The risk of identity theft has never been higher, as more than 7 million businesses adopt digital payment platforms

The economic disruption brought on by the pandemic means that the ability to make digital payments has become more important than ever, with individuals and retailers increasingly adopting payment platforms. More than 7 million businesses now offer PayPal and 20 million UK shoppers use the service every year, 63% of UK consumers now use ApplePay, and in the past year 92% of people went online to make a purchase, and 85% used online banking services.

But as the popularity of online payment services has increased, so has the security challenges, and as more and more people turn to digital payments, and the number of transactions continues to rise, the risk of identity theft and online fraud had never been higher. It is easier for bad actors to hide their identity – or steal someone else’s – when using online payment services, and once they are set up on these platforms, can then utilise them to move huge amounts of laundered cash by making multiple, small transactions to hide the full depth of their illegal activities.

In this rapidly evolving digital environment, providers are in a difficult position – on the one hand, their customers expect to be able to make purchases, open accounts, transfer money etc - quickly and easily, without huge onboarding processes, but at the same time, payment platforms have a duty to their customers to guarantee security and protect them from the increasing risk of online fraud.

Firms must also ensure they are complying with anti-money laundering (AML) and Know Your Customer (KYC) requirements – not only to protect their business from fraud, fines and reputational damage – but also, to preserve the relationships they have with the banks and other financial institutions. Payments platform providers rely on these relationships and given the strict rules regulating banks, they must be able to have confidence that the payment providers they work with are adhering to the same rules.

Martin Cheek, MD of AML experts SmartSearch said: “The unavoidable consequence of the huge success of payment platforms is the increased risk of financial crime. When any area of commerce moves this rapidly, and at scale, there are always going to be issues – especially given that many of the payments platforms allow cryptocurrency, making them more vulnerable to money laundering and sanctions risks.

“And while most firms do run identity checks at onboarding, many do not have the ability to identify the Ultimate Beneficial Owner (UBO) of businesses customers. And even if they do, this is just the first part of the process – initial checks alone are not enough to prevent money laundering, identity theft and other financial crime on an ongoing basis.

“If a payments platform does not have a proper business checks service in place, they could be inadvertently onboarding what seems like a legitimate customer, but is actually part of a complicated structure with a sanctioned UBO sitting at the top. Similarly,  if a payments platform provider onboarded a customer prior to the war in the Ukraine, and that customer was consequently added to a sanctions list, without further checks, that sanctioned individual would be able to continue to use those services, illegally. The only way to avoid these risks is to have full and robust screening checks at the outset, and then ongoing monitoring to identify any changes to a customers’ risk profile.”

The consequences for firms failing to screen and monitor customers can be huge; back in 2015, PayPal was fined $5m for failing to screen customers properly, and this year, payments platform Payoneer was fined $1.4m for more than 2,000 sanctions violations, after handling payments for third parties in sanctioned countries such as Iran, Sudan and Syria.

Ignorance is no excuse; whether payments platforms consciously or unconsciously enable financial crime through their systems, it makes no difference to the regulator – non-compliance is non-compliance, and any firms found in breach of the regulations can face fines, reputational damage and even legal action.”

The best way for payments platforms to stay compliant, protect their businesses, protect their customers and avoid fines and reputational damage is to use an all-in-one AML solution with identification, verification, screening, ongoing monitoring and hosting.

SmartSearch is the only KYC system in the market to offer identification and verification using the latest in biometric and facial recognition technology, full screening for sanctions and PEPs, enhanced due diligence on any matches, hosting of all check data and ongoing monitoring.

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