Payment Screening: Detecting & preventing suspicious transactions

From micro-transactions to multi-million-pound sales, payments make the business world go round. But in every instance where money changes hands, there’s a risk. Transact with the wrong entity and you exposure yourself to risk of fraud, theft, and criminal activity – which means you need to be diligent every time you take a payment. That’s where Payment Screening comes in.

What is Payment Screening?

Payment screening does what it says on the tin – it’s a security feature which checks transaction activity for suspicion. If a payee is legitimate, the payment goes through automatically. If there’s something amiss, the payment is paused and escalated for manual intervention.

The primary three reasons for stopping a payment are:

• The customer/supplier is flagged for criminal activity or on a sanctions list.
• There are systemic markers of fraud, like duplicate payees or suspicious anomalies.
• The payment breaches anti-money laundering (AML) or customer due diligence (CDD) regulations.

Unlike transaction monitoring, payment screening is more concerned about making the big checks at big events in a customer lifecycle. Payment screening is an effective tool for authentication and verification, at moments like onboarding or changes to details. Transaction monitoring is a real-time, ongoing process that takes place at every transaction.

The payment screening process

1. Data: when a key customer event is triggered (like onboarding or a change of details), your payment screening mechanism will gather all the relevant data for submission to your smart rules.
2. Rules: those rules, set and customised by you but also following the minimum standards required by AML and KYC regulation, will screen the payee. Typical rules look for suspicious behavioural patterns that might indicate fraud, or markers of potential criminal activity like inclusion on a sanctions list or residence in a high-risk country. You can set further smart rules for your organisation, such as flagging unrecognised creditors, duplicate payment information, or transaction thresholds.
3. Approval: if the payment screen deems it safe, it’s business as usual. If it’s deemed a high-risk scenario, all financial activity with this payee is paused. The decision will be escalated for manual review, and you will be able to investigate further and make the final decision.
4. Evidence: regardless of outcome, data and evidence is saved and stored for compliance and regulation purposes.

The different types of payment fraud

Payment screening protection protects against several types of fraud and data breach, but is primarily designed to combat authorised push payments and phishing scams:

Authorised push payments

When a fraudster impersonates somebody else and tricks you into making a payment to them, you’ve been scammed by Authorised push payment (APP) fraud. As one of the most common types of business fraud, it’s estimated that more than £200m was lost to APP in just the first half of 2023.

APP fraudsters may impersonate a customer, a supplier, or even somebody in financial services like your bank or even a government body.

Phishing

Phishing involves the use of digital scam communications (like emails, SMS, and sometimes even phone calls) to trick you into visiting a website designed for fraud. Once you visit, you may experience data theft, malware, or a computer virus – all intent on accessing your personal information for financial crime.

How payment fraud affects businesses

Financial loss is the most publicised impact that payment fraud has on organisations, but whilst it represents a significant existential threat to business – it’s only part of the damage done:

1. Resource

Losing capital means jeopardising the ability to pay staff and upkeep financial commitments, which is a big challenge for business continuity.

But alongside the money, fraud impacts other areas of resource. You may lose staff time, as workers are taken from their usual responsibilities to support the recovery process. This in turn will impact on operations – like sales or service or manufacturing – which will inevitably mean less money coming into the business.

2. Regulation

If you transact at a business level, you’re subject to a strict set of rules as set by governing bodies. From KYC and AML compliance as laid out by UK law, to sector-specific regulations like those in accounting or law, being the victim of fraud can be doubly damaging if you are deemed to be at fault.

In many instances, you may be held responsible for allowing fraud to happen on your watch, if you haven’t followed the necessary protocols to prevent financial crime.

3. Reputation

Whilst in many cases it can be unfair, victims of fraud often suffer reputational loss as a result.This can come from both debtors and creditors, who may refuse to transact in the future based on a perceived higher risk. Concerned about their personal data or in the safety of their partnership with you, they may choose to do business with a competitor instead.

For victims of fraud, business continuity plans are essential to preventing this from happening.

How to identify suspicious transactions

Suspicious transactions are becoming increasingly difficult to detect, as financial criminals become more sophisticated in their activity. It’s the efficacy of modern fraud that has given rise to similarly modern tools to fight back – like automated payment screening.

But whilst these security systems hugely boost your organisation’s resistance to fraud, finance staff should also have a working knowledge of what makes a transaction suspicious. By knowing what to look for, fraud can be stopped before it even gets near your systems and long before your payment screening has to check it.

Look out for…

• • Secretive clients who are on their guard when onboarding – what do they have to hide?
  • Irregular behaviour in existing clients – is there a legitimate reason for this?
  • Anomalies in client activity – were you expecting this change of direction or not?
  • Regular, sudden, or unexpected updating of details – what is the reason for the change?

• Unusually large volumes – why is there a drastic change in a usually stable pattern?

How does payment screening contribute to operational resilience?

Operational resilience, the ability to effectively respond to operational disruption, is an increasingly important characteristic of the modern firm. With fincrime becoming more common and more complex, as well as risks like overseas working and payments also rising, protecting your business from growing threat is key.

Payment screening is one of your first lines of defence in operational resilience, giving you both a primary protection against fraud but also an early warning sign that your business may be being targeted by financial criminals. By screening creditors at key stages in their lifecycle (like onboarding or updating details), payment screening acts like a drawbridge. If a creditor passes the checks, they drawbridge is lowered, and they can enter. If not, the drawbridge stays up until you say otherwise.

(And whenever somebody needs to change their details, they go back outside and we’ll check them once again.)