What is transaction monitoring in AML?

Millions of payments are processed worldwide every day. Most of them are completely normal: a salary being deposited, rent being deducted, or a dinner bill being split. 

But sometimes, transactions appear that don’t quite fit in. They may be part of an attempt to launder money, finance criminal activities, or conceal illegal dealings. 

Transaction monitoring helps businesses detect such patterns and ensure that financial systems remain safe and trustworthy.

Who needs transaction monitoring?

Any business handling payments or financial transactions must keep track of what’s happening within their systems. For some industries, it’s not just a security measure – it’s a legal requirement. These industries include:

• Banks and other financial institutions
• Payment service providers and fintech companies
• Cryptocurrency exchanges
• Insurance companies
• Gambling and betting companies

These entities must be able to detect and report suspicious activity – not just to comply with the law, but also to protect their reputation and customers. Learn more about how Trapets can help your industry achieve compliance and effective transaction monitoring.

Key features of a transaction monitoring system

A good transaction monitoring system acts as a sharp-eyed guardian. It analyses payment flows, detects anomalies, and ensures that suspicious transactions are flagged before they become a problem. The key features include:

• Automatic alerts for suspicious activity;
• Risk assessment based on customer behaviour;
• Integration with other security systems, such as KYC and risk analysis;
• Continuous updates to adapt to new threats and regulations.

Curious about what transaction monitoring system works best for your business? Read our post about transaction monitoring software, some of its key components, and tips on what to look for when choosing it.

Types of transaction monitoring approaches

Businesses use different strategies to monitor transactions. Some methods are simple yet effective, while others leverage advanced technology to detect complex patterns.

Rule-based systems

This method relies on predefined rules, such as flagging a transaction if it exceeds a certain amount or is directed to a high-risk country. It provides a solid foundation but can sometimes generate a high number of false positives.

AI and machine learning models

Advanced technology is used to analyse customer behaviour and detect unusual patterns. Over time, the system learns to differentiate between normal variations and real risks.

Hybrid approaches

By combining fixed rules with AI, businesses can create a system that is both precise and flexible.

Real-time versus post-transaction monitoring

Real-time monitoring allows businesses to block suspicious transactions before they are processed, while post-transaction monitoring analyses payment patterns afterwards to detect long-term risks.