Fast tracking e-KYC for Financial Inclusion
The policy work stream of the SIDFS initiative tracks formulation and reform of public policy, regulation and implementation of agreed consensus on DFS policy direction, periodically communicating developments to stakeholders. Currently, we are engaged in empirical research in a bid to recommend policy/regulatory measures for the promotion of sustainable business models and inclusive products to drive quicker attainment of financial inclusion targets.
The policy stream undertook research in the first quarter of 2020 to:
Identify how policies, legislation and regulatory measures targeted at providing citizens access to formal financial services, have influenced the development of inclusive financial services and products by financial service providers (FSPs).
Semi-structured survey questions were distributed to 150 regulators, financial service providers and other players in the ecosystem. The collection method was by self-completed interview guide and telephone interviews. The research was qualitative and data analysis was by descriptive and thematic analysis. Survey questions included:
1. Which public policy, legislation and regulatory measure significantly motivates FSPs to develop inclusive financial products and services?
2. Which public policy, legislation and regulatory measures have been significant obstacles to the development of inclusive financial products and services by FSPs?
3. How can these identified policies, legislation and regulatory measures be reformed?
The findings on Tiered KYC, the second most preponderant motivator reported for inclusive products, is our focus. One of the respondents said: “with the tiered KYC, KYC was simplified, overcoming a major barrier to inclusion”, as it enabled banks and other FSP’s to onboard customers with reduced KYC assets. In answer to question 3 a respondent said: “I recommend the development of a framework for e-KYC in Nigeria”.
From the data, a key insight was that “Minimum digital identity is imperative and sufficient for product development/financial stability”. Respondents counseled:
“E-KYC /more relaxed measures to align others with Fintech’s, followed by curbs after recruitment, may be more effective in driving faster inclusion.”
A respondent said: “Regulators need to rethink the whole customer on-boarding process to reflect the digital transformation taking place in the country, so that there would be an open playing field for everybody … Because, today, a Fintech can on-board almost anybody, unlike the banks, due to some regulations like KYC, AML/CFT regulations.”
Yet another said:
“The NIN enrollment exercise and centres have not been favourable… Once we tell a prospective customer that he/she will require a NIN, they just back out, as the process of getting the NIN is very difficult. Most times, we must bear an extra cost to facilitate NIMC registration agents… this is not a sustainable strategy for us…”
E-KYC could mean contactless KYC, taking facial identity by 5 second video or thumbprint digitally without face-to-face contact with an agent, or even the use of relaxed criteria, such as matching customer data with SIM card, Voters card identity records or, as in the UK, with a registered address. There are software that can analyze the identification data of customers from documents, hand writing or through mobile cameras. This may be “Ultra Lite” KYC.
There is a serious risk of cybercrime of course, but as the respondents suggested, e-KYC should be restricted to very low transaction limits to facilitate account opening and only augmented if/when the customer upgrades their KYC further, say by subsequently obtaining their NIN number. In light of the offer of the Nigeria Computer Society to create in 180 days a framework for issuance of Temporary National Identity Number using complex data matching algorithm and facial recognition, the recommendation for e-KYC appears pragmatic.
In an official statement released on April 1st, 2020, the president of the Financial Action Task Force (FATF) “encourages the fullest use of responsible digital customer onboarding and delivery of digital financial services in light of social distancing measures…Use of digital/contactless payments and digital onboarding reduce the risk of spreading the virus.”
The challenge now is to work out how e-KYC could help achieve inclusion targets, address Covid-19 and AML/CFT risks. Regulatory innovation by NIMC, CBN, NCC, NFIU and the Steering Committee and Working Group for Nigeria’s Digital Identity Project is required.
Professor Olawale Ajai is the Policy Lead for Sustainable and Inclusive Digital Financial Services Initiative