a certain amount needs two methods of authentication from the person making the transaction – be it a password, biometric authentication or having a phone that can identify them.

As recently as October, some 200 days after the introduction of SCA, Barclaycard reported that, while retailers had seen an average 25 per cent drop in online payment fraud, 28 per cent were not yet compliant and were therefore missing out on sales.

Wider societal factors and an increasing public desire to hold the powerful to account are also having an impact on the banks. In October 2021, the shadowy financial dealings of the rich and powerful were highlighted in the so-called Pandora Papers, which put under the spotlight the tax-sheltering offshore deals and assets of more than 100 billionaires and 300 public officials – from past UK prime ministers to former US presidents – and the companies set up to facilitate them.

Then, just a few months later, Russia’s invasion of Ukraine prompted a flurry of international sanctions on those with links to President Vladimir Putin, as governments sought to cut off the regime’s money flow in retaliation. Banks and the world of paytech responded by trying to stop Putin’s funding lines. But the process of doing so also highlighted many challenges in monitoring assets and transactions, particularly across borders.

The impact of all this is that banks and payment providers need to not only know their transaction data, but how best to use it. Which is where companies like Intix come in.

“As we have always said, the banks need to get their data in order. At Intix, we’re providing technology for that,” says Casterman. “Now it’s not only about getting their data in order, but about linking datasets within the bank, to address regulatory requirements.”

Intex’s xCOMPLY, the company’s ‘knowing-your-transaction’ solution, for example, acts as a way to correlate datasets, mainly on payments, and address regulatory reporting requirements, as well as the investigations banks have to perform, following a request from financial intelligence units. This new capability to go deeper into existing systems enables transaction data to be contextualised and compliant with regulatory demands, explains Casterman.

“Once you have the transaction data, in some cases – and mainly on the compliance side, but also on the client service side – you need more data on the counterparties. Going deeper into the internal systems, getting more insight to the compliance officer, is really what we enable with xCOMPLY, in order to address that need for increased visibility,” he says.

“All data counts in investigations, because you are looking for something suspicious, or you are checking whether this is something suspicious, so you need more datasets – on the transactions, on the counterparties, and an easy navigation across those, and that’s what we enable now, with xCOMPLY.”

GETTING REAL

Real-time payments is another pressure point and the transition to instant transactions is only going to get more urgent amid soaring consumer demand (most notably, digital and contactless payments grew exponentially during COVID-19) and upcoming legislative changes.

Indeed, the EU recently unveiled draft legislation that would force banks to offer instant euro payments at no extra cost. The plans would let people transfer money at any time, within 10 seconds – a considerable improvement on traditional card payments or credit transfers, which can take up to three days.

The proposed switch has been described as ‘seismic and comparable to the move from mail to email’ by Mairead McGuinness, the EU’s Commissioner for Financial Stability,

We are helping banks to know, in real time, what is happening within their own infrastructure, in order to identify incidents, potentially on real-time payments or batch payments

Financial Services and the Capital Markets – a move that will, accordingly, have similarly dramatic effects on banks as they rush to comply.

“We have talked about real-time payments for many years, but most of the innovations have been done at a domestic level. Now the trend is definitely to offer corporate and retail clients real-time payments at cross-border level,” says Casterman.

“It is far more complex given you’re crossing jurisdictions, you have a chain of correspondent banks, and this is where the pressure on payments operations teams is increasing, and where they want to reach a level of operational excellence by tracking those activities, those payments, within their internal systems.”

Intix’s solution for this is a service called xTRACE, which provides insights across the transaction life cycle for business activity and service level monitoring, and surveillance of transaction integrity. By tracking transactions, any discrepancies can be flagged and required actions or tasks allocated to the relevant source.

“Basically, we are helping banks to know, in real time, what is happening within their own infrastructure, in order to identify incidents, potentially on real-time payments or batch payments,” he explains.

This means users can quickly and proactively react to any glitches within their own systems, or any service level agreements that may not be met, to make sure the client is not negatively impacted.

However, it’s not just about individual transactions, but also where they sit in the wider system. After all, banks also want to know where their payment is in the corresponding banking chain – a particular challenge, given the soaring number of low-level transactions.

“That’s where we are providing all those datasets not only to internal teams within the banks, but also to external parties, the banks’ clients,” says Casterman. “Now the pressure is indeed very high, because the volumes are increasing, certainly on a cross-border level, and the amount of data handled to process payments is increasing.”

Meanwhile, regulators are also mandating banks to keep records of compliance-related events such as when a transaction was screened and who approved a particular payment.

“All of those events on a particular single transaction have to be recorded and kept in the long-term archive, so that in the case of forensic investigations, we can go back to this data to understand what happened and if there has been any fraud,” adds Casterman.

Intix is not the only fintech company working in this field but its products and solutions are undoubtedly only going to become more valuable to banks and other payment providers as regulations continue to tighten. And, given the rising emphasis on environmental, social and governance (ESG) reporting, more and more ESG data and scoring will also need to be processed sooner rather than later for compliance reasons.

So not only will knowing your transaction data and how to use it become increasingly compulsory for banks, the most successful ones will be those who use it to a competitive advantage.