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What is the Impact of Real-Time Compliance on Payment Service Providers?

June 30, 2022


Real-time compliance

Real-time compliance is the future of banking and payments as it can be achieved by using it as a tool for regulatory compliance. Read here to learn about its impacts on PSPs.

For Payment Service Providers (PSPs), adopting real-time technology enables them to not just keep up with compliance changes but also unlock new business opportunities through more sophisticated data capture, better personalization, and increased speed of customer onboarding. Real-time payments (RTP) is a suite of services that allows merchants to accept card payments in real time rather than waiting for batch processing by their acquirer or processor. The result? A quicker settlement for the merchant and less risk exposure for both parties involved.

Real-Time Payments (RTP) are defined as “real-time funds transfers made between two accounts that are directly linked within the payment system, which means funds can be transferred from one account to another without the need to wait until the end of the day or any other predetermined period.”

Real-time compliance is, therefore, the future of banking and payments. What will it mean for payment service providers? Let’s find out.

Weighing Current Business Needs vs. IT Capabilities

The greater good of your payment processor is to ensure that your company is compliant with regulations. It’s an obligation that cannot be ignored, as it can lead to fines and reputational damage. The State of IT and Cyber Risk Management Report found that over 40% of the respondents plan to invest in compliance-based solutions. But how does real-time compliance impact the way you run your business?

You may already know that there’s a trade-off between business needs and IT capabilities when choosing a payment processor for your organization. The right technology for your business will depend on both its current needs and its ability to handle more complex processes. If your organization has little experience in managing payments, it’s unlikely you’ll be able to handle complex processes from day one (such as real-time monitoring). However, if you have an experienced team working with complex data, they might be able to handle these tasks without any problems.

Need for Sales Data Visibility

In order for real-time compliance to work, payments have to be instant so that the company knows if someone has overpaid or underpaid for something. Sales data visibility is a challenge for payment service providers because it’s scattered across multiple systems and often not available in real time. The data is also not always accurate, not always available, and sometimes not current. Out of the businesses surveyed, 45% have highlighted the challenge of preventing cyber risks due to a lack of visibility. With full information on sales data at your fingertips, you can quickly identify problems and address them before they cost you money. This will help keep your merchant accounts healthy so that you don’t need to constantly worry about revenue loss due to chargebacks or poor customer satisfaction ratings.

Shifting to Real-Time Compliance

The financial services industry has been the biggest adopter of real-time technology. The benefits of real-time technology are numerous and include increased speed, efficiency, cost savings, and customer experience improvements. Real-time compliance can be achieved by using it as a tool for regulatory compliance.

  • What is Real-Time Compliance?
    Real-time compliance refers to a payment method in which transactions are approved almost immediately after being sent from one party to another. This differs from traditional payment methods, which often take hours or even days before authorization occurs between the parties involved in the transaction. In contrast, real-time payments allow for instant approval of transfers from merchant bank accounts into consumer bank accounts. This means no more waiting around for payments to be made online or via mobile device at brick-and-mortar stores that accept credit cards as forms of payment.
  • Importance of Real-Time Compliance for PSPs
    The concept of real-time compliance is increasingly being enforced for payment service providers (PSPs) by regulators and market participants. Compliance with these requirements is important to ensure the safety and security of customers, transactions, and the financial system at large. Real-time customer onboarding, customer risk profiling, and customer access controls are all important areas that need to be addressed by PSPs to ensure full regulatory compliance. Compliance requirements can also help improve the customer experience and reduce customer friction. For example, a PSP may need to go through KYC (Know Your Customer) for each of its customers. This means that it needs to collect information about its customers as part of the onboarding process. The PSP can use this data throughout their relationship with their customers through segmentation and personalization campaigns, which leads to better user engagement and loyalty.
  • The importance of Real-Time Compliance Goes Beyond Payments
    Real-time compliance is about more than payments. While payment service providers are responsible for ensuring the safe and secure movement of funds, they also play a role in complying with regulatory requirements such as KYC (Know Your Customer). KYC is a cross-regulatory requirement, which means that it comes from a number of different regulators and affects most PSPs regardless of sector or geography. It requires PSPs to collect information about their customers to ensure they are not involved in laundering money, financing terrorism, or other illegal activities. The intention behind KYC is to provide regulators with enhanced visibility into financial transactions so they can better assess risk and ultimately protect consumers from fraudsters who seek to exploit them through scams, phishing attacks, and identity theft attempts.
  • Using Non-Traditional Data Sources Along With Traditional Data Sources
    As your business grows, a risk management system that relies solely on traditional data sources may no longer be adequate. Using non-traditional data sources along with traditional data sources can give a complete picture of the risks associated with a customer account or transaction. Non-traditional data sources include social media, internet search history, mobile device location data, and more. Tokenization is a process where sensitive data is replaced with a unique proxy value that is meaningless to any entity outside the merchant ecosystem. Tokenization can be used to protect sensitive data, such as payment card numbers, social security numbers, and more.

Role of Blockchain

Blockchain technology is a distributed database that keeps a growing list of records. Each block contains the hash of its previous block, along with data and additional information such as timestamps. A blockchain contains both transactions and programmable code to create more functionality from its basic functionality as a simple distributed ledger. Blockchain technology can help service providers maintain compliance with regulations by providing an immutable record for regulators to examine when needed. Since compliance does not equal security, PSPs need a robust infrastructure such as DLT to protect their customers.

Source: SAP

Maintaining Compliance in a Real-Time Setting is a Challenge

For payment service providers, maintaining compliance in a real-time setting is a challenge, which requires investing in a strong IT infrastructure. The investment is worth it as the future of payments is in real-time, and you need to stay competitive with your peers as 70% of businesses expect an increase in the focus on managing regulatory risk. Your customers will also appreciate it when they’re able to make payments faster, more efficiently, and without having to worry about whether their information is secure. There are platforms available that use compliance-as-code to continuously and automatedly monitor configurations to keep up in the cloud-based payments ecosystem.

With the advent of real-time compliance, payment service providers are developing innovative ways to help customers create additional revenue streams as well as avoid transactions that could put them at risk of fines. This technology is transforming the way businesses operate, making it easier than ever before for companies to ensure their transactions comply with industry regulations. We’re excited to see what happens next.

Talk to our team to know how you can redefine the payments experience with innovative next-generation solutions.

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