Alternate Payment Methods (APM)

What Are Alternate Payment Methods?

Alternate payment methods (APMs, also called alternative payment methods) are ways of paying that sit outside the traditional pairing of cash and card networks. The category is broad and keeps changing, but it usually includes:

• Digital wallets that store funds or tokenized card credentials on a phone or online account
• Account-to-account (A2A) and instant bank transfers, including payments initiated through open banking
• E-money and prepaid products, both physical prepaid cards and online stored-value accounts
• Mobile money services where a phone number acts as the account identifier
• Buy now, pay later (BNPL) and other point-of-sale credit arrangements
• Cash vouchers and payment codes bought at retail outlets and redeemed online
• Virtual assets, such as cryptocurrencies and stablecoins, used for payment

APMs are popular because they are fast, cheap, available to people without a bank account and well suited to e-commerce and cross-border payments. Those same features are the reason compliance teams pay close attention to them.

Why Alternate Payment Methods Matter

Each APM changes who sees the transaction and how much they know about the parties. In a card payment, the issuer and acquirer both hold verified customer data. In an APM flow, the payment may pass through a wallet provider, an e-money issuer, a payment initiation service, a merchant platform and a bank, each holding only part of the picture.

That fragmentation creates money laundering and fraud risk:

• Speed: instant settlement leaves little time to stop a payment once fraud or laundering is suspected.
• Anonymity or weak identity: some prepaid and voucher products can be bought with cash and only light verification.
• Cross-border reach: funds can move between countries without passing through a correspondent bank.
• Layered intermediaries: a transfer can be split across several providers, making the full trail hard to reconstruct.
• Fast onboarding: digital sign-up processes are attractive to fraudsters, money mules and bots.

For payment institutions, e-money issuers and merchants, APM risk also affects commercial relationships. Banks that provide accounts to APM providers assess how well the provider controls its own customers, and weak controls can lead to lost banking access.

Money Laundering and Fraud Typologies

Typologies involving APMs commonly reported by FIUs and standard setters include:

1. Mule networks using wallets and e-money accounts. Criminal proceeds, often from scams, are moved through many recently opened accounts and quickly cashed out or converted.
2. Prepaid card loading and cross-border withdrawal. Cash is loaded onto prepaid products and withdrawn abroad at ATMs, avoiding cross-border cash declarations.
3. Voucher-based scams. Victims are pressured into buying vouchers and reading out the codes, which are then redeemed or resold.
4. Merchant and marketplace abuse. Fake or collusive merchants process payments for goods that never existed, a form of transaction laundering.
5. Conversion into virtual assets. Funds paid in through an APM are used to buy crypto, which is then transferred to wallets linked to illicit activity.
6. Structuring across providers. Amounts are split below limits or thresholds and spread across several APM accounts to avoid monitoring triggers.

Red flags include many accounts sharing a device, IP address or phone number, rapid in-and-out flows with little balance retained, sudden spikes in incoming payments from unrelated senders, and frequent conversion between APMs, bank accounts and crypto.

Regulatory Expectations

APM providers are generally inside the AML perimeter. FATF Recommendation 15 asks countries and firms to identify and assess money laundering and terrorist financing risks arising from new products, new business practices and new technologies before they are launched, and to take measures to manage them. FATF has also published risk-based guidance on prepaid cards, mobile payments and internet-based payment services, and on virtual assets.

In the European Union, payment institutions and e-money institutions are licensed under the Payment Services Directive (Directive (EU) 2015/2366, PSD2) and the E-Money Directive (2009/110/EC), and are obliged entities under the AML framework, which now includes the AML Regulation (EU) 2024/1624. The AML Directives allow limited simplified treatment for some low-value e-money products under strict conditions, and these conditions were tightened over successive revisions.

In the United States, many APM providers are money transmitters or providers of prepaid access and must register with FinCEN as money services businesses under the Bank Secrecy Act, alongside state licensing. In the United Kingdom, payment and e-money firms are authorized by the FCA and subject to the Money Laundering Regulations 2017.

Across these regimes, regulators generally expect APM providers to verify customers in proportion to risk, monitor transactions, screen against sanctions lists and report suspicions to the national FIU.

Best Practices

• Assess each product separately. A low-limit closed-loop voucher and a reloadable cross-border wallet carry very different risks.
• Calibrate limits to verification level. Tie loading, spending and withdrawal limits to how thoroughly the customer has been verified.
• Use device and network signals. Shared devices, IP addresses and phone numbers often reveal mule clusters that names alone do not.
• Screen both sides of the payment. Where payer and payee data are available, screen both against sanctions and other watchlists.
• Monitor across rails. Build monitoring scenarios that follow funds when they move between wallets, bank accounts and virtual assets.
• Know your merchants. Platforms that onboard merchants should verify the business, its owners and the plausibility of its activity.

How on8.ai Helps

Pre-KYC checks email, phone and IP risk and detects bots and high-velocity sign-ups before an APM account is opened. SmartSanction screens customers, merchants and crypto wallets against sanctions, PEP and risk lists through an API or in batch, with the reasoning behind each match.

Related Terms

• Money Services Business (MSB)
• Money Mule
• Cross-Border Transactions
• VASP (Virtual Asset Service Provider)
• Transaction Monitoring System (TMS)
• Smurfing