‘Know Your Customer’ Innovation is Critical to Effective Financial Inclusion Programs

The United Nation’s number one Sustainable Developmental Goal (SDG) is to end poverty in all its forms everywhere. One of the critical measures of success – what the UN calls its Goal One targets – is to “…ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources.” Importantly, this incorporates financial inclusion, which I believe is one of the most powerful tools society has to defeat poverty.

To develop effective financial inclusion programs, governments need to first identify who is excluded. Once we know who is excluded, banks will be able to create and leverage Know Your Customer (KYC) programs to ensure all residents have equal access to government subsidies, bank accounts, financial literacy programs and credit to help themselves and their families live better lives.

KYC programs are something most people think of as little more than a regulatory hassle—another box to tick, ID to check, signature to collect and form to fill out. But these programs are critical to helping people unlock benefits—both public and private—that are intended to help people combat financial exclusion and immobility. At the same time, there’s a lot of talk about how electronic KYC solutions can make financial inclusion more effective by addressing hurdles caused by geography, limited banking infrastructure and lack of physical forms of identification. This is true, but to date, many eKYC programs focused on financial inclusion have delivered mixed results.

For one, as stated earlier, it is unrealistic to expect banks to deliver financial inclusion if the government can’t identify who is actually being excluded. Governments must have visibility into who lives in a country, who and how many need assistance, and what services are needed. The prerequisite for any financial inclusion initiative is access to a universally accepted source of truth, like a national identification database, which allows governments – through their public and private banking institutions – to provide for citizens who are outside of the formal economy.

Some countries have developed, or are currently in the process of developing, that single source of truth. But there are gaps in regulatory guidelines and technology capability that prevent financial institutions from leveraging those national databases to deliver more effective financial inclusion programs. This is where private sector actors, like GlobeOne, can help.

GlobeOne has developed a mobile banking app that’s designed to help financial institutions enable greater access to digital financial services for millennials, underserved and unbanked populations around the world. Embedded in that same application, GlobeOne leverages biometrics and remote verification to authenticate the user’s ID credentials, providing for a frictionless experience. This is huge for banks and their customers. It streamlines regulatory requirements that are widely considered tedious, reduces originations fraud and decreases the drop-offs associated with remote account opening by as much as 40 percent. In other words, it’s faster, safer and provides a better customer experience. It’s great news, right?

Even so, we already know it will work better in some countries than others.

India is ahead of the curve. It provides a 12-digit number called an Aadhaar that is linked to biometrics including iris scans, face recognition technology and fingerprints. This provides an enormous opportunity in a country where government-to-person (G2P) payments are being transitioned to electronic disbursement while only 43% of women, and 53% of people overall, report having a formal bank account.

In practical terms, this means that banks connect to the national database and authenticate the biometrics—either directly or through a third party vendor. When banks execute KYC protocols themselves, they need hardware and technical support. However smart mobile devices remove the need for that kind of capital investment. Products like GlobeOne’s proposed Remote ID Verification service offer in-country, third-party verification software embedded into the application itself. This allows technology partners like GlobeOne to help streamline mobile customer acquisition, authentication and engagement so banks don’t have to.

Mexico is another country making strides, but overhauls in KYC regulations are geared solely toward financial inclusion, not digital banking. A few years ago, the country relaxed its KYC standards meaning that accounts below a certain threshold could be opened remotely and required very little—and sometimes no—documentation. This facilitates electronic G2P payments, which is important, but it doesn’t create a viable system for customers to evolve their banking relationships.

Countries need to think about comprehensive eKYC solutions so they can deliver more effective financial inclusion programs which also capitalize on the macro-level security, tax revenue, GDP and leakage-reduction benefits that eKYC will contribute to. So when it was mentioned earlier that Remote ID Verification technology will work better in some countries than others, it’s worth underscoring that it will work better for some countries than others.

It’s absolutely true that some people will balk at the idea of nationwide biometric identification. In the United States and many EU countries, for example, it would raise privacy concerns. At the same time, anyone who’s had their identity stolen just might be open to a biometric requirement to establish credit in his/her name. Likewise, anyone who’s experienced the weeks-long wait to open a checking account in the UK might see his or her priorities shift.

For those living in countries where financial inclusion remains elusive at the base of the pyramid, a thumbprint or iris scan may be a small price to pay to validate one’s existence and enter the financial mainstream. Two billion people around the world lack access to a formal bank account, and eKYC has a critical role to play in changing that.

No system will ever be 100% perfect. Given the right resources and motivation, bad actors will always find a way. (It calls to mind a futuristic sci-fi blockbuster that showed the protagonist walking around with someone else’s eye). However, the worst-case scenarios are remote, and they make for pretty lackluster arguments for not doing better than we are today.

Governments need to have eKYC rules on the books and plans in place to allow financial institutions to take advantage of them. The world has moved well past passports and driver’s licenses. We now have the technology to safely deliver the power of digital banking to everyone. Whether the benefit is convenience, customer acquisition, inclusion, gender equalization or GDP growth and currency management, the technology for robust eKYC systems exist and so does the rationale.