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KYT: Why You Should Know Your Transaction?

13 Jan 2020 updated
11 min

Table of content

Komplettering och kontroll för finansiell brottslighet är kärnan i betydelse för finansiella företag. ~ 0,15% av transaktionerna är bedrägliga och vanliga KYC kanske inte tillräckligt för att spåra dem.

KYT as an innovative technology in banking compliance

Сompliance and control for financial crime are at the core of importance for financial companies. ~0,15% of transactions are fraudulent and regular KYC maybe not enough to track them.

Therefore, the benefits of having information at the transaction level, where that data is centralized and easily referenced, are manifold. Moving to a model where banks know more is key to industry leadership. Know your transaction (KYT) is that model.

With the advent of the ISO 20022 standard and its MX messages, it has become possible to carry some remittance data in each interbank transaction.

But if a corporation is making payments to another corporation, for example, there may be additional documents required. These may include bills of lading, tax withholding documents, regulatory documents, proof of identity, or even proof of residency.

Sometimes even more granular detail is necessary, such as who reviewed which document in what step of the process. The automated enrichment of messages with accurate and relevant information coming directly from original sources of the data, rather than manually, is the ideal scenario.

Effects on the company:

  • Automate and control the processing of both sent and received requests for information on payments.
  • Increase transparency of the purpose of transactions with controlled sharing of supporting documents and KYC information.
  • Enable auditability of payment processing and compliance checks with immutability and irrefutability supported by distributed ledger technology.

Current challenges:

  • Frustrating customer experience, which might lead to clients switching service providers. «Over detection» can happen, which could block the clients in their transactions and instantly affect their experience with an app, brand, etc.
  • Recurrent tasks are costly for companies and are actually not bringing any added value to the customer.
  • Regulators all over the world are getting more stringent when it comes to applying the latest laws on money laundering and data protection.

KYT Solution & Products

Transaction analysis is performed internally with the bank data for their audit/investigation purpose to find any fraudulent transaction over the network. These reports generated can be used as evidence/proof of transaction derived from the data model.

It can help the bank to make the system more secure by updating validation wherever required, reduce fraud, and meet compliance & regulatory requirements.

What technologies are used in KYT?

Machine Learning help to detect anomalies: either negative, like fraud, or positive like specific client needs.

Currently, banks are using rule-based systems to detect fraud consisting of «if» and «then» statements. These can block multiple cases, but a fraud, in its very definition, is constantly evolving. The KYT solutions can therefore be defined as semi-supervised, keeping the people in the loop and building on their expertise and judgment.

Based on NetGuardian’s research, KYT real-time monitoring dramatically cuts the number of false alerts – by up to 83%, and banks are better able to protect customer funds by spotting suspicious transactions before the money leaves the account. Banks can also detect new and emerging threats and spend 93% less time dealing with alerts.

Blockchain. Append-only database, allowing the storage of payment attributes and related documents:

  • Tokenization and indexation engine managing transaction documents and attributes
  • Auditing trail — digital stamp on events for internal auditors and regulators
  • Enabling integration with banks channels — web portals and mobile apps
  • Validating information to be sent when requesting restricted information
  • Payment screening system connector to automatically request and retrieve

Establishing security, accuracy, and transparency enhances bank governance and regulatory oversight. This allows the bank to focus on core business competencies and generate client satisfaction, while compliance and control for financial crime become a differentiating factor, rather than a costly burden.

Companies and products:

  • Telindus / DigitalKYC
  • EY e-KYT
  • NetGuardians’ fraud mitigation solution
  • Chainalysis KYT
  • Global Ledger

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