Alike all financial incumbents, mobile money providers have a responsibility to identify their customers and also at the same time understanding the risks these customers may pose before providing services. Records as per GSMA state that approximately 1billion people across the world do not have access to an officially recognized identity. Most of these people are from developing economies. The ability for individuals to prove their identity is essential to their active participation in political, social and economic life. They are also susceptible to being excluded from accessing financial services which are key to their livelihoods. In addition, the accurate verification of identity is integral to the Know Your Customer (KYC) processes which are important for compliance with Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations. The inability of financial institutions and banks to properly verify potential clients will lead to financial exclusion.
Today, nearly about 1.7 billion adults, mainly in Africa, Asia and Latin America are still excluded from the traditional financial system, either without any account at bank or through a mobile money provider. This has eventually affected the marginalised segments of the society such as women, farmers, the older generation, people with disabilities and forcibly displaced persons. Getting no access to the basic financial services such as credit, savings, and insurance prevents those people from savings for the future. Hence, hindering global sustainable economic growth. According to McKinsey, the widespread use of digital finance can help in boosting the annual GDP of all the developing economies by $3.7 trillion by 2025.
Financial Institutions must be able to identify their customers to ensure precise and accurate service. Although there are several causes of financial exclusion, digital identity has the capability to remove some of the main barriers not only having access but also the usage of financial accounts. By enabling people to prove their identity conveniently, will help in building trust, ensure ease of use and lower costs which is important to the wide adoption of financial services.
A survey from the World Bank claims that around 18% of the adults are unable to access financial services. This is due to lack of documents required to prove their identity. Indeed, all banking institutions are required to verify the identity of their clients in order to comply with KYC and AML regulations. By making use of digital IDs to enable electronic KYC (e-KYC) and completely digitalise the Onboarding process will make it easier for people to open an account. As such, more affordable for financial service providers to reach out the underserved clients. Mc-Kinsey states that e-KYC processes have the potential to reduce onboarding costs by up to 90%.
A report from AFI entitled Fintech for Financial Inclusion, identified that Fintech innovators have the potential to enable financial inclusion when built on solid platforms for e-payment systems. Hence, Fintech firms are taking the lead in KYC innovations by developing new technologies. This will not only make digital identities possible, but also assist the banking institutions succeed in dealing with challenges like identity verification. With the help of Fintech solutions, the following possibilities were identified in customer due diligence (CDD):
- Facial Recognition- customers are allow to provide their portrait pictures taken through smart phones and send through an API.
- GPS Data- linked to smart phones to supplement facial images with location area. This will offer both proof of life and address.
- Machine Learning- will help banks to do more accurate segmentation of clients and update their risks on a regular basis.
- Decentralised data storage-this will provide control of KYC data and enhance customer protection.
In light of the study above, Digital Financial Services have the potential to bring financial inclusion to people, enabling them to access and use essential financial services.
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NanoBNK partners with banks to assist them in their Digital Transformation journey by providing solutions around Digital Banking.
