KYC Transaction Monitoring: Eradicating Money Laundering

Transaction monitoring is a technique used by fintech companies to monitor every transaction that either a customer or a vendor makes while using their platform. This technique is very useful in detecting any sort of money laundering scheme and is one of the major steps involved in KYC/AML compliance. These steps help companies in making research-based precise decisions whenever any question about any sort of fraud or transaction scam arises. 

The banking systems have faced different problems including data breaches that help scammers in illegal transactions and money laundering across many industries. In the past few years, millions of people have lost their lifelong earnings in online transactions. 

What is KYT (Know Your Transaction)?

KYT verification or know your transaction is a process that gathers information about all the transactions made by a company. This system processes and assesses if the transaction is legal or not. If the transaction is illegal then it is certain that someone is trying to commit some sort of financial crime. Through this transaction monitoring system companies and banks can also monitor all the transactions made by their customers.

What is a Transaction Monitoring System?

The transaction monitoring system can be defined as a process of evaluating online transactions to find the drawbacks and loopholes in the process of online transaction systems. Through this system, any business can monitor a customer’s deposits, withdrawals and transfers. This also helps in gathering information about any kind of suspicious activity that can lead to major crimes of theft and laundering. 

In this system, the transactions that are being monitored have a red flag on them just to separate them from the normal transactions and also to inspect those transactions for different sorts of frauds and loopholes. This transaction monitoring system complies with the KYC and Anti-money laundering systems and helps in preventing frauds and scams.

Limitations of Transaction Monitoring System:

Although this system is very helpful in monitoring fraud transactions it also comes with several limitations and some of them are listed below:

False Positives: 

One of the major issues of the transaction monitoring systems is that they give a large number of false positives. If there are a thousand red flags around 90 percent may be false. These false positives happen because of the consciousness of the AI systems. These positives increase data backlogs and cost companies millions of dollars in trying to control this issue. 

Expertise and Guidance: 

Building a comprehensive, dependable, and adjustable transaction monitoring system would need extensive compliance and risk knowledge, as well as a thorough grasp of technology. While some companies have this degree of knowledge in-house, companies may not want to reorganise or exhaust internal resources when third-party solutions frequently provide strategic and continuous help. 

Hidden Costs: 

When developing this system in-house like many software projects, hidden expenses are likely to occur throughout the development process, as well as costs from some change that a company wants in their system. These expenditures are difficult to budget for because they are unexpected, bringing financial hazards to the finance company if they are not addressed.

The complexity of Transactions: 

It is very difficult to understand a client’s behavior in performing transactions of some sort. A company needs to serve a large amount of time to completely understand the transactional behavior of a client to know if the client is involved in some kind of suspicious activity or not. This necessitates a review of prior transactions and the calculation of averages and standard deviations, which is not simple.  

New Rule Configuration: 

It takes up to six weeks for an internal IT staff to install a new rule using in-house systems. Businesses must continually evolve, explore new markets, and solve new challenges to stay up with the ever-changing market flow. If the companies start spending six weeks on every new rule and change it will cost them almost six times the money. 

How to Overcome these Limitations: 

To overcome the challenges that the transaction monitoring system poses, banks and financial companies need to:

Base Monitoring on Customer Behavior: 

The kyc transaction monitoring system should be based upon customer behavior and it should be enhanced to a rule-based system. By using this system companies should make changes in customer behavior and profile. This will be helpful in understanding if what the customer is doing is suspicious or not. 

Organize Data:

Companies should organize their data before AI systems can do their work. These systems will detect money laundering if the data is coming from one source. 


Fintech companies and banks around the globe use transaction monitoring systems to stop money laundering. These systems have helped companies save billions of dollars. There may be a few limitations of this system but it is still very helpful. 


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