For the past five years mobile money activities have been on the rise in developing nations. Mobile phones are therefore best placed to further financial inclusion, promote economic development, and address the first Sustainable Development Goal (SDG1) which is Poverty Reduction by 2030.
According to the 2017 Global Findex database, financial inclusion is on the rise globally, but progress is uneven and 1.7 billion adults remain unbanked. This is highly attributed to the lack of proper Electronic Know-Your-Customer (e-KYC) documentation.
The World Bank describes financial inclusion as individuals and businesses having access to useful and affordable financial products and services that meet their needs that are transactions, payments, savings, credit and insurance delivered responsibly and sustainably.
Worldwide, subscribing to mobile money accounts is easier than opening bank accounts. This is because of the variance in the level of KYC information required. Banks require a higher level of KYC because of the nature of banking products and involvement with higher transaction volume. This explains the rapid growth in mobile money activities as opposed to bank accounts opening. Unlike traditional methods of KYC data collection, the rise of mobile banking has greatly challenged this school of thought, not forgetting the impact of Covid-19 on society, which in turn has greatly impacted traditional business operations.
Electronic KYC can be a major boost to financial inclusion especially with online systems such as Integrated Population Registration System (IPRS) currently in use in Kenya for national ID verification. This system when integrated into the onboarding of customers looking into cross-border payments is in turn uploaded to the Financial Service Provider’s (FSP) web page or mobile application and runs against the database to verify and minimize falsification of identity, signatures, and phishing. This also brings about the automation of the onboarding process that reduces customer acquisition costs, increases efficiency, and saves much-needed time.
Cross-border payments require to be efficient, cost-effective, and inclusive. This will in turn bring forth the concept of FSP having mobile applications that can seamlessly integrate these factors. For this to be attained, digital solutions such as acceptance of e-KYC as an on-boarding process and allowing for FSPs to have e-wallets on their mobile apps are necessary.
The digital space has also seamlessly catered for the needs and wants of the diaspora population through innovative products that are cost effective and are time efficient in terms of delivery. e-KYC will be a great facilitator in the onboarding of a large number of unbanked and underbanked population to mobile money and bank accounts both in urban and rural areas. This will lead to an increase in the use of formal remittance channels further influencing policy amendments and the rise of innovation.
Some of the questions that regulators may pose to FSPs may include but are not limited to:
- How diligent will the e-KYC process be to AML/CFT policies set and how will the FSP safeguard funds held on mobile wallets?
- What is the balance between customer data protection and data sharing of digital KYC?
It will be interesting to see how remittance/cross-border payments will impact traditional regulations. Cross border payment is transactions involving individuals, companies, banks, or settlement institutions operating in at least two different countries. The author is the Head of Remittance Operations at Flex Money Transfer Limited
Head of Remittance Operations-Flex Money Transfer Limited