The Lightning Network holds the potential to significantly increase transaction speed and volume for the bitcoin payments system. The network’s capacity passed 5,000 bitcoins in October after exceeding 4,000 in June. Network adoption is growing, though it remains relatively small compared with the payment giants. “In 2021, Visa handled more than $1 trillion in payment volume and close to 20 billion transactions per month,” according to Bitcoin Magazine, citing Arcane Research. “In comparison, we estimate that the Lightning Network handled about $20 million in payment volume and slightly over 800,000 transactions in February 2022.” What is the Lightning Network? The Lightning Network creates a payment channel that enables quick, inexpensive bitcoin transfers for two or multiple parties. Opening a Lightning channel first requires a bitcoin deposit locked into a joint account. The payer then transfers ownership of deposit portions to the recipient. Either party can close the channel or add to the account. When the channel closes, all transactions are combined and sent to the main bitcoin blockchain, which then settles and validates the account. That leads to far faster transactions and lower fees. The network can handle 1 million transactions per second, compared with seven per second in the bitcoin blockchain. Lightning Network transactions are instant, while those through the bitcoin blockchain can take more than an hour to settle if the network is crowded. In June 2022, the average bitcoin transaction fee was $0.73, but reached as high as $34. Transactions through Lightning are less than a penny. Lightning, KYC and regulations Sending money through the network can be particularly ideal when the parties trust each other and perform multiple transactions in a Lightning channel. For example, a family member sending remittances back home can pay low fees and avoid other third parties. In other instances, security concerns can arise. If one party goes offline, for example, the other party can take the money in the account through an offline transaction scam. A Lightning channel could run thousands of transactions with only the opening and closing requiring the bitcoin blockchain. While that creates more private transactions, it also limits audits that could identify money laundering and other financial crimes. In general, financial regulators expect payment systems to have licenses and follow Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. For example, the U.S. Financial Crimes Enforcement Network considers any service that transmits “currency, funds, or other value that substitutes for currency to another location or person by any means” a money transmission service that falls under regulations. Lightning transfers value, so regulatory obligations could apply to organizations that use the network. Understanding how payments and crypto companies are regulated and deploying best practices can help prevent regulatory scrutiny. Payments innovation and opportunity Coinbase, in considering the Lightning Network’s future, suggests “the potential to turn crypto’s most valuable asset into a true medium of exchange has the power to bring greater financial inclusion to anyone with a smartphone.” Lightning holds promise for instant payments, microtransactions and ultra-low fees. It’s a prime example of how digital payments present innovative opportunities for organizations. Compliance and fraud teams are never done with Customer Due Diligence. Customer behavior changes and risk profiles evolve as new threats and regulations emerge. Ongoing Customer Due Diligence (OCDD) procedures are compliance obligations to monitor accounts and the risks they pose for money laundering and other financial crimes. Taking a perpetual approach to Know Your Customer (KYC) involves systematically reviewing accounts, transactions and risks. It’s not a check-the-box exercise, but rather an ongoing approach that embraces holistic data and deep analysis to protect the organization and re-engage customers. Understanding account status, even in real time, is a powerful organizational tool. Insight into emerging risks can trigger immediate reviews and actions to prevent deeper problems. Ongoing customer relationship monitoring Certain regions often require regulated entities perform ongoing monitoring. That due diligence, according to the Federal Financial Institutions Examination Council, is crucial. “Performing an appropriate level of ongoing due diligence that is commensurate with the customer’s risk profile is especially critical in understanding the customer’s transactions in order to assist the bank in determining when transactions are potentially suspicious,” according the council. Ongoing due diligence requires tracking various activities and data sources, such as risk thresholds, suspicious activity, status changes, changes to account information, watchlists, market trends and trade data. Systems that identify substantial spikes or deviations in activity can trigger alerts for staff investigations. It’s one thing to identify a threshold for investigation, but it’s quite another to detect a pattern that sophisticated fraudsters use to stay off the radar. More dynamic risk-scoring can monitor numerous account variables. Machine learning and fraud analytics that monitor large transaction volumes can help organizations uncover patterns that point to questionable activities. Evaluating risks and taking preventive actions Detecting patterns isn’t the same as taking action. Those countermeasures are often the deciding factor in compliance determinations. For example, the FinCEN Files reported in 2020 that many global banks had evidence of money laundering yet continued to transact with those accounts. They filed suspicious activity reports but didn’t take further action. The Financial Action Task Force, in its Risk-Based Approach Guidance for the Banking Sector, states senior management should, “Promote compliance as a core value of the bank by sending a clear message that the bank will not enter into, or maintain, business relationships that are associated with excessive money laundering/terrorist financing risks which cannot be mitigated effectively.” The resulting publicity didn’t reflect well on the offending banks or on regulators. Since the release of the FinCEN Files, there have been billions of dollars in fines. The U.S. now has new AML laws, and further regulations and more demanding requirements are gathering momentum. In that context, creating systematic procedures to follow through on any red flags is crucial for OCDD. If, for instance, an account needs extra checks through KYC remediation and the risk profile has fundamentally changed, Enhanced Due Diligence, or even account termination, might be required. The key is to have set processes that speed up responses to various scenarios. It’s vital to consider the customer experience during OCDD actions. There are numerous valid reasons for account changes, and monitoring tools can create false positives. Fortunately, many checks don’t need client interaction. In any case, due diligence offers a way to understand the customer that much better. Perpetual KYC as a core value For forward-looking organizations, compliance is a competitive advantage. Effective ongoing due diligence reduces risk and increases knowledge of customers. Establishing procedures that promote constant vigilance and respect for regulatory obligations helps create a transparent organization with good governance. The implementation of perpetual KYC frees the organization from constantly checking batches of accounts to meet minimum standards. Account data is updated at an appropriate schedule to ensure accuracy. The updates are based on risk considerations, so the information better reflects the overall risk situation. Perpetual KYC enables efficiencies in operations because work is spread out over time and most checks are automated. Checks that raise flags for further analysis produce less burden on staff members because the work doesn’t come in all at once. It also improves the customer experience because reviews focus on specific information rather than the entire account. Companies that embrace the tenets of OCDD demonstrate the values that entice customers and investors and earn the respect of regulators. The tools, frameworks and strategies that drive OCDD are the same that create a scalable, adaptable and robust organization. APIs are enabling agile and scalable services for banking, payments and other industries that require identity verification for Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance. AML and KYC compliance are legally required for certain organizations in most countries. When those organizations verify their customers, APIs can offer a quicker, easier and less costly path to compliance while meeting expectations for speed, security and privacy. There are more than 2,000 financial services APIs and more on the way as advancements in big data, artificial intelligence, blockchain, machine learning and other areas accelerate. Improving regulatory compliance Technology and regulatory compliance are two key drivers in the growth of open APIs. Compliance costs can be a burden. Celent estimated the financial industry worldwide would spend $37.1 billion on IT and operations for AML and KYC compliance in 2021, a 13.4% increase over 2020. APIs can help financial institutions control increasing compliance costs and satisfy requirements while securing a competitive edge. Using APIs for identity verification and AML and KYC compliance There are numerous reasons to use an API for onboarding identity verification: Provides a cost-effective solution Speeds implementation by connecting to the existing infrastructure Integrates easily with other applications Reduces clerical errors Improves staff members’ efficiency by allowing them to focus on problem cases Improves staff morale by reducing manual paperwork Delivers strong reporting and information flow Eases the burden of record-keeping because the process is digitized Aligns procedures across units, divisions and operating companies Enables quicker entry into new markets Provides a smooth, speedy customer onboarding experience and decreases churn Deploying an identity verification API A normalized API for compliance can enable financial institutions to grow faster, smoother and more efficiently. One API integration can connect a financial institution’s system to multiple identity data sources and services such as identity verification, ID document verification, global watchlists and business verification. Country-agnostic APIs can provide access to hundreds of vetted data sources and enable verification of billions of people and millions of businesses worldwide. Built for scalability and flexibility, the normalized API can meet future needs for functionality and expansion, covering additional countries and accessing new data sources. The API’s built-in intelligence can reduce the number of fields people must fill out during verification, reducing onboarding friction. Onboarding customers faster and easier with speedy identity verification, robust API documentation, trusted and vetted data sources, normalized data fields and easy integration can help financial institutions achieve AML and KYC compliance without sacrificing the customer experience. Learn more about integrating a normalized API. This post was originally published on Feb. 1, 2017, and updated to reflect the latest industry news, trends and insights. Posts navigation Previous 1 … 7 8 9 … 158 Next
The Lightning Network holds the potential to significantly increase transaction speed and volume for the bitcoin payments system. The network’s capacity passed 5,000 bitcoins in October after exceeding 4,000 in June. Network adoption is growing, though it remains relatively small compared with the payment giants. “In 2021, Visa handled more than $1 trillion in payment volume and close to 20 billion transactions per month,” according to Bitcoin Magazine, citing Arcane Research. “In comparison, we estimate that the Lightning Network handled about $20 million in payment volume and slightly over 800,000 transactions in February 2022.” What is the Lightning Network? The Lightning Network creates a payment channel that enables quick, inexpensive bitcoin transfers for two or multiple parties. Opening a Lightning channel first requires a bitcoin deposit locked into a joint account. The payer then transfers ownership of deposit portions to the recipient. Either party can close the channel or add to the account. When the channel closes, all transactions are combined and sent to the main bitcoin blockchain, which then settles and validates the account. That leads to far faster transactions and lower fees. The network can handle 1 million transactions per second, compared with seven per second in the bitcoin blockchain. Lightning Network transactions are instant, while those through the bitcoin blockchain can take more than an hour to settle if the network is crowded. In June 2022, the average bitcoin transaction fee was $0.73, but reached as high as $34. Transactions through Lightning are less than a penny. Lightning, KYC and regulations Sending money through the network can be particularly ideal when the parties trust each other and perform multiple transactions in a Lightning channel. For example, a family member sending remittances back home can pay low fees and avoid other third parties. In other instances, security concerns can arise. If one party goes offline, for example, the other party can take the money in the account through an offline transaction scam. A Lightning channel could run thousands of transactions with only the opening and closing requiring the bitcoin blockchain. While that creates more private transactions, it also limits audits that could identify money laundering and other financial crimes. In general, financial regulators expect payment systems to have licenses and follow Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. For example, the U.S. Financial Crimes Enforcement Network considers any service that transmits “currency, funds, or other value that substitutes for currency to another location or person by any means” a money transmission service that falls under regulations. Lightning transfers value, so regulatory obligations could apply to organizations that use the network. Understanding how payments and crypto companies are regulated and deploying best practices can help prevent regulatory scrutiny. Payments innovation and opportunity Coinbase, in considering the Lightning Network’s future, suggests “the potential to turn crypto’s most valuable asset into a true medium of exchange has the power to bring greater financial inclusion to anyone with a smartphone.” Lightning holds promise for instant payments, microtransactions and ultra-low fees. It’s a prime example of how digital payments present innovative opportunities for organizations.
Compliance and fraud teams are never done with Customer Due Diligence. Customer behavior changes and risk profiles evolve as new threats and regulations emerge. Ongoing Customer Due Diligence (OCDD) procedures are compliance obligations to monitor accounts and the risks they pose for money laundering and other financial crimes. Taking a perpetual approach to Know Your Customer (KYC) involves systematically reviewing accounts, transactions and risks. It’s not a check-the-box exercise, but rather an ongoing approach that embraces holistic data and deep analysis to protect the organization and re-engage customers. Understanding account status, even in real time, is a powerful organizational tool. Insight into emerging risks can trigger immediate reviews and actions to prevent deeper problems. Ongoing customer relationship monitoring Certain regions often require regulated entities perform ongoing monitoring. That due diligence, according to the Federal Financial Institutions Examination Council, is crucial. “Performing an appropriate level of ongoing due diligence that is commensurate with the customer’s risk profile is especially critical in understanding the customer’s transactions in order to assist the bank in determining when transactions are potentially suspicious,” according the council. Ongoing due diligence requires tracking various activities and data sources, such as risk thresholds, suspicious activity, status changes, changes to account information, watchlists, market trends and trade data. Systems that identify substantial spikes or deviations in activity can trigger alerts for staff investigations. It’s one thing to identify a threshold for investigation, but it’s quite another to detect a pattern that sophisticated fraudsters use to stay off the radar. More dynamic risk-scoring can monitor numerous account variables. Machine learning and fraud analytics that monitor large transaction volumes can help organizations uncover patterns that point to questionable activities. Evaluating risks and taking preventive actions Detecting patterns isn’t the same as taking action. Those countermeasures are often the deciding factor in compliance determinations. For example, the FinCEN Files reported in 2020 that many global banks had evidence of money laundering yet continued to transact with those accounts. They filed suspicious activity reports but didn’t take further action. The Financial Action Task Force, in its Risk-Based Approach Guidance for the Banking Sector, states senior management should, “Promote compliance as a core value of the bank by sending a clear message that the bank will not enter into, or maintain, business relationships that are associated with excessive money laundering/terrorist financing risks which cannot be mitigated effectively.” The resulting publicity didn’t reflect well on the offending banks or on regulators. Since the release of the FinCEN Files, there have been billions of dollars in fines. The U.S. now has new AML laws, and further regulations and more demanding requirements are gathering momentum. In that context, creating systematic procedures to follow through on any red flags is crucial for OCDD. If, for instance, an account needs extra checks through KYC remediation and the risk profile has fundamentally changed, Enhanced Due Diligence, or even account termination, might be required. The key is to have set processes that speed up responses to various scenarios. It’s vital to consider the customer experience during OCDD actions. There are numerous valid reasons for account changes, and monitoring tools can create false positives. Fortunately, many checks don’t need client interaction. In any case, due diligence offers a way to understand the customer that much better. Perpetual KYC as a core value For forward-looking organizations, compliance is a competitive advantage. Effective ongoing due diligence reduces risk and increases knowledge of customers. Establishing procedures that promote constant vigilance and respect for regulatory obligations helps create a transparent organization with good governance. The implementation of perpetual KYC frees the organization from constantly checking batches of accounts to meet minimum standards. Account data is updated at an appropriate schedule to ensure accuracy. The updates are based on risk considerations, so the information better reflects the overall risk situation. Perpetual KYC enables efficiencies in operations because work is spread out over time and most checks are automated. Checks that raise flags for further analysis produce less burden on staff members because the work doesn’t come in all at once. It also improves the customer experience because reviews focus on specific information rather than the entire account. Companies that embrace the tenets of OCDD demonstrate the values that entice customers and investors and earn the respect of regulators. The tools, frameworks and strategies that drive OCDD are the same that create a scalable, adaptable and robust organization.
APIs are enabling agile and scalable services for banking, payments and other industries that require identity verification for Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance. AML and KYC compliance are legally required for certain organizations in most countries. When those organizations verify their customers, APIs can offer a quicker, easier and less costly path to compliance while meeting expectations for speed, security and privacy. There are more than 2,000 financial services APIs and more on the way as advancements in big data, artificial intelligence, blockchain, machine learning and other areas accelerate. Improving regulatory compliance Technology and regulatory compliance are two key drivers in the growth of open APIs. Compliance costs can be a burden. Celent estimated the financial industry worldwide would spend $37.1 billion on IT and operations for AML and KYC compliance in 2021, a 13.4% increase over 2020. APIs can help financial institutions control increasing compliance costs and satisfy requirements while securing a competitive edge. Using APIs for identity verification and AML and KYC compliance There are numerous reasons to use an API for onboarding identity verification: Provides a cost-effective solution Speeds implementation by connecting to the existing infrastructure Integrates easily with other applications Reduces clerical errors Improves staff members’ efficiency by allowing them to focus on problem cases Improves staff morale by reducing manual paperwork Delivers strong reporting and information flow Eases the burden of record-keeping because the process is digitized Aligns procedures across units, divisions and operating companies Enables quicker entry into new markets Provides a smooth, speedy customer onboarding experience and decreases churn Deploying an identity verification API A normalized API for compliance can enable financial institutions to grow faster, smoother and more efficiently. One API integration can connect a financial institution’s system to multiple identity data sources and services such as identity verification, ID document verification, global watchlists and business verification. Country-agnostic APIs can provide access to hundreds of vetted data sources and enable verification of billions of people and millions of businesses worldwide. Built for scalability and flexibility, the normalized API can meet future needs for functionality and expansion, covering additional countries and accessing new data sources. The API’s built-in intelligence can reduce the number of fields people must fill out during verification, reducing onboarding friction. Onboarding customers faster and easier with speedy identity verification, robust API documentation, trusted and vetted data sources, normalized data fields and easy integration can help financial institutions achieve AML and KYC compliance without sacrificing the customer experience. Learn more about integrating a normalized API. This post was originally published on Feb. 1, 2017, and updated to reflect the latest industry news, trends and insights.