Transaction Monitoring Software – Key Features & Benefits

Payment fraud Bot management

Every year, somewhere between $800 billion and $2 trillion is laundered worldwide. That’s an astonishing two to five percent of the world’s GDP. This dirty money is used to finance terrorists, drug dealers, and human traffickers, and it’s why governments around the world have strict anti-money laundering (AML) and know-your-customer (KYC) regulations.

Companies that fall under AML and KYC regulations have to use transaction monitoring software to automatically monitor their transactions. But even for companies that don’t have to abide by AML and KYC rules, it’s important to keep a close eye on transactions. In this article, we’ll explain what transaction monitoring software is and why it’s important.

Table of Contents

What is transaction monitoring software?
Why Transaction Monitoring Is Important
How do fraudulent transactions occur?
How Transaction Monitoring Tools Work
Key Features of Transaction Monitoring Systems
DataDome as Transaction Monitoring System
Transaction Monitoring Software FAQs

What is transaction monitoring software?

Transaction monitoring software helps companies prevent fraud by monitoring all their transactions, either in real-time or periodically, and blocking the transactions it considers suspicious. Such transactions can include large cash deposits, frequent international transfers, fast transaction withdrawals, and others.

Why Transaction Monitoring Is Important

Transaction monitoring is deemed important enough that it’s compulsory for the wide array of companies that have to comply with anti-money laundering regulations, such as banks, credit institutions, currency exchanges, casinos, auctioneers, custodian wallet providers, and many others.

Transaction monitoring software helps companies under regulatory requirements avoid hefty AML fines, but it can help all companies reduce the amount of payment fraud they have to deal with and the amount of time they have to spend manually reviewing suspicious transaction activity.

As a society, transaction monitoring tools are important for fraud prevention and to reduce money laundering, terrorist financing, and all forms of financial crime worldwide. It’s the social responsibility of every company to make sure their goods or services aren’t used to whitewash criminal money.

DataDome protects your websites, mobile apps, and APIs against all the automated threats that cybercriminals use to attack your business. Defend yourself against payment fraud with DataDome’s advanced fraud detection software. Schedule a live demo today.

How do fraudulent transactions occur?

Fraudulent transactions can occur in a wide variety of ways, but there’s usually one common denominator for all of them: they tend to be automated to some degree. Fraudsters use automated scripts to break through a company’s defenses, ideally without alerting them.

For example, a fraudster can buy credit card information on the dark web, break into one of your user accounts, and buy your goods or services with the stolen payment data. Doing so manually would take far too long; fraudsters use bots to do most of it.

If you sell anything online, chances are you’re well aware of how much damage bots can do. Not only will they slow down your website, but they can break your registration and login pages, scrape your content to automatically repurpose it somewhere else, and commit payment fraud through account takeovers.

How Transaction Monitoring Tools Work

Transaction monitoring tools follow a common workflow: they inspect all transaction data, look for suspicious activity in that data, and report anything suspicious to relevant stakeholders, who can then investigate further.

Inspect Data

First and foremost, transaction monitoring tools inspect incoming and outgoing transactions by checking a wide variety of variables per transaction. Such variables typically include a device’s fingerprints, its IP quality, transaction velocity, source of funds, the size of deposits or withdrawals, et cetera. Some tools can do so in real-time, while others do this periodically.

Detect Suspicious Activity

What is considered suspicious activity will differ depending on the risk profile of the customer who made the transactions. Some customers (who can be individuals, but also companies) carry a higher risk of fraudulent transactions than others, because of their profile, their geographical reach, their size, or the industry they work in.

Transaction monitoring tools take into account the risk profile of a customer and flag what’s unusual and suspicious for that particular customer. Low-risk profiles will be able to do more than high-risk profiles before transaction monitoring software will flag any of their particular transactions as suspicious.

You can significantly reduce suspicious activities by never allowing malicious bots to land on your websites or apps. DataDome blocks all automated threats in real-time, without worsening the experience for your users. Sign up for our free 30-day trial today.

Investigate & Report Activity

Whenever a transaction monitoring tool encounters a suspicious activity, it will dig a little deeper and try to understand what can explain it. After all, what’s suspicious isn’t always fraudulent. A customer may simply be abroad, or they may be browsing through a VPN, or they may just have sold their house and received a large lump of incoming cash.

However, if a transaction is still suspicious once the software has gone through its analysis, it will create what’s called a suspicious transaction report (STR), a suspicious activity report (SAR), or a suspicious matter report (SMR), depending on whether you’re in North America, the UK, or Australia, respectively. These reports are important for AML and KYC regulators, but you can use these to understand how to deal with the transaction.

Key Features of Transaction Monitoring Systems

Automatic Data Analysis

Transaction monitoring software automatically analyses incoming and outgoing data. There’s no need for anyone to do this manually (which, with today’s volume and speed of transactions, would be impossible anyway). The software analyses all data across all the variables relevant to a particular risk profile, and flags the transactions that cross a threshold, so it can do a little more digging on those.

Real-time Screening

The best transaction monitoring software will monitor your data in real-time, all the time. It does so not just on your websites, but also on your mobile apps. The other option is to analyze transactions in batches, e.g. at the end of a day, but it’s much harder to respond quickly to fraudulent transactions with batch processing. You’d rather have real-time screening.

Risk Scoring

Transaction monitoring software makes risk assessments depending on the risk profile of a customer. The software takes into account a large number of variables to create this number, which it will then use as the threshold for what’s suspicious and what’s not. It’s easy to understand for you, too, because it allows you to easily group customers into buckets of low-risk profiles and high-risk profiles. When you’re creating a fraud risk management strategy, such information can be invaluable.

AI Learning

Transaction monitoring systems that follow static rules are never effective for very long. Cybercriminals frequently change their behavior for better odds of success, and transaction monitoring systems should be able to adapt as rapidly as criminals do.

That’s why AI learning is crucial in transaction monitoring systems. While regulators may not (yet) require it, AI learning helps transaction monitoring software deal with behavior it may never have encountered before. It helps the software update its rules and keeps it effective for fraud prevention, even as criminals use new tools or change behavior.

DataDome as Transaction Monitoring System

One of the most effective ways to reduce fraudulent transactions is to remove a criminal’s primary means of attack, which is their ability to use software, scripts, and algorithms to attack your company. Trying to defraud a company manually is either impossible or takes far too much time to be cost-effective. Fraudsters automate their fraud.

DataDome stops all these automated threats. It does so for your websites, your apps, and your APIs (all of which are at risk). This means it protects you against almost all forms of payment fraud, but also against other typically automated attacks, such as account takeovers, unwanted scrapers, card cracking, etc. DataDome is lightweight, easy to install, and hands-off. If you’re serious about preventing fraud, start a free 30-day trial today.

Transaction Monitoring Software FAQs

How do you perform transaction monitoring?

The best way to perform transaction monitoring is by using a fraud prevention software that stops all automated threats from attacking your company. This is because most cybercriminals automate their attacks. Stopping automated threats will stop most forms of fraud.

What is digital transaction monitoring?

Digital transaction monitoring happens where software inspects all incoming and outgoing transactions for suspicious activities. The software checks each transaction against the risk profile of the customer who made the transaction. If the transaction crosses a particular risk threshold, it will flag the transaction as suspicious and dig deeper to understand what’s going on.

What is an AML transaction monitoring software?

AML transaction monitoring software is software that’s compliant with AML regulations. Usually, companies like banks, currency exchanges, casinos, and other companies closely tied to the finance industry, have to monitor their transactions in order to comply with AML regulations.