Payment fraud is evolving fast - some forecasts estimate global losses could reach $400 billion within the next decade. As financial crime becomes more sophisticated, so too must the systems we use to detect and prevent it.
For business leaders, staying ahead means having a clear, practical understanding of your compliance obligations. At the heart of any robust anti-financial crime framework is transaction monitoring - the process of reviewing financial activity in real time to flag suspicious behaviour before it causes harm.
Whether you're issuing cards, managing accounts, or handling online payments, if your business moves money, you need to monitor those flows for signs of fraud or money laundering. But what does effective monitoring look like in practice - and how can you implement it without adding friction to the user experience?
In this guide, we’ll break down the fundamentals of transaction monitoring: what it is, why it matters, how it works, and how to do it well. We’ll also explore the common challenges businesses face - and how Edenred Payment Solutions helps companies stay compliant without compromising speed, scale, or customer trust.
What is transaction monitoring?
Transaction monitoring is a legal obligation for any firm regulated under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs). But more than that, it’s a critical line of defence in protecting your business from financial crime.
At its core, transaction monitoring involves the ongoing review of customer activity - to identify transactions that look unusual, inconsistent, or potentially suspicious. The goal is clear: spot risk early, before it causes harm.
Key regulatory requirements include:
- Ongoing monitoring of business relationships to identify anomalies
- A risk-based approach - not all customers or transactions require the same level of scrutiny
- Detection of nefarious activity that may signal:
- Transactions inconsistent with a customer’s known profile
- Structuring or “smurfing” (splitting payments to avoid detection thresholds)
- Rapid movement of funds with no clear economic purpose
Failing to comply with monitoring obligations can result in severe consequences, including regulatory fines, criminal penalties, and even the loss of FCA authorisation.
But compliance is just one side of the coin. Transaction monitoring is also a powerful tool in your broader fraud and risk strategy.
What does transaction monitoring detect?
Whether in real time or through periodic review, monitoring can help detect:
- Money laundering
- Terrorist financing
- Fraudulent activity
- Sanctions breaches
- Unusual behavioural changes
Suspicious activity isn’t always obvious. It could be a high-value international transfer to a flagged jurisdiction - or something subtler, like an inactive account suddenly receiving multiple small deposits, just under a reportable threshold.
Effective monitoring systems are dynamic, adjusting to new threats, evolving risk profiles, and shifting regulatory expectations. They don’t just spot patterns, they learn from them. Done well, transaction monitoring doesn’t just support compliance - it helps protect your customers, your platform, and your long-term credibility.
Why transaction monitoring matters
You’re not just ticking boxes for the regulator. Sure, for regulated businesses it’s a requirement, but transaction monitoring also provides benefits for your business too; it protects you, your customers, and your reputation.
Failing to detect suspicious activity can lead to:
- Hefty fines or enforcement action by the Financial Conduct Authority (FCA).
- Operational risk, including fraud losses or chargebacks.
- Reputational damage, especially if customers lose trust.
- Loss of banking or payments infrastructure, if partners see you as high-risk.
But when done right, monitoring can also unlock operational benefits. It helps streamline onboarding, reduce false positives, improve the customer experience, and give businesses the confidence that compliance is watertight.
Understanding your compliance obligations
If you’re operating in the UK as a regulated firm - whether under the FCA, HMRC, or the Prudential Regulation Authority - transaction monitoring is a requirement, not a nice-to-have.
Under the Money Laundering Regulations, businesses must implement ongoing monitoring of business relationships, including:
- Scrutiny of transactions to ensure they’re consistent with the customer’s known profile.
- Identification of complex or unusually large transactions.
- Examination of transactions with no apparent economic or lawful purpose.
But even if you're not formally regulated - for instance, a platform embedding financial services via a partner - you may still need to meet transaction monitoring requirements as part of your agreement with that provider.
How transaction monitoring works
The way a business sets up its monitoring depends on size, risk profile, and the types of transactions it handles. But most systems include:
1. Data collection
Every transaction leaves a footprint: amount, currency, timestamp, IP address, device info, merchant code, and more. This data is ingested in real time.
2. Rules-based logic
Basic monitoring uses if/then logic to flag transactions. For example:
- If a transaction exceeds £5,000 and originates from a high-risk country → flag.
- If a card is used in two countries within 10 minutes → flag.
These logics are useful, but alone, they generate a high number of false positives. Sophisticated transaction monitoring tools - like those offered by Edenred Payment Solutions - will have optimal rules-based logic set up as standard.
3. Machine learning models
Advanced transaction monitoring platforms layer in AI. They learn from past data to spot patterns humans might miss - like subtle behaviour shifts that could indicate account takeover.
4. Alerts and investigations
When something suspicious is flagged, the system creates an alert. Analysts or automated processes review it, decide if it's suspicious, and escalate accordingly.
5. Reporting and escalation
If a transaction is confirmed as suspicious, a Suspicious Activity Report (SAR) must be filed with the National Crime Agency.
Best practices for effective transaction monitoring
Getting it right is about more than ticking regulatory boxes. It’s about designing a system that works for your business and keeps up with threats. Here’s what strong monitoring looks like:
Adopt a risk-based approach
Tailor your monitoring intensity based on customer and product risk. A freelance graphic designer shouldn’t be monitored the same way as a high-volume crypto exchange. Not all customers carry the same level of risk. A first-time international user sending £9,000 abroad should trigger more scrutiny than a long-standing domestic client paying £30.
Combine rules and models
Rules are great for clear-cut risks. Machine learning is better at spotting evolving threats. Together, they’re much more effective.
Don’t set and forget
Rules that once made sense can quickly become outdated. Review thresholds, models, and false positives regularly to maintain performance.
Train your team
Monitoring systems are only as good as the people reviewing alerts. Make sure your analysts understand the context, the risks, and when to escalate.
Make compliance invisible to good users
Friction kills customer experience. The best monitoring systems operate quietly in the background and only surface when something’s truly wrong.
Common challenges in transaction monitoring
Even with the right intentions, many businesses struggle to build a robust system. Some of the most common hurdles include:
- Too many false positives: Poorly configured rules flag normal behaviour, overwhelming analysts.
- Lack of internal resources: Smaller teams can’t keep up with manual reviews.
- Legacy systems: Older infrastructure can’t support real-time detection or modern data analysis.
- Balancing speed and security: Overly strict rules slow down payments. Too loose, and you miss fraud.
This tension - between seamless user experience and rigorous oversight - is one of the hardest to resolve. But it’s not impossible.
How Edenred Payment Solutions supports transaction monitoring
With Edenred Payment Solutions, transaction monitoring isn’t bolted on - it’s built in.
As explored in our recent article Frictionless Payments vs. Fraud Prevention, we help businesses navigate the tension between safety and speed.
Our capabilities include:
- Real-time monitoring of account and card activity.
- Pre-configured rule sets aligned to FCA and AML guidance.
- Custom thresholds and alerts, tailored by client’s use case.
- Audit trails and case management, simplifying investigations.
- Integrated onboarding and KYC tools for end-to-end compliance.
Whether you’re launching a card product, embedding e-money accounts, or scaling your platform, Edenred Payment Solutions helps you stay compliant without compromising your customer journey.
Contact us today
If you would like to learn more about payment technology and other related services, we want to hear from you. Learn more about how we can integrate financial services and take your product offering to the next level.
