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financial transaction monitoring technologies

Three game-changing financial transaction monitoring technologies in Africa

Africa loses approximately 88.6 billion USD annually due to illicit financial flows, according to a 2022 UNCTAD report. This sum is equivalent to 3.7% of the continent’s GDP. Examples of such flows include criminal activities like money laundering and terrorism financing, fraud, commercial transactions and tax evasion. Fortunately, technology is here to support financial institutions and regulatory authorities in identifying and reporting illegal or suspicious transactions. This blog reviews three technologies that are transforming the financial transaction monitoring ecosystem in Africa: artificial intelligence (AI) and machine learning (ML), Blockchain and Big Data analytics.

The rise of financial transaction monitoring technologies in Africa

The sheer size of the global financial transaction monitoring market reflects the high demand for monitoring in the financial sector. Indeed, estimations indicate that the value of this market was 9.01 billion USD in 2023, compared to 8.4 billion USD in 2022. Furthermore, the market is expected to grow at a CAGR of 14.2% by 2033, to reach 34 billion USD.

As the birthplace of Mobile Money and as a growing center for digital financial transactions, Africa is doing its fair share to drive the global need for transaction monitoring. Digital payments have brought about significant benefits on the continent, the most notable being financial inclusion and improved socioeconomic development. However, they have also created an undesirable side-effect. Indeed, fraud and other threats like money laundering and the financing of terrorism are on the increase.

Transaction monitoring has therefore become a regulatory requirement, to ensure the financial institutions’ compliance with AML, CFT and KYC rules. It also plays a role in supporting economic development. Technology is a powerful ally for governments, financial institutions and regulatory authorities wanting to effectively monitor financial transactions. Indeed, it greatly improves effectiveness by automating the handling of huge volumes of transactional data. Other advantages include improved risk management and identity verification, as well as real-time monitoring and reporting.

AI, Blockchain and Big Data analytics are three game-changing financial transaction monitoring technologies in the fight against financial crime. Several African countries, including Ghana, Rwanda, Zimbabwe and Uganda, have implemented Big Data analytics solutions to support them in verifying the transactions related to the telecommunications and digital financial services sectors.

Optimizing compliance and risk assessment through Big Data analytics

Financial transaction monitoring is crucial not only for financial institutions, but also for governments and regulatory agencies. Indeed, the latter require accurate and reliable data to oversee the digital financial services sector, which is vital to the African economy, and to make informed decisions.

The growth of digital financial services in Africa has led to an increase in the volume of transactional data. Leveraging data is one of the challenges regulatory authorities face to ensure the integrity of transactions and counter fraud. Big Data analytics enhances their transaction monitoring capacities. Indeed, it enables them to identify suspicious transactions and to assess, in real time, the risks associated with all transactions.

Global Voice Group (GVG) supports authorities in this task by implementing RegTech solutions that collect and analyze transactional data. The data is then turned into actionable information, thus promoting data-driven decision-making. In Rwanda, for instance, our Mobile Money (MM) data platform enables the Rwanda Utilities Regulatory Authority (RURA) to continuously monitor MM services and to ensure their good governance. The National Bank, the BNR, also relies on this platform to support its AML processes.

Enhancing detection accuracy through artificial intelligence and machine learning

AI and ML tools rely on algorithms to analyze vast volumes of transactional data quickly and accurately. As a result, they facilitate the real-time detection and reporting of suspicious transactions. AI also helps financial institutions take financial crime prevention measures by enabling them to make predictions about potential suspicious activity. AI’s detection and reporting abilities mean that it can intervene at various stages of the AML compliance process.

Furthermore, AI and ML can also support financial institutions when it comes to complying with financial crime regulations. Indeed, the latter need to adapt to the evolution and diversification of financial crime methods. This can place a greater regulatory burden on said institutions, as well as increase compliance costs and lead to human errors.

AI and ML are of particular interest to African telecom operators, for instance, when it comes to preventing fraud and money laundering. The operators’ activities are indeed very vulnerable to these threats, due to the large sums and the high number of customers they deal with. AI and ML can help not only ensure that the operators are not committing any crime, but also protect the customers against fraud.

Ensuring secure and transparent transactions with Blockchain

Blockchain has attracted much positive attention in the transaction monitoring context, due to its ability to ensure the security and transparency of the transactions. Merkle Science states that, by definition, Blockchain “lends itself to integrated decentralized monitoring of financial transactions”. In addition to security and transparency, the characteristics that make it so good at identifying and blocking suspicious transactions are its decentralization and immutability. As a matter of fact, the financial sector, and more specifically crypto-assets, is where the use of Blockchain is concentrated, according to an OECD report focusing on the Sub-Saharan region of Africa.

In terms of money laundering specifically, Blockchain’s main advantage is its ability to ensure data integrity. Indeed, no customer data can go on a Blockchain unless it has been confirmed as correct across the whole network. This therefore offers solid protection against the insertion of false information and the illegitimate modification of verified data.

Reinforcing the benefits of financial transaction monitoring technologies in Africa

The growth of digital financial services and the parallel increase in financial crime in Africa highlighted the need for effective monitoring. Financial transaction monitoring technologies like AI and ML, Blockchain and Big Data analytics have proved effective in keeping financial crime at bay, by optimizing compliance, enhancing both prevention and detection and ensuring the transparency and security of transactions.

However, there is scope to expand their use and spread their benefits in Africa. The challenges financial institutions and regulatory authorities currently face when it comes to the adoption of these technologies include integration with legacy systems, a lack of skills and a regulatory gap when it comes to data protection. Therefore, capacity building, as well as regulatory strengthening and harmonizing, would help reinforce the presence of monitoring technologies on the continent and ensure the integrity and security of financial transactions.

Would you like to read more about Mobile Money oversight in Africa? Click here.