How open banking simplifies Know Your Customer (KYC) checks

Large companies run thousands of KYC checks every day, and those that fail, cost them. Could open banking be a solution worth exploring? Keep reading to find out…

Let’s talk about Know Your Customer (KYC) checks. They’re expensive, with just one check costing up to £100. They’re also time-consuming, with checks taking days - even weeks - to complete. And, finally, they’re prone to errors, allowing fraudsters to slip through the cracks because of manual processes.

All in all, KYC checks can cost around 3% of a UK bank’s total operating expenses. So, how can companies and financial institutions protect themselves and their customers?

Two words: open banking.

What KYC checks look like today

KYC checks are a way for companies and banks to make sure their customers are who they say they are. This helps financial institutions make responsible decisions, and protect them from getting tangled up in fraud, money laundering, and other illegal activities. There are different levels of KYC checks, depending on the financial product or service being sold. But, no matter what level of check is needed, the goal is always the same: to make sure the customer is trustworthy.

  • For low-risk customers, the simplest form of KYC checks just requires their name, surname, and date of birth.

  • Ordinary due diligence is more in-depth, and typically applies to customers who are considered low to medium risk. A good example is a customer purchasing insurance.

KYC checks are notoriously expensive, time-consuming, and prone to fraud. But, here’s the good news: we can make things a lot simpler by creating a digital identity framework.

Think of it like a digital passport. But instead of being used for travel, it would be used for identity verification… and powered by open banking.

How does open banking support KYC checks?

To understand how open banking supports KYC checks, you first have to understand how open banking works.

In the simplest terms, open banking allows financial service providers to access customers’ bank data with their consent. Once the customer has consented, their bank will issue an access token and a refresh token, so companies can access their data for 180 days.

It can be as simple as getting basic information, like a user’s full name, date of birth and (in some cases) where they live. But it can also be as specific as verifying their source of wealth and collecting transactional data to support fraud analysis.

Yapily Validate streamlines KYC checks with real-time customer and account details. For example, a lender using Yapily’s infrastructure platform can access financial data from over 2,000 banks. This enables them to validate personal identity information for KYC checks and enhance its credit assessments through the power of open banking. Check out this tutorial on how to access account information with the Modelo Sandbox.

By connecting directly with banks, open banking saves companies time and money on every KYC check. And, because open banking was built with security in mind, the customer will receive a form of two-factor authentication, involving extra steps to reduce fraud.

What about other Anti-Money Laundering (AML) checks?

It costs UK banks almost £30 billion to comply with anti-money laundering laws. Could open banking be a solution to this? Absolutely.

Right now, companies only have limited information about their customers which is mostly from what they tell them (and what’s available from public sources). This makes it difficult for companies to fulfil their Anti-Money Laundering (AML) obligations, which include verifying the identity of their customers and monitoring transactions for potentially illegal activities.

One-off AML checks also don’t address long-term risks.

With open banking, companies have access to a reliable source of transaction data… the customer’s own bank account. For lenders, open banking gives a better picture of a customer’s financial history, so they can make informed decisions and assess the risk of lending to them.

The future of open banking and KYC & AML checks

Simply put, open banking helps companies see more information about their customers, which puts a stop to fraud. Having this information lets companies identify potentially risky customers, make better-informed decisions, and (best of all!) save money on compliance.

Do you perform hundreds, or even thousands, of KYC checks every month? Get in touch with us to talk about how open banking could speed up your user journey, accelerate product adoption, and build trust with your customers. Or, learn more about Yapily Validate here.


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