Improving ‘Enhanced Due Diligence’ for Cross-Border Payments

The contents of this blog are for general information purposes only and do not constitute legal advice. Association of Foreign Banks disclaims liability for actions taken based on the materials. Readers should consult their legal advisers.

The cross-border payments market is expected to boom in 2025. Beyond that, by 2030 the total value of the market is predicted to hit $290.2 trillion according to Statista.

The cross-border payments market has surged over recent decades because of increased mobility of goods, service, capital and people.  Global supply chains have expanded, as too have global asset management, investment flows, and perhaps most significantly international trade and e-commerce/social commerce.  According to JP Morgan we can expect international transfers to increase by 5% year-on-year.  But there are significant challenges to overcome.

Cross-border payment challenges

Instant cross-border payments are the norm in the personal banking sector.  However, the picture is somewhat different in the corporate and commercial banking market, where the risks of money laundering, fraud, terrorist financing and other forms of financial crime are much higher, and tougher to mitigate.

The problem is not new – the G20 set cross-border payments as a priority back in 2020.  It implemented a roadmap to create a faster, cheaper, more transparent and accessible payment system, by identifying challenges arising from frictions in existing processes including:

• Identify verification
• Complex compliance checks
• Manual processes

Tech-based data-driven improvements to enhanced due diligence (EDD) hold the key to resolving the biggest challenges impacting cross-border payment success.

An enhanced risk-based approach to compliance

The complexity of financial crime remains a huge challenge for cross-border payment.  Combined with rapidly evolving geo-political events and sanctions, regulated businesses are increasingly taking a risk-based approach to customer due diligence (CDD), moving beyond standard CDD to enhanced customer identity assurance.

EDD is a set of measures applied, using a risk-based approach, to investigate potentially high-risk customers or transactions and gather more evidence and detailed intelligence.

High-risk customers might include, for example, those subject to economic sanctions or operating in countries without adequate AML controls, customers with complex or opaque ownership structures, companies managed by politically exposed persons (PEPs), or businesses operating in countries with significant levels of corruption, criminal activity, or terrorist activity.

EDD provides a greater level of scrutiny of potential business partnerships and highlights risk that cannot be detected by customer due diligence. A tech-based and data-driven approach is vital here, automating routine tasks and analysing vast volumes of data to improve the precision and efficiency of risk and compliance processes, therefore driving faster, cheaper and more efficient cross-border payment processes.

EDD measures include:

• Identity verification (IDV): utilising automated, real-time biometric powered identity verification capabilities, banks can be safe in the knowledge that customers will enjoy a seamless payment process whilst ticking the required compliance boxes.
• KYC/KYB: identification and verification of the information provided by the business and its directors, determining company structure, ultimate beneficial owners, CCJ and legal notices, PEPs, and sanctions Automated KYC/KYB procedures enable banks to determine the authenticity of the entities they are dealing with, and ensure they are not being used to conceal the identities of owners for illegitimate purposes.
• Credit risk screening: Combining data science and machine learning for rich, assured, and dynamic live credit and risk profiles helps banks keep exposures low and payment decisions smart.
• Fraud assessments: Combining an array of fraud prevention tools, including mortality screening, email risk assessments, bank account verification, salacious names, and age verification through a single access point can save time, reduce risk, and enhance compliance.
• Ongoing monitoring: Automated client monitoring alerts banks to risk profile changes and screens against all relevant global sources to ensure payment processes remain compliant, and risks are spotted sooner.

A best practice example cross-border payment success

The PayQuicker platform has revolutionised the mass payment sector, partnering with global banks, processors, and card networks to provide intelligent solutions that allow business to make instant and secure mass payouts in local currencies to payees around the globe.

It has implemented KYC, KYB, and document verification through a single API access point to eliminate manual processes, save huge amounts of time and resource, and deliver frictionless experiences for both banks and payees.

This risk-based EDD capability also ensures PayQuicker has a best practice approach that guarantees it’s always one step ahead when it comes to compliance with the stringent and ever-changing regulatory payments landscape.

As a UK-based foreign bank, you’re on the front-line of the cross-border payments market.  If you’re looking for a risk-based approach to improving EDD that will give you a competitive advantage, with payment processes that seamlessly combine customer experience with EDD and regulatory compliance, get in touch with FullCircl, an nCino Company.

As an AFB member you can access an exclusive 2-week free trial screening of your top ten clients, to see the impact of FullCircl first hand.

Get in touch with FullCircl today.

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