Payment systems aren’t ready for modern digital holiday spikes
While holiday payment spikes are a lucrative opportunity for retailers, it can also cause a headache for the systems and operations that take the strain of the influx of shopping activity.
As retailers have had to revamp their e-commerce sites to handle the volume of traffic, banks and payment service providers prepare for the significant strain on the payment systems used to facilitate the huge volume of transactions.
The goals then become finding new ways to cope with the surge in payments while maintaining the service levels their customers expect; and maintaining the essential financial crime screening processes required by law take place effectively behind the scenes to ensure all transactions are compliant.
Banks and PSPs have an ongoing obligation to comply with AML-CFT and sanctions regulations. As part of their KYC process, they must screen their accounts owners (both buyers and sellers) to ensure they are not facilitating the flow of illegal funds. Failure to block any sanctioned entities or to detect any illicit financial activity could result in investigation, enforcement action and reputational damage.
On occasions like Black Friday or Cyber Monday, payment service providers can expect to face a boom in new business relationships, creating an explosion in the number of new customer accounts that need to be screened, prior to the provision of payment services. This is a challenging time for ongoing AML-CFT and sanctions compliance.
As part of their AML-CFT processes, the bank or PSP must also monitor the completeness and accuracy of the information they have on the sender and the receiver of a payment instruction and they are obligated to reject or suspend payments, if necessary.
The PSP must then screen both the payer and the beneficiary against the relevant set of sanctions lists. In the case of a sanctions match, they must block the payment or freeze the account and report it to the relevant authority.
Similarly, screening is required for any transaction conducted with a payment instrument that can be used for person-to-person (P2P) transfers. Although it is not necessary to screen credit card transactions in this way, transactions through alternative payment providers (such as e-wallets) must be screened according to their risk profile.
Today, traditional screening solutions are not able to process such a huge influx of records quickly enough, creating a queue that the system has to work through, slowing down the customer experience. Additionally, systems are typically architected according to standard business throughput, and do not have the flexibility to adjust automatically to the increased activity.
The good news? Technology will deliver the much needed holiday cheer.
Banks and PSPs want to facilitate instant screening, enabling them to go fast whenever customer and transaction volumes surge.
By accelerating the throughput of records so they are able to screen in real time (while increasing the accuracy of matches), banks and PSPs will be able to prevent the backlogs they currently have to deal with at peak times. This will enable them to meet the expectations of their customers and provide a fast and frictionless experience.
Additionally, payment service providers should consider implementing a new flexible architecture to enable them to scale their screening solution up and down, based on demand. Utilizing cloud technology and internet scaling techniques could enable screening systems to expand and contract seamlessly, providing greater flexibility to handle varying volumes, without requiring permanent changes to the infrastructure.
The Black Friday and Cyber Monday trend is not showing any signs of slowing down … and neither are those who could be engaged in illicit financial activity, linked to sanctioned entities, or susceptible to bribery and corruption.