A Turning Point in Financial Inclusion

Global consumers nowadays seek ultimate convenience as they sign up for services offered by financial institutions, such as opening new bank accounts. With increased trust in digital channels following a global pandemic and a considerable rise in the number of Gen Z and Millennials now entering the financial market, they have come to expect time-efficient, user-friendly and even remote procedures that may otherwise discourage them from engaging with the financial ecosystem.

The case for low-income consumers, however, is more complex. In addition to the current inefficient procedures required to sign up for financial services, these consumers incur high fees resulting from the massive overhead costs shouldered by financial institutions to operate those services. And while digital transformation initiatives such as mobile and internet banking have skyrocketed, many financial institutions have disregarded the most basic step of the process: digitizing Know Your Customer (KYC) and customer onboarding processes. Today, this is among the top reasons low-income consumers are still not financially included in the payments ecosystem.

A turning point on the horizon
Fortunately, the rapid advancement of technologies such as Artificial Intelligence (AI) and Machine Learning (ML) is now presenting financial institutions with new opportunities to remotely identify and verify consumers before provisioning them with financial services, in what is deemed as a turning point in financial inclusion: Electronic Know Your Customer (eKYC).

eKYC utilizes innovative technologies such as AI, ML, biometrics, image analysis and Optical Character Recognition (OCR) to transform the traditional customer onboarding process into a fully digitized and secured one that massively reduces overhead costs and time-consuming efforts, thereby making it more profitable and accessible for financial institutions to offer financial services to low-income consumers.

eKYC also provides financial institutions with prompt, remote assurance that the consumer is who they purport to be, with advanced validations and verifications that mitigate risk and ensure full compliance with central bank regulations and international standards.

The role of the central bank
While central banks are not directly concerned with customer onboarding processes at financial institutions, their role in providing the overall infrastructure is critical to create a robust and standardized national eKYC process. Such infrastructure not only enhances the financial inclusion rates of unbanked and underbanked segments, but also provides central banks with full control over customer onboarding processes across the financial sector. It also eliminates risks of forged documents and fraud, as well as offers full monitoring and view of consumer data.

A national eKYC repository
The infrastructure can be implemented through connecting financial institutions utilizing eKYC solutions to a national block-chain-based or central eKYC repository deployed at the central bank.

This repository consolidates nationwide consumer records including personal information, biometrics, identification documents and more. It can be accessed by a network of financial institutions authorized to automatically retrieve consumer records including all KYC-related documents to further enhance customer onboarding processes in an efficient and paperless manner.

Accordingly, the information and documents required for customer onboarding will only need to be provided once by the consumer but can be retrieved several times by financial institutions through the national eKYC repository. This eliminates redundant eKYC processes for both financial institutions and consumers while having the national repository provide a single and verified source of truth.

The central bank’s eKYC repository will also allow financial institutions to seamlessly update consumer data through open Application Programming Interfaces (APIs) whenever the need arises. This ensures that the records are always accurate and up to date.

Next steps for central banks
Facilitating digital inter-usability, retrieval and update of consumer records has never been prioritized by the financial industry. Today, however, introducing a digital, secure and national eKYC repository is a vital and recommended step for unifying Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) compliance as well as Customer Due Diligence (CDD) procedures to strengthen regulatory certainty and empower central banks with enhanced nationwide control.

Finally, a turning point in financial inclusion is here, and its benefits will be reaped by central banks, financial institutions and consumers on a nationwide scale.