Beyond a technological driver of efficiency: Transforming banking and increasing financial inclusion through e-KYC

By Dr. Jidong Chen, General Manager of ZOLOZ, an Ant Financial company

In recent years, digitalisation of financial services, along with greater internet connectivity and rising smartphone penetration has contributed to making finance more accessible and inclusive, especially for populations in emerging markets. The Covid-19 outbreak has expedited these catalysts while highlighting the need for financial institutions to deliver an improved mobile and digital experience to consumers.

In response, we are seeing an increasing number of financial institutions adopt electronic Know-Your-Customer (e-KYC) technology – an online process of verifying the identity of customers and assessing the risks or possible illicit intentions during each transaction – to help them meet complex compliance requirements especially for anti-money laundering (AML) and counter-terrorist financing (CTF). With e-KYC, consumers are no longer required to go to the bank branch to open an account, thus making the on-boarding process faster and more cost-effective.

Knowing Your Customers

“Know Your Customer” itself is a standard banking process by which banks are required to verify the identity of customers before providing services.

With e-KYC, the technology is already showing a significant reduction in the burden of authenticating customer identities. In India for example, the use of the Aadhaar digital ID for e-KYC was estimated to cut onboarding costs for financial institutions from about US$5 (MYR21.70) to just US$0.70 (MYR3.05) per customer, according to a report by the consultancy McKinsey.

The World Bank estimates over 1.7 billion individuals are currently financially excluded, with nearly one in five attributing the situation to a lack of necessary identification documents.

For these countries, there are clear benefits of e-KYC, where illiteracy rates are high and people living in remote areas have difficulties accessing financial services.

Bangladesh is a prime example of an emerging market that has seen growing benefits from adopting e-KYC.

Although some 70 percent of its population lives in rural areas, about half of the country’s adults own a bank or mobile money account thanks to the growing adoption of mobile banking, according to the World Bank’s Global Financial Inclusion Index.

In July last year, Bangladesh’s largest mobile financial service provider bKash, a local e-wallet partner of Alipay, introduced an e-KYC function to its mobile banking app, allowing customers to open a bKash bank account by themselves – simply by scanning their national identity card and taking a photo.

Enabling safe and secure application of e-KYC technology in the financial sector

With the simplicity of e-KYC, customers do not need sophisticated technology skills, nor are they required to visit physical branches to fill out forms, thereby benefiting illiterate individuals.

While e-KYC helps facilitate the acceleration of digital financial inclusion in many markets, it can also be applied to solve other challenges faced by financial institutions globally.

 For example, the technology can protect banks by detecting identity fraud and monitoring transactions and portfolios, especially as increasingly sophisticated criminals leverage technology to steal from companies and customers.

According to KPMG’s Global Banking Fraud Survey, 61 per cent of banks have reported an increase in external fraud by both value and volume over the past three years[4].

It can also help reduce the number of in-person checks and manual exchanges. This minimizes the potential errors and enhances the allocation of resources to other customer experience enhancing activities.

Such a focus on efficiency is important as financial institutions around the world face a higher need for resources and growing costs to satisfy regulatory requirements, such as combating money laundering and terrorist financing activities. For them, the impact of non-compliance can be significant.

According to industry research, some US$26 billion (MYR112.76 billion) in fines were imposed on financial institutions in the decade since 2008.

Furthermore, a study by Refinitiv showed that about a third of financial institutions admitted their biggest challenge is the lack of resources is in conducting KYC and customer due diligence processes.

Thus, the benefits of adopting e-KYC by financial institutions are clear from a commercial and regulatory standpoint.

Current technology allows us to build e-KYC platforms with three core advantages:

1) financial-grade facial recognition, 2) proprietary ID identification and anti-counterfeiting, and 3) multi risk signal-based security control systems using a real-time ID network.

Compared with traditional processes, such a platform provides financial institutions with an automated self-service process with ID, face-capturing and liveness detection features. Information provided by a customer can then be verified against data sources from the authorities, saving significant amounts of time.

Based on our observations in Indonesia, nearly a half of the customers on an e-KYC platform could have their services successfully processed within three minutes, compared with a typical waiting time of at least two hours through systems that required manual review.

In Malaysia, customers will soon see financial service providers using e-KYC as they increasingly go digital and look to onboard more customers via online or mobile channels. This technology is currently familiar to Touch ‘n Go eWallet and GrabPay users in the country as they are already required to submit a photo of their identification card to verify their account.

The benefits of adopting e-KYC in developed countries are already clear from a commercial and regulatory standpoint. Given what we are now seeing in emerging markets, the positive impact, especially in the critical issue of promoting financial inclusion, is set to be much more far-reaching and momentous.



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