Card Fraud

Alyssa Iyer | Head of Product – AML

The first panel at FINTRAIL’s FFECON dived into the challenges of managing financial crime in an integrated ecosystem, shedding light on key strategies and considerations for fintechs and financial institutions (FIs) alike. The discussion underscored how the proliferation of financial products and the deepening collaboration between FIs and fintechs have enhanced user experiences but simultaneously introduced new risks that bad actors may exploit. With multiple entities involved in a single transaction, transparency can be compromised as crucial data gets lost along the way. By the time a payment reaches it, an acquirer may lack the necessary details to determine its legitimacy, making it highly dependent on upstream fintechs and banks. This blog post explores how fintechs can shift their compliance mindset from being costly to strategically advantageous, leveraging strong AML and fraud prevention controls to build trust, scale efficiently, and enhance business opportunities.

This growing complexity in the payments ecosystem creates a difficult dilemma for payment acquirers: should they continue processing transactions that could be fraudulent and risk their reputation, or should they sever ties with entities that shift the burden onto them? The rise in scams and money mule activities makes it imperative for fintechs, payment service providers (PSPs), and banks to assess potential vulnerabilities before entering partnerships. Banks, in particular, need to evaluate fintechs and PSPs to understand the risks introduced by their products and take necessary mitigating actions. Conversely, fintechs have a significant opportunity to strengthen their relationships with banks by demonstrating a deep understanding of product, geography, and customer-specific risks and consequently implementing robust controls. By doing so, fintechs can build confidence with banks, positioning themselves as trustworthy partners capable of managing risk effectively.

However, to successfully scale, fintechs must move beyond ad-hoc risk management and adopt a structured approach to identify and mitigate risks. While manually reviewing sanctions alerts may be feasible in the early days with a limited customer base, this approach becomes operationally risky and inefficient as the business grows. To maintain efficiency, fintechs must establish anti-money laundering (AML) and fraud prevention frameworks that incorporate recurring risk assessments across their business lines. These frameworks should define acceptable and unacceptable risks, as well as the mechanisms to manage them effectively.

Beyond frameworks, fintechs must also implement flexible, intelligent AML and fraud detection systems that align with their risk appetite. Configurable solutions allow fintechs to tailor risk-based approaches, applying higher thresholds for lower-risk products while maintaining the agility to adjust quickly if risks evolve. The era of hard-coded SQL-based policies is over;today’s fintechs need dynamic rule-setting capabilities accessible via user interfaces, enabling them to keep pace with an ever-changing threat landscape. Regulatory bodies should also be engaged in this journey to ensure risk-based strategies are sustainable and effective.

For smaller compliance teams (typical of growing fintechs), the ability to consolidate risk intelligence is crucial. Siloed systems that separately manage sanctions alerts, fraud alerts, and AML transaction monitoring (TM) alerts create inefficiencies and gaps in risk detection. If a customer triggers an alert for suspicious AML behavior, it’s critical to know whether they have previously triggered fraud alerts, as this could indicate laundering fraudulently obtained funds. Consolidating intelligence onto a single platform reduces costs associated with multiple vendors, streamlines workflows, and enhances risk identification, allowing teams to focus on higher-value risk mitigation efforts.

At an industry level, improving payment transparency and intelligence sharing is paramount to combating fraud and disrupting money mule networks in real time. While customer-centric innovation remains a priority, it should not come at the expense of enabling criminals to exploit systemic vulnerabilities. Financial services firms must foster a culture of heightened expectations around fraud and AML controls when forming partnerships. Key considerations should include: does the potential partner fully grasp the fraud and AML risks? What controls has it implemented? Will these controls scale effectively as the firm grows? And what data-sharing mechanisms are in place to uphold compliance obligations with other partners? The answers to these questions should directly inform risk assessments and partnership decisions.

For fintechs and PSPs aiming to establish strong financial services partnerships, implementing robust controls and systems is not just a regulatory necessity – it is a competitive advantage. Trust is a currency in the financial ecosystem, and by demonstrating a proactive approach to risk management, fintechs can position themselves as invaluable partners. Compliance should no longer be viewed as a cost center but rather as a strategic enabler that enhances both the bottom line and the top line. By fostering trust and transparency, fintechs can drive business growth while ensuring the financial ecosystem remains resilient against emerging threats.

Please contact me with your comments and feedback. I’m always happy to share Lynx’s approach to AML.