How Outsourcing KYC & AML Saves PayFacs Time and Money

Discover how outsourcing KYC & AML compliance can help PayFacs mitigate risk and reduce costs. Financial crimes like money laundering, fraud, and cybercrime are on the rise, and businesses in the financial sector—particularly Payment Facilitators (PayFacs) —are under increasing pressure to protect themselves. To stay ahead, they need systems that can swiftly detect and prevent illicit activities, all while ensuring they meet ever-changing regulations.

The stakes are high. Failing to comply with Anti-Money Laundering (AML) requirements isn't just about fines; it can damage the very trust that underpins financial systems. For PayFacs, this makes investing in robust, future-proof compliance strategies crucial. Choosing the right path isn’t just smart; it’s essential for avoiding financial penalties, reputational harm, and even legal risks.

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Key Takeaways

Outsourcing KYC and AML compliance offers PayFacs a smarter, more scalable way to manage risk and stay compliant in a high-pressure regulatory landscape.

• Outsourced KYC allows PayFacs to reduce onboarding time, improve accuracy, and cut compliance costs by up to 30%.
• AML outsourcing gives PayFacs access to advanced fraud detection tools, boosting risk prevention and ensuring faster reporting.
• With growing complexity in global regulations, outsourcing ensures PayFacs stay compliant without overburdening internal teams.
• A strategic approach to outsourced KYC and AML helps PayFacs scale efficiently while protecting revenue and customer trust.

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Compliance Challenges for PayFacs

Compliance is a constant challenge for PayFacs  – those key players connecting merchants and financial institutions. Here’s a closer look at what’s at stake:

• Regulatory Maze: The regulations are always changing, and staying on top of them is a never-ending task. PayFacs  need to be agile, continually adapting to new regulations to avoid slipping up.
• More Than Just Legalities: Compliance isn't only about avoiding penalties; it’s about building and maintaining trust. Without it, credibility in the financial ecosystem can easily erode, risking everything from reputation to operations.
• New Risks, New Challenges: The rise of financial technologies and increasingly sophisticated criminal tactics mean new risks are always on the horizon. Compliance efforts have never been more crucial in keeping the financial system safe from harm.
• Financial Stability: PayFacs don’t just follow the rules – they play a key role in protecting the financial system as a whole. Adhering to compliance measures helps safeguard the entire ecosystem from emerging threats.

In essence, compliance for PayFacs  is not just about regulatory adherence but about actively safeguarding the financial system and its participants from emerging threats.

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Understanding Regional Regulations

Regional regulations are a key driver of AML compliance strategies. Every jurisdiction has its own set of rules, and businesses must ensure their AML frameworks align with these requirements. Below is a breakdown of the major regulatory frameworks shaping AML practices in key regions.

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United States:

In the U.S., AML compliance is built on the foundation of the Bank Secrecy Act (BSA) and the USA Patriot Act. These laws impose stringent obligations on financial institutions, including:

• Advanced transaction monitoring to detect suspicious activity in real time.
• Enhanced Customer Due Diligence (CDD) and Know-Your-Customer (KYC) measures to provide a clearer view of client risk.
• Mandatory reporting of suspicious transactions through Suspicious Activity Reports (SARs), a cornerstone of U.S. AML enforcement.

Regulatory expectations are high, and failure to comply can lead to severe penalties, both financial and reputational. The U.S. remains one of the most aggressive enforcers of AML laws, making compliance a non-negotiable priority for financial institutions.

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European Union: 

The 6th Anti-Money Laundering Directive (6AMLD), in force from 2023, represents a significant evolution in the EU’s approach to tackling financial crime. This directive raises the bar for financial institutions, tightening compliance requirements and broadening the definition of financial offences. Key developments include:

• Greater liability for businesses – Companies can now be held directly accountable for AML violations, making compliance a top priority.
• An expanded list of offences – Cybercrime, environmental crimes, and other sophisticated illicit activities now fall under AML scrutiny.
• Stronger cross-border cooperation – EU member states will work more closely to streamline investigations and close regulatory gaps.

This directive signals a more aggressive and coordinated EU stance on financial crime. Businesses operating within the bloc must adapt swiftly, ensuring they meet heightened expectations and stay ahead of regulatory risks.

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Asia: 

In Asia, countries like Singapore and Hong Kong have set the bar high for AML compliance, with robust regulatory frameworks enforced by respective authorities.

• Singapore’s Monetary Authority (MAS) maintains stringent controls, penalizing non-compliant entities. In 2023, DBS Bank was fined $2.6 million for AML lapses, a clear reminder of the cost of neglecting compliance.
• Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) requires financial institutions to implement risk-based, comprehensive AML strategies that can detect and prevent illicit activities effectively.

These jurisdictions are not only tightening regulations but also innovating in the way they approach financial crime, making it imperative for businesses to maintain proactive, agile compliance systems.

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Australia: 

AUSTRAC (the Australian Transaction Reports and Analysis Centre) is the driving force behind AML compliance in Australia. The agency has stepped up its enforcement efforts in recent years, imposing hefty penalties on those failing to meet their obligations.

Key requirements for businesses include:

• Mandatory reporting of large cash transactions (above AUD 10,000) and any suspicious activity.
• Strict customer identification and verification to ensure institutions have a clear understanding of who they are dealing with.
• Ongoing monitoring of high-risk individuals and transactions, particularly politically exposed persons (PEPs) and complex financial activities.

AUSTRAC’s willingness to take action is evident. In 2023, Crown Resorts was fined AUD $450 million for serious AML failings is a stark reminder that compliance isn’t optional—it’s essential.

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The Risks of Non-Compliance:

Failing to comply with AML regulations isn’t just a costly mistake—it’s a serious risk that can have lasting consequences. The impact goes far beyond financial penalties:

• Hefty Fines – In 2023, Binance, one of the world’s largest cryptocurrency exchanges, was hit with a staggering $4.3 billion fine by U.S. authorities for AML breaches. It’s a stark warning: regulators are cracking down harder than ever.
• Reputational Damage – AML failures don’t just affect the bottom line; they undermine trust. Once confidence is lost, rebuilding a brand’s credibility is an uphill battle.
• Criminal Liability – In severe cases, executives and key stakeholders can face legal action, including potential prison sentences. The fallout can be catastrophic for both individuals and institutions.

AML compliance isn’t just another box to tick—it’s a fundamental necessity. As regulations continue to evolve, financial institutions must stay ahead of the curve. A proactive, robust approach to compliance isn’t just good practice; it’s essential for safeguarding operations, reputation, and leadership.

Benefits of Outsourcing KYC & AML Compliance

Regulatory obligations are becoming increasingly complex, and businesses face mounting pressure to maintain compliance while operating efficiently. Partnering with trusted third-party providers enables organisations to streamline processes, reduce risk, and reallocate internal resources towards strategic initiatives like scaling and customer acquisition.

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1. Cost Efficiency and Operational Gains

The financial and operational advantages of outsourcing AML compliance are significant:

• Cost Savings: A 2023 Deloitte study found that organisations leveraging external compliance solutions saved up to 30% on costs by reducing the need for large in-house compliance teams.
• Enhanced Efficiency: Specialist vendors provide cutting-edge technologies that reduce overheads while improving accuracy and speed. PayFacs can achieve greater compliance precision with fewer internal resources.

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2. Faster Merchant Onboarding

In a competitive payments industry, the ability to onboard merchants swiftly is a key advantage:

• Traditional Bottlenecks: Manual KYC and AML processes are slow and prone to errors, often causing delays.
• AI-Driven Automation: Outsourcing to AI-driven providers such as MVSI’s Onboard enhances both speed and accuracy. McKinsey’s 2023 report highlights that automation in compliance can reduce onboarding times by up to 60%, allowing businesses to accelerate market entry and gain a competitive edge.

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3. Enhanced Fraud Detection and Compliance Monitoring

Outsourcing AML functions strengthens fraud detection capabilities, providing businesses with a more robust defence against financial crime:

• Advanced Technology: Third-party providers use machine learning and real-time global data to identify suspicious activity with greater speed and accuracy.
• Improved Fraud Prevention: A 2023 PwC report revealed that financial institutions using outsourced fraud detection solutions saw a 45% improvement in identifying fraudulent activities.
• Automated Compliance: AI-powered tools simplify the generation and submission of Suspicious Activity Reports (SARs), ensuring timely compliance while reducing administrative workload.

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Managing Risks and Long-Term Strategy

Choosing the right AML framework is more than just a compliance requirement—it’s a strategic investment in the future security of your organisation. A strong AML strategy needs to be adaptable, resilient, and capable of keeping pace with an ever-evolving financial system.

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Keeping Ahead of Emerging Fraud Risks

Financial crime never stands still, and businesses must be prepared to adapt. The rise of cryptocurrencies and decentralised finance (DeFi) has created new challenges for AML compliance, pushing beyond the limits of traditional frameworks.

Chainalysis reported that cryptocurrency-related money laundering hit $23.8 billion in 2022, underscoring the scale of the threat. To stay ahead, businesses must embrace modern AML tools that leverage blockchain analytics, enabling them to detect suspicious activity across both conventional and digital financial channels.

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Understanding the Compliance Risks of Different PayFac Models

The PayFac model a business adopts directly influences its exposure to AML risks:

• Direct PayFac Model – Provides greater control but also places full compliance responsibility on the business.
• Aggregator Model – Shifts some compliance obligations to third-party processors, but introduces additional risks that require careful oversight.

Aligning your PayFac model with your organisation’s risk tolerance and compliance strategy is essential for maintaining a sustainable and effective approach.

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Scaling AML Solutions for Growth

As PayFacs expand, scalability becomes a critical factor. Traditional systems often struggle to keep up, relying on manual processes that slow operations and create inefficiencies as transaction volumes grow.

Modern PayFac solutions, built on cloud computing and AI, offer a seamless way to manage high transaction volumes without sacrificing compliance or performance. These technologies enable businesses to remain flexible, efficient, and prepared for future challenges.

Financial crime and compliance requirements will continue to evolve, and businesses must ensure their AML strategies do the same. Whether operating as a Direct PayFac or using an Aggregator model, the ability to scale and adapt is crucial to staying competitive and secure.

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Conclusion

Choosing the right AML solution is a strategic decision that goes far beyond ticking regulatory boxes. For PayFacs, the right AML system is essential—not just for compliance, but for protecting your business, reducing fraud risks, improving efficiency, and setting the foundation for sustainable growth.

Financial crime is becoming more sophisticated, and regulatory demands are only getting tougher. That means your AML solution needs to do more than meet the bare minimum. It should strengthen your defences, build trust with customers and regulators, and give your business the agility to thrive.