The use of AI in transaction monitoring in preventing financial crimes such as money laundering and theft is gradually gaining ground. Many years ago, the rate of money laundering was not as high as it is today. This is because yearly, criminals are becoming more sophisticated and creative in their approach. This is why it is important for financial institutions and businesses that operate with huge amounts of money such as casinos, and banks to also evolve in their approach to AML (Anti-money laundering) measures.

Gone are those days when the traditional AML measures were enough to prevent financial fraud. The detection system then produced many inaccurate outcomes with false positives and true negatives. Today, businesses and financial institutions need to up their games! Moreover, the transaction monitoring market size is predicted to experience significant growth by 2032. Believe it or not, you don't want to be listed in the fraud statistics.

That being said, one of the ways to implement this is by using Artificial Intelligence (AI) in transaction monitoring. We will answer your commonly asked questions related to AI, transaction monitoring, and AML in this article in the simplest way you can understand. We will cover how AI works in AML and transaction monitoring and how businesses and banks can benefit from using AI in monitoring transactions.


What is Transaction Monitoring?

We have many interesting reads on transaction monitoring on our blogs so we will not bore you with much detail on its definition. Transaction monitoring is the act of keeping an extra eye on how money is moved from one bank account to the other to prevent money from getting moved to criminals such as arms traders, human traffickers, and terrorists. And we mean a large sum of money.

Any business that transacts in huge amounts of money such as casinos, and banks is subject to financial crimes and must follow AML and sanctions monitoring regulations. These regulations are tightly supervised by the Financial Action Task Force (FAFT) and implemented by domestic and international governments and compliance regulators. What this means is that these businesses are expected to implement anti-money laundering (AML) measures. 

Without wasting time, let's see how AI can be used in AML and transaction monitoring.


How does AI in Transaction Monitoring Work?

How does AI in transaction monitoring work? AI can detect money laundering in several ways by using specialized algorithms that analyze large or big data sets and sound the alert when something unusual that is considered suspicious such as a large deposit, withdrawal, or transfer is detected. 

AI can be used in AML and transaction monitoring in the following ways:


1.Predicting and Understanding Customer Behaviour or Pattern:

AI can analyze a customer's transactional behaviour. This includes analyzing the normal pattern a customer deposits, withdraws, or transfers money in their account. By doing this, it can detect any changes no matter how subtle they may be. This means, that if a customer makes a transfer of an amount beyond what is the normal pattern, it raises an alert. This little change can go unnoticed by the traditional transaction monitoring process.


2. Setting Transaction Monitoring Rules and Threshold

AI can be used in transaction monitoring and compliance by setting certain thresholds. These thresholds can include for example an AML rule that rings an alert on all transactions above $25,000 from a country considered as high risk or an alert on all transactions above $100,000 in a week.

With this, when these thresholds are exceeded, the AI is designed to trigger an AML alert on such bank accounts.


3. Improved Efficiency and Reduced False Positives

AI algorithms can learn from past data to differentiate between suspicious and legitimate transactions, significantly reducing the number of false positives that waste analysts’ time.


4. Automating Manual Tasks:

AI can be used to automate tedious tasks like transaction screening, and investigation, freeing up AML analysts to focus on higher-risk cases.


What is the Benefit of AI in Transaction Monitoring and AML?

By now, you would have begun to understand how AI can transform the financial sector. Why is transaction monitoring in AML important? Let's go over some of them. See if you can mention any of them listed below before you start reading.

1. Increased Efficiency with AI in Transaction Monitoring

While humans are essential, AI can help them work smarter. Imagine - most transactions are normal, but some companies flag way too many suspicious (up to 15%!). This overwhelms compliance staff. AI in AML transaction monitoring can spot the difference! It reduces false positives, saving time and money without compromising regulations.

2. Focus on Expertise, Not Busywork, with AI in AML

Another benefit of AI in AML? It automates the hunt for money laundering risks. Think of it as a tireless bloodhound, sniffing out patterns in massive amounts of data that would take humans ages. This frees up compliance officers to focus on what they do best - using their expertise to investigate suspicious activity identified by AI.

3. Better Decisions with AI-powered Insights

AI transaction monitoring systems learn and improve over time. They can help compliance officers decide if an activity is truly suspicious or not. AI gathers the groundwork (like a detective gathering clues) and presents it to the officer for a final decision. These "actionable insights" make AML compliance faster and more accurate.

4. Stay Ahead of the Game with AI

Criminals get smarter, and so do your defences. AI in AML helps you keep pace with sophisticated financial crime. It can also help you comply with stricter regulations and avoid financial crime-related crises. Without AI, staying ahead of the game can be nearly impossible

Having known the benefits of utilizing AI in transaction monitoring and AML, you may now ask: how can you begin to utilize it in your business?


How can AI be used in AML and Transaction monitoring?


1. Working with Tech Providers to Get Started with AI in AML

Adding AI to your AML toolbox isn't an overnight switch. It takes planning and a change in company culture. Think of it like learning a new skill - it requires commitment. Before diving in, clearly define what you want AI to achieve and put the right rules in place to make sure it works effectively.

This is where tech providers come in. They're the experts and can guide you smoothly through the implementation process after which you may enjoy the benefits of AI in AML transaction monitoring.


2. Data Prep: Feeding the AI Engine

To get your AI system up and running, it needs to learn from your company's past data. But cleaning and organizing that data can be a challenge, especially if it's messy (which is common!). Here's the good news: AI doesn't just use your internal data (like account activity). Compliance regulatory companies like Youverify have built-in automation software that does this for you.  

This is not to brag, but you will find very few compliance regulatory technology companies that offer automated transaction monitoring tools. You can reduce your risk of exposure to financial fraud if your business is a high-risk one. Why wait?


3. Developing Human Skills Alongside AI in AML

Even with AI, people are still essential! AI changes how humans work in AML, but it doesn't replace them entirely. Here's the key: Your team needs to learn how the AI transaction monitoring tool works. They need to understand the alerts it generates and be able to analyze the data it provides. This lets them make informed decisions based on what the AI uncovers.


It's a Wrap!

I believe that was engaging, right? Sure, you now understand what transaction monitoring is and how the use of AI in transaction monitoring can save your business from fraud risk. You also do not want to do business with a risky individual. 

Recognized as one of the best transaction monitoring software companies in 2024, Youverify has all it takes to help you comply with regulatory rules. With our compliance automation software, you can know your customers and employees, monitor transactions and implement AML measures in your businesses. 

Do business carefree with Youverify taking care of all your complaint needs. Ready for this journey? Request a demo to use the transaction monitoring solution. This will only take a second. And be sure to let them know you had a good read on how AI can be used in transaction monitoring in our blog post!