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Risk Management in Remittances: Mitigating Fraud and Ensuring Compliance

From compliance to fraud prevention, Payment Service Providers must adopt robust risk management strategies to maintain compliance with international standards. Read this article to learn more.

3 mins read
21st February 2024
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Leatherback Content Team


Remittances play a vital role in the global economy, serving as a lifeline for billions of people worldwide.

The remittance industry is essential in facilitating international payments, enabling individuals to send money to loved ones, supporting businesses, and driving economic growth.

When you think about it, remittance makes money for everyone who needs funds to get their daily activities done.

However, amidst the opportunities presented by remittance, there is a subtle threat of fraud and regulatory non-compliance.

Payment service providers [PSPs] play a crucial role in ensuring the security and legality of remittance processes, requiring robust risk management strategies to mitigate potential threats effectively.

This article discusses how Payment Service Providers [PSPs] can implement risk management strategies and mitigate fraud.

What is risk management?

Risk management involves identifying, assessing, and mitigating potential risks of transferring funds across different countries.

It includes implementing strategies to minimise the likelihood of adverse events and their impact on payment service providers [PSPs] and customers.

From compliance and regulatory requirements to fraud prevention and cybersecurity, PSPs must adopt robust risk management strategies to maintain trust, reliability, and compliance with international standards.

What are the potential risks faced by PSPs?

Before discussing the risk management strategies, understanding the potential threats PSPs face is crucial. Highlighted below are some potential threats;

  • Non-compliance with anti-money laundering (AML), know-your-customer (KYC), and other financial regulations poses a significant threat to PSPs.

  • PSPs are susceptible to various forms of fraud, including identity theft, payment card fraud, phishing scams, and unauthorised transactions, which lead to financial losses and reputational damage.

  • PSPs are prime targets for cyberattacks. Data breaches, malware infections, ransomware attacks, and hacking incidents can compromise sensitive customer information.

  • Disruptions in operational processes, such as system failures, software glitches, or service outages, can impair the ability of PSPs to deliver timely and reliable payment services. 

  • Failure to adopt innovative technologies and maintain robust IT systems can hinder competitiveness and resilience.

  • Incidents of fraud, security breaches, or poor customer service can tarnish the reputation of PSPs, leading to customer attrition, negative publicity, and loss of business opportunities.

Also, PSPs are susceptible to macroeconomic trends, geopolitical tensions, and regulatory changes that may impact consumer spending behaviour, transaction volumes, and market dynamics.

How do we mitigate fraud and the potential risks mentioned above?

Mitigating fraud and managing risks are critical to operating as a payment service provider [PSP]. Below are the strategies PSPs can employ to reduce fraud and minimise potential risks effectively:

  • Utilise multi-factor authentication (MFA) and biometric authentication such as passwords, SMS codes, or fingerprint scans to verify the identity of users during transactions to significantly reduce the risk of unauthorised access to accounts.

  • Implement advanced real-time transaction monitoring systems capable of detecting unusual patterns or anomalies in transactional behaviour and promptly flagging potentially fraudulent activities.

  • Use machine learning algorithms to analyse vast amounts of transaction data, identify suspicious patterns, and adapt fraud prevention strategies accordingly.

  • Implement robust data encryption protocols to protect sensitive customer information from unauthorised access or data breaches.

  • Adhere to stringent know-your-customer (KYC) and anti-money laundering (AML) regulations to thoroughly verify customers' identities and comprehensively monitor transactions for suspicious activities.

  • Educate and encourage customers to regularly monitor their accounts for unauthorised transactions and provide guidance on recognizing and reporting suspicious activities

  • Collaborate with law enforcement agencies and regulatory authorities to share information and best practices for combating fraud.

Fraud prevention and risk management is an ongoing process that requires constant monitoring and adaptation to evolving threats.

It is important for payment service providers [PSPs] to regularly review fraud prevention and compliance strategies, technologies, and processes to stay ahead of fraudsters and manage risks effectively.

How do we ensure compliance while managing risks?

Compliance with regulatory requirements is non-negotiable for PSPs operating in the remittance industry. Here are several strategies PSPs can employ to achieve this:

  • Keep up with relevant laws, regulations, and industry standards governing the financial services sector, including  anti-money laundering [AML], know-your-customer [KYC], data protection, and payment processing regulations. 

  • Establish comprehensive policies and procedures that outline the PSP's commitment to compliance with regulatory requirements.

  • Implement robust compliance frameworks encompassing due diligence procedures, transaction monitoring, and reporting mechanisms.

  • Cultivate a culture of compliance throughout the organisation by promoting ethical behaviour, integrity, and a commitment to regulatory compliance at all levels. 

By integrating these strategies into operations, payment service providers can effectively ensure compliance while managing risks, safeguarding their reputation, protecting customers, and maintaining regulatory compliance.


From stringent compliance measures to innovative fraud prevention techniques, PSPs must navigate risks to uphold trust, reliability, and adherence to international standards.

To mitigate risks and ensure compliance, PSPs must adopt a multi-faceted approach that encompasses advanced authentication measures, real-time transaction monitoring, data encryption protocols, and adherence to regulatory requirements. 

One way payment service providers can attain compliance is to partner with Leatherback - a cross-border payment institution offering PSPs access to easy collection and global payouts.

Begin your journey with Leatherback by sending an email to sales@leatherback.co.

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