KYC (Know Your Customer) is at the cornerstone of effective service, inclusion, safety and security within the finance sector all over the world. In a fast-moving digital age, new challenges keep emerging at the speed of innovation. How might regulatory frameworks ensure stability and guarantee better services and customer experience in the entire mix?
Observations On Nigeria’s Regulatory Landscape With Respect To KYC:
Regulations on KYC have certainly come a long way over the years. Regulatory bodies, particularly the Central Bank of Nigeria, have shown deliberateness at emphasising the fundamental importance of identity verification in various ways, such as furnishing and enforcing rules, regulations and guidelines for adequate KYC (i.e. Know Your Customer), especially within the financial services sector. However, diverse challenges are still palpable in the KYC processes advanced by regulatory bodies.
For instance, banks and fintechs still grapple with inconsistency in terms of statutory documents to request and standardised methods for information gathering. Also, current KYC processes advanced by regulation still rely a lot on some form of physical engagement / interactions or another, which poses lots of obvious limitations, especially in the light of restrictions and caution in a post-pandemic world.
Additionally, the need for KYC compliance compels financial service providers to pay high attention to it and invest more resources in that direction, consequently, a lot of costs go into KYC processes, through KYC solution providers, especially on things like address verification. These are some of the challenges that regulation still needs to spotlight and help tackle.
How Address Verification is being done currently and what kind of change needs to be made:
Current methods for address verification are obviously not scalable. Presently, banks, fintechs and other providers have to engage agents to physically verify addresses. The fact is, where physical visitation is still enforced as the main thrust of verifying addresses, one can expect to keep facing debilitating challenges. For instance, it is common knowledge that in Nigeria, accessing houses located in estates can be daunting, especially given security situation in the country. Calls have to be made to residents from estate gates before entry is granted, a condition which foils the verification objective if the resident for any reason is not reachable. Moreso, the attendant monetary cost to this method can be as high as N2,000 per customer. Multiply that by thousands of customers and you can imagine the weight of the cost. Moreover, the entire verification process can take as much as four weeks to complete. Additionally, the real estate landscape is beginning to evolve; new rental patterns are emerging whereby travelling executives and young professionals can rent a living space for much shorter periods than the conventional annual span. The corollary of that is that initially provided address records such as utility bills become fast obsolete.
Furthermore, with the advent and rising subscription of businesses to virtual workspaces, conducting physical address verification exercises becomes invalidated as businesses are prone to sharing same desk spaces. Evidently, updated and more efficient approaches are required, factoring in these challenges and the current developments in the real estate world. And of course, the direction to look is digitalisation.
Processes and infrastructure required for digital address verification to effectively work in Nigeria and Africa:
For one, we will need a functional, comprehensive central identity registry. This is a must if digital address verification will work. Advanced technology needs to be built to integrate and regularise the various government and authority databases that currently exist in silos. A single source of truth is required if forgery and impersonation must be better curbed. Also, on the occasion that a central identity registry is achieved, modern technology that makes access to it seamless, efficient and cost-effective need to be available.
Mobile devices take centre-stage and better access to them is critical as end-users will depend on them in going through the digital verification exercise. Also, internet penetration will need to be better and the quality of service stronger, especially in rural communities. More importantly, digital address verification solutions that are able to verify the physical address of merchants and customers from their smartphones without having to physically move an inch are needed. Without these in place, digital address and identity verification will continue to be herculean.
Precise ways that regulation can help to advance digital address verification:
It is necessary to furnish regulatory frameworks that will spur financial service providers to embrace the introduction and adoption of digital options and approaches. Digital solutions for address verification are fast emerging. Service providers are willing to embrace these digital solutions, given the obvious benefits in terms of ease of onboarding, data reliability, and overall efficiency. When regulation begins to emphatically and specifically advance the use of digital approaches, the entire landscape will further open up. Moreover, innovation will be encouraged in such an instance and given the rapid rate at which digital technology evolves, one can project that better, faster and less-expensive options will soon surface. A lot stands to be gained when regulation becomes deliberate about pushing for digital alternatives.
KYC over the next decade:
Achieving financial inclusion and providing value-adding financial service at scale will continue to be a major drive in the local and global scene over the next decade. Added to that, tackling fraud, terrorism funding, tax evasion and loan-recovery will continue to take centre-stage for businesses and governments. Against this backdrop, identity verification will take a sturdier position in the scheme of things. As with several other areas, the digitalisation of KYC will continue its forward march and better options will continue to be introduced into the market as advanced technologies like blockchain and machine learning are increasingly leveraged by Digital KYC service providers. Hence, financial service providers and regulators, especially in Africa, will need to be more open, proactive and nimbler in sourcing and adopting digitally advanced mechanisms as they emerge if they must stay competitive in the market. In the end, the future of KYC is digital, and only the digitally impassioned will thrive in it.
* Author Bio – Sadiq Arogundade is the Founder/CEO of D’Accubin Technology Limited Swiftend.com, the creators of WhoisID.africa, a digital address verification platform that utilizes algorithms that leverage geocodes/IP addresses as well as GPS position triangulations to digitally validate addresses. WhoisID.africa is aiming to simplify the KYC process and disrupt the identity verification industry in Africa. He is a skilled expert in compliance, corporate governance, and financial risk mitigation, with rich experience spanning over a decade in building technology solutions sheds light on the intricacies.
