7 Ways APIs Improve KYC and AML

Every financial services provider has to perform anti-money laundering (AML) checks and Know Your Customer (KYC) verifications as a part of their daily Customer Due Diligence (CDD) process. However, manually performing AML/KYC procedures is time-consuming, tedious, and error-prone. Actually, the financial services companies lost $3.3 trillion globally in 2019 because of customers quitting their applications due to slow onboarding. 

This number will only grow in 2021 due to high competition from innovative fintech startups and challenger banks, some of which allow opening a new bank account in 24 clicks only! Thus, automating various aspects of KYC procedures is a must-have goal for any business willing to remain competitive. APIs in general, and Open Banking API in particular, enable this to happen. Today we showcase 7 ways using APIs improves your AML and KYC  procedures efficiency.

What is API?

In simple words, API or Application Programming Interface is a channel of communication, allowing different programs to interact with each other and exchange data. Due to being developed according to specific requirements APIs ensure seamless interoperability of various systems that comply with sets of API specifications, like REST API or GraphQL API.

Why is using API so important for fintech and banking businesses? There are 7 reasons:

1. Shorter customer onboarding and time to revenue
2. De-siloing disparate compliance systems
3. Minimizing the rate of human errors
4. Reducing the cost of KYC and AML checks
5. Automating repetitive KYC procedures
6. Creating innovative products
7. Helping focus the effort on solving issues, not paperwork

Let’s describe each of the points in more detail.

Shorter customer onboarding and time to revenue

Every company doing business and accepting payments online must comply with PSD2 regulation to ensure anti-money laundering requirements are met. The bigger the customer and the bigger the business, the more documents must be checked, which leads to exorbitant amounts of paperwork. Just look at this example from Barclays, showcasing the registration process of a simple corporate banking customer.

Thus said, it takes up to 90-120 workdays to onboard a corporate customer with a bank and to complete all the necessary KYC procedures. 

Using APIs allows connecting your company systems with external global data sources in order to pull the required information in minutes and build risk profiles for every client much faster. Due to this, challenger banks like Revolut or Starling are able to perform all the needed Customer Due Diligence checks in merely 2 days. This significantly decreases the customer onboarding time and the time to revenue.

De-siloing disparate compliance systems

The bigger the organization, the more systems it has to use, while also ensuring regulatory compliance. More often than not, such systems are specialist point-use tools with siloed knowledge, which has to be transmitted to some kind of Customer Lifecycle Management or CLM system. Using APIs allows combining such disparate systems into a centralized platform. With more services and tools integrated into a CLM instead of running as disparate legacy tools, the more efficient the KYC verifications become.

Minimizing the rate of human errors

When the risk profile data is stored in several disconnected systems and has to be manually updated by several team members, the rate of human-originating errors can be quite high. Quite the opposite, when all the data is updated in a centralized manner via APIs, the chances of making mistakes are significantly lower.

Reducing the cost of KYC and AML checks

According to a LexisNexis report on financial crime compliance, average financial institutions spend as much as $11 million annually on KYC and AML checks. With global banks, this sum goes up to $500 million or even more every year. The reason for this is the inordinate amount of paperwork and human work involved. For example, you need to connect to the international PEP/sanction check watchlists to ensure your customer is not affiliated with known criminals — this process will take lots of time for every customer, meaning it will cost a lot for you. By automating repetitive and time-consuming aspects of the CDD process using API integrations, financial businesses can cut their costs significantly.

Automating repetitive KYC procedures

One of the main reasons for lengthy KYC verifications is the big amount of false positives to check and the need to manually organize lots of unstructured data. Using RPA solutions to normalize such data and OCR algorithms to quickly gather the essential details (like company credentials) from various documents helps cut down the time needed for repetitive preparatory work, freeing your KYC professionals for decision-making instead of document processing.

Creating innovative products

The key challenge many financial services providers face is “build or buy”. While there are many KYC/AML tools on the market, none of them fits every size perfectly, and customizing an off-the-shelf product can be quite hard. On the other hand, not many businesses possess sufficient software development expertise to build a KYC solution that will fit their business DNA. API integrations help a lot, as you gain immediate access to highly configurable solutions without the need to rebuild your software ecosystem or reconfigure your workflows. As a result, your business can compose innovative products out of building blocks that are APIs.

Helping focus the effort on solving issues, not paperwork

As a result of replacing tedious, time- and effort-consuming repetitive paperwork aspects of AML/KYC procedures with automated API calls, your KYC and compliance team will be able to free up resources and concentrate effort on actually resolving the issues, rather than playing back and forth games with the documents. This will positively affect the performance and efficiency of all business processes, internal and external.

Conclusions

As you can see, using API connections to augment your business software ecosystem with reliable tools helps reduce the time and costs needed to perform KYC verifications, AML checks and ensure PSD2 AML compliance. Platforms like Covery enable AML/KYC automation through a clean and powerful API, which allows direct connection to the latest versions of Dow Jones PEP/RCA/SAN  watchlists — and this is just one of the features the platform provides. Should you have any more questions on how Covery can help your business — ask away, we are glad to help!