AML Requirements for Payment Processors in 2024

Payment processors are vital in the global financial system, facilitating electronic payments between merchants and customers. Yet, amidst this rapid evolution, concerns about financial crimes like money laundering loom large. This is the primary reason why third-party payment processors, as pivotal intermediaries in financial transactions, are subject to stringent Anti-Money Laundering (AML) regulations globally.

Whether you’re a seasoned payment processor or a newcomer to the industry, understanding the AML Requirements for Payment Processors can be invaluable, empowering you to effectively implement measures to safeguard your business and foster trust among your customers.

What are AML Payment Processors?

An AML Payment processor is a third-party business that helps merchants and customers make electronic payments. They serve as a go-between for the merchant’s banks and the customers, guaranteeing that financial standards are followed and transactions are safe. The processor obtains the card information and checks it with the bank to ensure authorization. Money is wired to the merchant’s account once approval is received.

In contrast to merchant account providers, PayPal, Stripe, and Square each offer unique advantages in terms of convenience, infrastructure, and control. One of the most well-known and extensively utilized third-party payment processors is PayPal. It provides a way for people and companies to safely send and receive money online.

KYC Hub AML Solutions For The Payments Industry

The Significance of AML Compliance

Efficient AML compliance practices provide stability to daily operations, aligning with audit-friendly processes for regulatory adherence and business partnerships. Recent instances, such as BaFin’s actions against Unzer E-Com, underscore the necessity for stringent Anti-Money Laundering (AML) measures in this sector.

They mitigate losses, scale operations effectively, and align seamlessly with the burgeoning growth of the payment processing solutions industry.

The Role of a Payment Processor

Payment processors are conduits for securing and transmitting payment data between merchants and financial institutions. Upon receipt of credit or debit card information from a merchant’s payment gateway, processors meticulously authenticate the transaction’s authorization from the respective bank or card network. Once approved, the processor signals the customer’s institution to transfer funds to the merchant’s account.

Various payment services, such as payment gateways, are available, each with distinct regulations. To ensure compliance, understanding local regulations for payment services and having the right compliance procedures and licensing is imperative.

Country-Specific AML Payment Regulations

Understanding the nuances of country-specific AML regulations is essential for businesses operating across borders and for policymakers seeking to enhance their nation’s AML framework. Armed with this expertise, payment processing businesses would be many steps ahead of their competitors. Here are some relevant international regulations:

1: AML Requirements for Payment Processors in the United States (US)

The Federal Financial Institutions Examination Council (FFIEC) highlights the heightened risk of fraud and money laundering for third-party payment processors, emphasizing the need for effective merchant identity verification. While the Bank Secrecy Act (BSA) lacks direct AML requirements for processors, neglecting AML obligations can lead to banks’ reluctance to engage in business with these entities.

2: United Kingdom (UK)

Payment processors in the UK adhere to HM Revenue & Customs (HMRC) regulations, ensuring comprehensive customer verification procedures and ongoing monitoring.

3: European Union (EU)

In the European Union, payment services fall under AML directives and the Payment Services Directive, considering these entities as regulated institutions. Namely, the 6th AML Directive (6AMLD) and the Payment Services Directive 2 (PSD2) emphasize stronger customer authentication and categorizing distinct payment services as regulated institutions.

4: Canada

Payment processors in Canada are subject to PCMLTFA, necessitating robust AML measures and reporting obligations. After retracting exemptions for certain merchant servicing and payment processing providers, the Financial Transactions and Reports Analysis Center (FINTRAC) regulates third-party payment processors as money services businesses, mandating compliance with electronic fund-transferring obligations.

KYC and AML: Understanding the Pillars of Financial Compliance

AML Payment Processor Checklist

A payment processor serves as the intermediary between your business and your customers, facilitating secure and seamless transactions. To ensure you choose a third-party payment processor that aligns with your business needs and meets industry standards, a comprehensive checklist is essential. Before selecting a processor, ensure it offers:

  • Security: Robust encryption, fraud detection, and internal testing protocols.
  • AML Compliance: Despite varying regulations globally, responsible processors implement AML measures voluntarily.
  • Multiple Payment Options: Credit cards, digital wallets, bank transfers, and alternative methods.
  • Integration and Mobile-Friendliness: Seamless integration, mobile app SDKs, and developer support.
  • Transparent Pricing: Clear fee schedules.
  • Global Reach: Support for multiple currencies and international payments.
  • Customer Support: Responsive assistance for transaction-related queries.
  • Reporting and Analytics: Detailed transaction reports and real-time data for insights.

Harmonising Compliance and Efficiency

Facilitating secure and convenient transactions for businesses and consumers worldwide, the sheer scale of payment processors exposes them to complexities. Tackling these challenges becomes essential to surviving as a business, and having some understanding helps.

1: The Challenge

Pursuing optimal AML compliance often leads to implementing stringent verification processes and risk assessments, which can inevitably increase costs and processing times. This can inadvertently hinder operational efficiency, leading to customer frustration and declining transaction volume. The challenge lies in finding the right equilibrium between fulfilling AML obligations and maintaining a smooth and efficient payment experience.

2: Strategies for Achieving Balance

To achieve this balance, third-party payment processors can adopt a range of strategies, including:

3: Risk-Based Approach:

Implement a risk-based approach to AML compliance, tailoring verification measures to the perceived risk level of each transaction. This allows for a more nuanced approach, focusing on higher-risk transactions while minimizing friction for low-risk transactions.

4: Technology Adoption:

Leverage technology to automate and streamline AML compliance processes. Automated identity verification, sanctions screening, and transaction monitoring tools can significantly reduce manual effort and improve efficiency.

5: Continuous Monitoring and Improvement:

Continuously monitor and evaluate AML compliance procedures, identifying areas for improvement and adapting to evolving regulatory requirements. Regular audits and internal risk assessments are crucial for maintaining optimal compliance and efficiency. Empower your payment processor business with KYC Hub’s Continuous Monitoring and stay ahead of evolving AML risks with real-time screening, instant alerts, and dynamic risk assessments.

6: Collaboration with Regulators:

Establish open communication channels with regulators, seeking guidance and clarification on AML requirements. This collaboration can help ensure compliance measures align with regulatory expectations and do not unduly burden operational efficiency.

7: Customer Education:

Educate customers about AML compliance measures and the importance of their cooperation. Clear communication can reduce customer friction and foster trust in the payment process.


As the regulatory landscape evolves, payment processors proactively adopting AML measures demonstrate their commitment to ethical business practices and bolster their resilience against financial crimes. Embracing a balanced approach to AML compliance will protect the financial system and empower payment processors to thrive in an increasingly competitive and regulated environment.

With KYC Hub, third-party payment processors can be confident that they are meeting all of their AML obligations and protecting themselves from the risk of financial crime. Our highly customizable and global services provide a one-size-fits-all solution that can be tailored to the specific needs of any payment processor, regardless of its size or location.

KYC Hub’s services include identity verification, PEP screening, transaction monitoring, and sanctions screening.

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