Financial institutions engage in the process of transferring funds, known as payouts, transfers or disbursements. 

These transactions entail facilitating business transactions, such as salary payments, procurement of goods from suppliers, or even betting companies settling payouts to winning punters.

Financial institutions commonly encounter financial losses during these payout processes.

At Fincra, we follow strong guidelines to mitigate such losses effectively. This article outlines three crucial steps to safeguard against financial losses during payouts.

One of the common pitfalls financial institutions encounter is placing undue trust in the initial status of transactions. 

Despite receiving an initial status, it’s crucial to recognise that this may not always reflect the actual status of the transaction. 

Relying solely on this status can lead to double payout and potential financial losses. 

Examples of initial status that can be misleading are transactions marked as failed and those that are timed out. 

A timed-out transaction does not mean it is not successful. The timeout could be caused by the transaction being timed out from the bank or even after the bank has sent the transaction to the processor. 

Despite the timeout status, this transaction might have been successful. However, if you solely rely on the ‘Time out’ status to retry the transaction, you might end up suffering financial loss due to a duplicate transaction. 

Therefore, financial institutions must implement a comprehensive approach to managing transaction statuses.

• Implement dual sources of truth

Financial institutions should establish dual sources of truth to mitigate the risk of erroneous statuses. 

Establishing dual sources of truth involves conducting status checks through multiple channels or providers to corroborate transaction status accurately. 

By cross-referencing statuses, institutions can ensure the reliability of information and minimise the likelihood of erroneous decisions.

• Manage responses effectively

Effectively managing responses from providers is paramount in mitigating losses. This management includes:

• Actively monitoring transaction statuses.
• Promptly addressing discrepancies.
• Implementing protocols for rechecking statuses after timeouts or failures. 

Institutions can prevent potential losses from misinterpreted transaction statuses by maintaining vigilance and responsiveness.

Concurrently processing a large volume of transactions can amplify risks and strain infrastructure.

Financial institutions should adopt queueing mechanisms to regulate transaction flow and minimise exposure to potential errors or fraud to mitigate this risk.

Depending on the strength of the infrastructure, simultaneously processing a large bulk of transactions can increase your risk. 

At Fincra, we always keep our queue at a consistent number in consideration of our risk appetite

• Regulate transaction flow

By queuing transactions, institutions can regulate the flow and ensure orderly processing. 

This queuing involves prioritising transactions based on risk factors, transaction size, or other relevant criteria. 

By implementing queue management strategies, institutions can reduce the likelihood of errors associated with concurrent processing and optimise operational efficiency.

• Optimise batch sizes

 Determining optimal batch sizes is essential for mitigating risk and balancing operational efficiency. 

Institutions must assess risk appetite and infrastructure capabilities to determine the appropriate batch size.

While larger batches may expedite processing, they also increase the magnitude of potential losses in the event of errors or fraud. 

Therefore, balancing batch size and risk tolerance is crucial for effective queue management.

API keys are the gateway for accessing and executing financial transactions, making them a prime target for malicious actors. 

To safeguard against unauthorised access and mitigate the risk of financial losses, financial institutions must prioritise the security of API keys.

• Implement access controls

Restricting access to API keys to a select group of authorised personnel is essential for enhancing security. 

Institutions can mitigate the risk of unauthorised transactions and data breaches by limiting access to key infrastructure personnel and enforcing strict access controls.

Only a limited number of people have access to our API Keys at Fincra

• Utilise secure environments

Storing API keys in secure environments inaccessible to unauthorised individuals is critical for preventing unauthorised access or misuse. 

Leveraging encrypted storage solutions and robust authentication mechanisms can fortify API key security and safeguard against potential breaches or compromises.

• Segregate Test and Live Keys

Segregating test and live API keys ensures that sensitive production keys are not inadvertently exposed or misused during the development or testing phases. 

Institutions can minimise the risk of accidental or unauthorised transactions by maintaining strict segregation and control over API keys.

Fincra engineers and developers only have access to Test Keys, while our Live Keys are accessible to a very limited number of people.

These strategies form the cornerstone of Fincra’s approach to mitigating financial loss. 

Stay tuned for upcoming instalments in this series, which aims to educate financial institutions on safeguarding their transactions and minimising financial risk.

Rest assured, security remains our top priority. Businesses and financial institutions partnering with us can trust in the safety and integrity of their transactions. Don’t miss out – create an account with Fincra today to experience seamless payouts and peace of mind.