Preparing Payment Service Providers (PSPs) for Financial Crime Risks
As payment service providers (PSPs) continue to expand their business models, it is essential that they develop robust and effective infrastructure for managing financial-crime risks. In this article, we will discuss the key points that PSPs can learn from the experience of banks in preparing for and addressing financial crime risks.
Regulatory Scrutiny: A Growing Concern
Key Takeaway
- PSPs can expect increasing regulatory scrutiny as incidents of fraud and money laundering surface in connection with their business models.
In today’s digital landscape, payment service providers are under growing pressure to demonstrate their commitment to preventing financial crime. Regulatory bodies are taking a closer look at PSPs’ practices and procedures, and failure to comply can result in significant fines and reputational damage.
Balancing Speed and Risk
Key Takeaway
- Policy decisions will balance the dual purpose of higher speed and lower risk, for example, by calibrating the level and timing of due diligence conducted on new merchants.
As PSPs strive to provide faster and more convenient payment services, they must also ensure that their systems are equipped to detect and prevent financial crime. This requires a delicate balancing act between speed and risk, where decisions are made with careful consideration for both factors.
Collaboration with Platforms and Clients
Key Takeaway
- PSPs can work with e-commerce platforms and their customers to help them fight financial crime in their own offerings through increased data sharing or better client education.
By collaborating with other stakeholders, PSPs can create a more robust defense against financial crime. This may involve sharing data, providing training, or implementing joint risk management strategies.
Embedding Controls within Processes and Decisions
Key Takeaway
- PSPs can create compliant-by-design processes with few data or system constraints, taking advantage of their advanced technological expertise.
To minimize the risk of financial crime, PSPs should embed controls into their core business processes. This approach enables them to leverage technology and ensure compliance while minimizing disruptions.
Designing Controls in Proportion to the Business Model
Key Takeaway
- The cost and focus on controls should be directly related to the business model selected by PSPs.
As PSPs expand their offerings, they must adapt their control strategies to match their changing business models. This ensures that resources are allocated efficiently and effectively.
Thinking Ahead and Focusing on Data
Key Takeaway
- Define data requirements early and standardize and start capturing these data to improve customer experience and business decision making.
PSPs should prioritize the collection of relevant data, which will enable them to make informed decisions about their operations. This proactive approach also helps identify potential vulnerabilities.
Building a Business Case
Key Takeaway
- Infrastructure investments should be supported by a clear business case to avoid expensive solutions that are only marginally effective.
Before investing in new infrastructure or systems, PSPs must develop a robust business case that outlines the expected benefits and costs. This ensures that resources are allocated wisely and that decisions are made with a clear understanding of their potential impact.