Alternative payment methods have risen with the COVID-19 pandemic, requiring banks and financial institutions (FIs) to ensure they have anti-money laundering (AML) processes in place.

Navigating this new world of alt payment methods was a major theme yesterday at the Association for Certified Anti-Money Laundering Specialists (ACAMS) Anti-Financial Crime Conference in Las Vegas.

“From a global perspective, there’s been a lot of movement with cross-border transactions and an uptick with COVID-related fraud. We saw a lot of ‘cash out’ schemes at ATMs,” said Innessa Levina, vice president for legal AML compliance at Mastercard.

“Cash out” schemes can involve cybercriminals compromising ATM accounts by creating duplicates. They coordinate multiple withdrawals, sometimes numbering in the thousands, and can tamper with account balances and cash withdrawal limits to maximize cash stolen.

“It brings certain things into perspective, where folks were not moving … [because] travel was restricted,” Levina said. “Do you know where your end consumers are located? Why do you have activity in cross-border jurisdictions where movement was restricted? We saw a lot of spikes in activity that were putting all of that into question.”

She added that Mastercard has seen an increase in point-of-service transactions and app use for payments.

North American Bancard – which enables businesses and merchants to take payments – saw an increase during the pandemic in small businesses that normally only accept cash and checks start to allow other forms of payment. And there was a learning curve.

“It was a little bit of a shock to some of these businesses, the level of due diligence that they have to go through – know the customer [KYC],” said Robyn Mitchell, senior vice president for risk management and chief compliance officer at North American Bancard.

“When you bring on a merchant for processing transactions, the bank is a partner to the agreement … and our KYC requirements are pretty interesting. A lot of these businesses had to get accustomed to that,” she said. Criminals took advantage of the situation.

“Businesses not accustomed to accepting cards, they don’t necessarily pick up when someone is coming in and the plan is to run a scheme on the small business, because they know that they now accept cards and they have the ability to use that to the bad guys’ advantage and to these businesses’ disadvantage,” Mitchell said.

Visibility into transaction facilitation

Banks and FIs offering digital wallets and other alternative payment methods have had to alter their approach to AML and financial crime. Levina explained that for Mastercard, an important part of this is education, communication and understanding, including:

• Who are you dealing with and who do you have within your ecosystems?;
• How do your payment transactions flow?; and
• How have things pivoted with different solutions in the past?

“It’s all about choices: some consumers prefer cash, some want to deal with apps, some want to deal with cryptocurrency,” Levina said. With FIs, Mastercard has seen a lack of oversight of service providers that facilitate transactions.

“There are so many different service providers in between you and the end consumer, and you need to understand all of them,” she said. “You need to be best friends with your processors, with your program managers, and have tight oversight.”

Companies must also ensure that compliance teams are in the loop on alternative payments deals, Levina said. Mastercard has seen instances where compliance personnel “aren’t even brought into the conversation of approving these deals, understanding how these transactions [are] flowing, so they don’t have the ability to build controls,” she said.

“It’s all about good partnerships within the bank,” said William Voorhees, senior vice president and senior director, financial intelligence unit at $521.9 billion Truist Financial Corp. “You don’t want the product people doing things that are going to open up additional risks and gaps without talking about it and making sure that [compliance monitoring] is set up, and the bigger the organization gets, you know, the harder it is to keep up with that.”

He added that the No. 1 stakeholder a bank needs to be concerned about is the customer and meeting the customer’s needs, including offering alternative payment methods. “But we also have a number of other stakeholders that we have to make sure are taken care of as well, and [that] we’re not opening the bank up to any additional risks while we’re trying to make things easier for the customer,” he said.