How to Integrate KYC With Open Banking: a Comprehensive Guide for Finance Professionals

Open banking, while often associated with the banking sector, is a versatile tool with applications across various industries. One prime example of its broad utility is its integration with Know Your Customer (KYC) processes. This article explores how open banking can enhance KYC procedures, offering significant benefits beyond traditional financial applications.

Understanding KYC KYC, or Know Your Customer, refers to the compliance practices that companies use to verify the identity of their clients. This process is crucial before onboarding to assess the risks of clients potentially being involved in illegal activities. KYC is a key component of Anti-Money Laundering (AML) laws, designed to prevent fraud, corruption, and terrorism financing.

KYC Explained Step-by-Step

1. Verification Companies collect business-related information and personal details of potential clients, such as director names, business addresses, and social security numbers, along with supporting documents. This data is cross-referenced against public resources and government lists related to law enforcement, sanctions, and terrorism affiliations.

2. Risk Evaluation After gathering the necessary data, companies assess the risk level associated with a potential client. If the risk is high, enhanced due diligence (EDD) is required. Factors considered include sanctioned territories, politically exposed persons (PEPs), ultimate beneficiary owners (UBOs), non-resident clients, and cash-intensive businesses.

3. Ongoing Monitoring KYC is not a one-time process. Continuous monitoring and regular updates are essential as company details, regulations, and verification methods evolve. This ensures compliance with changing legal requirements and maintains accurate, up-to-date data.

How Open Banking Enhances KYC

Open banking can streamline KYC processes through the use of application programming interfaces (APIs), which securely share data. This technology simplifies the collection of user information, verification of wealth sources, and access to transactional data, leading to faster and more accurate data retrieval.

“Noda’s open banking solutions significantly enhance the KYC process by providing seamless access to comprehensive transactional data and secure digital identity verification,” says Anastasija Tenca, Chief Operations Officer at Noda. “By integrating our advanced APIs, businesses can quickly and efficiently verify customer identities, reducing the risk of fraud and ensuring compliance with AML regulations.”

Benefits of Integrating Open Banking with KYC

1. Access to Comprehensive Transaction Data Previously, companies could only access limited transaction history. Secure API sharing provides a full view, including detailed transaction information, helping businesses analyse data and safely establish wealth sources.

2. Digitised Data Handling Open banking digitises all KYC-related activities, eliminating the need for physical documents and manual data entry. This automation speeds up processes, reducing time and costs, and enables quick risk evaluation and fraud prediction.

3. Streamlined Verification Many open banking providers offer ready-to-use verification tools for onboarding. For example, Noda’s Pay & Go KYC solution allows businesses to onboard customers with non-ID upload and liveness detection, covering the entire onboarding process efficiently.

4. Aggregated Data Open banking APIs integrate KYC data into a single customer view, reducing information silos and facilitating well-informed decisions. This integration simplifies access and enhances decision-making processes.

Steps to Integrate Open Banking with KYC

1. Define Business Needs Determine your compliance requirements, including onboarding, additional verifications, and regulatory standards. Consider your budget to guide the selection of a suitable provider.

2. Choose an Approved KYC Provider Research potential providers, evaluating their reputation, fees, and the specific open banking features they offer. Select a provider with transparent pricing and a proven track record.

3. Integrate via KYC APIs Test the provider’s services through a demo or trial period. If satisfied, proceed with detailed documentation and API integration, ensuring support from the provider throughout the process.

Open banking is revolutionising the KYC process by providing faster, more secure, and more comprehensive ways to verify customer identities and monitor transactions. Integrating open banking with KYC practices not only enhances security and compliance but also streamlines operations, reducing costs and improving efficiency.