Jaro-Winkler vs. Levenshtein: Choosing the Right Algorithm for AML Screening

Effective AML compliance requires accurately screening for sanctions, politically exposed persons (PEPs), and adverse media. Two algorithms: Jaro-Winkler and Levenshtein, often come up in discussions about fuzzy matching. Knowing when and why to use each can significantly boost your AML screening effectiveness and operational efficiency.

How Do They Work?

• Levenshtein Distance calculates the minimum number of single-character edits (insertions, deletions, substitutions) required to change one word into another. For example, changing "Mohammad" to "Muhammad" requires two edits.
• Jaro-Winkler Similarity emphasizes the similarity of strings, particularly at the start, making it excellent for identifying minor misspellings or common variations. For example, “Jon Smith” and “John Smith” produce a high similarity score.

When to Use Jaro-Winkler

Use Jaro-Winkler when:

• Screening individual customer names with common typos or spelling variations.
• Dealing with transliteration variations (e.g., Arabic or Cyrillic names).
• High processing speed and efficiency are critical for short strings and real-time checks.

Recommended for:

• Retail and consumer banks
• Payment processors
• Remittance services
• Digital wallets

When to Use Levenshtein

Use Levenshtein when:

• Screening longer strings like company names, addresses, or descriptions.
• Precise differences in every character count equally.
• Matching complex business names and identifying changes in entity details.

Recommended for:

• Corporate and institutional banks
• Correspondent banks
• Merchant onboarding processes
• B2B fintech services

Pros and Cons Overview

Regulatory Perspective

Regulators like FinCEN do not prescribe specific algorithms but emphasize screening systems must effectively handle variations, aliases, and typographical errors. The effectiveness of your algorithm and your ability to justify its usage during regulatory reviews are what truly matters.

Final Recommendations

Your choice between Jaro-Winkler and Levenshtein depends on the nature of your screening requirements. Consider Jaro-Winkler for efficient, real-time screening of individuals, and opt for Levenshtein when precision and complexity matter more, such as with business and merchant names.

Ultimately, the best compliance outcomes result from combining these algorithmic choices with intelligent AI-driven false positive handling, exactly the approach offered by Flagright.