It has been estimated by Alliance for Financial Inclusion (AFI), that approximately one billion people worldwide do not have access to an officially recognizable identity. Most of these people are from developing countries. Like all financial institutions, mobile money providers have the responsibility to identify their customers, analyse the risks that they may pose before providing any services. The impact of mobile money is boosting financial inclusion in the poorest countries. Due to its convenience, simplicity, security, and affordability of transacting via a mobile money over traditional banking, the industry will play a significant role in bringing people who are financially excluded into the financial sector.
As per the Financial Action Task Force (FATF), standards required for banking institutions, including mobile money providers, to implement efficient customer identification, verification and due diligence procedures. These are referred to as ‘Know your Customer’ (KYC). As such, Mobile money providers should ensure that when onboarding new customers, they must be able to identify and collect enough information to determine the client’s risk of engaging in illicit finance. Providers should reverify existing customers on a periodic basis as their personal data and risks profiles can change over time.
Despite the success of mobile money, KYC requirements pose as a barrier for mobile money providers in many countries. Customers are subjected to excessive KYC requirements in order to comply with the recommendations made by regulators. Such a practice can become a hamper for business expansion. Policymakers who wish to facilitate the expansion of digital finance can make it simpler for financial companies to meet their KYC requirements by addressing the following obstacles:
Lack of a clear regulatory framework– Mobile money Operators must be aware of and understand the expectations of those leaders, including activities that are permitted, needed or prohibited. According to Global Partnership for Financial Inclusion (GPFI), it has been said that for digital financial services to thrive, there must be a legal and regulatory framework, which is predictable, risk-based, and fair, as well as, does not impose excessive, non-risk based compliance costs.
Failure to keep pace to innovation– Policymakers should be proactive in response to the fast moving markets and technological developments, as a slow process of the regulatory reform in a highly innovative world can supress the development of the mobile money market.
Lack of automation and digitalisation of KYC requirements- Automating KYC reporting requirements can help banking institutions to streamline their compliance efforts, and hence lowering the cost of onboarding and service provision.
Overlapping Regulations- Separating KYC requirements for SIM card registration and opening a mobile money account can create inefficiencies that aggravate financial inclusion. Mobile money, which is considered as a value-service added by mobile operators, can only be accessed via a separate registration process.
Excessive stringent regulations not only jeopardize the adoption of mobile money, but also related the adoption of mobile money, but also related KYC innovations. The following fintech solutions and possibilities in Customer Due Diligence were identified:
- Facial Recognition- APIs are being developed by innovators which allow customers to provide portrait pictures of themselves, taken on smartphones.
- GPS data- this feature is linked to smartphones to supplement facial images along with location data, creating temporary identities that offer proof of address also.
- Machine Learning- can help improve upon these processes by using algorithms, which learn to identify patterns and relationships between different sets of information over time.
- Decentralised data storage- it gives control of sensitive KYC data to clients as well as enhancing customer protection.
Regulators should strive for clear, predictable, and effective regulatory frameworks that are flexible enough to adapt to new market developments. Constant dialogue between operators and regulators should be encouraged to help resolve any regulatory issues that requires immediate actions. The role that Mobile money operators can play in this respect should be further explored and facilitated.