Opening a new chapter in Asia's digital banking boom with e-KYC

The World Bank estimated that over 1.7 billion individuals remain unbanked today. The trend is reflected in Southeast Asia, where more than 70% of its adult population is either underbanked or unbanked, despite being one of the world’s largest and fastest growing regions, according to a study by Google, Temasek, Bain & Company on Asia's digital financial services.

Access to financial services has long been regarded as a critical step towards escaping poverty. This unbanked population in Southeast Asia presents an imperative for banks to make their services more inclusive.

e-KYC as a driver of banking transformation
During the account creation process, banks must first undertake a mandatory process of verifying the identity of the customer through manual checks. This process is called Know-Your-Customer (KYC).

However, current KYC processes can be duplicative, cumbersome and costly to implement. They may also deter customers from opening their own accounts. Nearly one in five unbanked adults globally cited the lack of identification documents as a barrier – a figure that grew higher in countries such as the Philippines (45%), according to World Bank.

Electronic KYC (e-KYC) can help increase financial inclusion. Using AI and biometric technology, e-KYC platforms allow financial institutions to perform their KYC checks and due diligence processes without the need for physical verification.

Reduced physical risk and human error
e-KYC technology can reduce the number of in-person checks or even the entire physical exchange. This proves especially critical today as the world seeks to eliminate the COVID-19 virus. e-KYC allows customers to access financial services without putting their health at risk.

A digitized process also reduces the room for human error and results in better allocation of resources to other customer experience-enhancing activities.

Lower barriers of entry and time saved
e-KYC technology simplifies the account creation process. A prime example of an emerging market implementing such technology is Bangladesh.

With the introduction of e-KYC by bKash, the country’s largest mobile financial service provider and local e-wallet partner of Alipay, customers from rural areas can open a bank account simply by scanning their national identity card and taking a photo using their mobile phones.In addition, the local government recently started using bKash’s mobile service to distribute financial aid to verified distressed families, highlighting the importance of making such accounts more accessible, especially to vulnerable groups. With e-KYC, Bangladesh is now a step closer to total financial inclusion by 2024, a five-year goal set by the country’s government.

Our observations in Indonesia also showed that nearly half of the applications submitted through e-KYC platforms were successfully processed within three minutes, compared with a typical waiting time of at least two hours using traditional manual review processes. 

Greater fraud detection
Criminals today are more sophisticated in their ability to use technology to steal from companies and customers. Unsurprisingly, 61% of banks have reported an increase in external fraud by both value and volume over the past three years, a report by KPMG revealed.

e-KYC can help defend banks against such attacks by detecting more identity fraud patterns at origination, during transactions and by monitoring portfolios. In light of this benefit, the Singapore government also announced last year its plans to restart its national e-KYC project.

Regulatory compliance
Today, financial institutions globally are facing an increased demand for resources and the rising cost of satisfying regulatory requirements, such as those intended to curb money laundering and terrorist financing.

The impact of non-compliance can be significant. According to a report by Fenergo, regulators in the Asia Pacific region has ramped up enforcement in recent years, issuing US$611m in fines from 2008 – 2018, of which US$541m was imposed in 2018 alone.

A lack of resources may have resulted in non-compliance. In a Refinitiv study, nearly a third of financial institutions attributed the lack of resources to manage proper KYC and customer due diligence processes.

This further highlights the importance of adopting e-KYC technology to satisfy strict regulatory requirements in an efficient manner.

Looking forward
The benefits of adopting e-KYC by financial institutions in both developed and developing countries are clear from a commercial and regulatory standpoint.

With the COVID-19 pandemic acting as a further catalyst for contactless services, it is more pertinent than ever to leverage technology to alleviate poverty through financial inclusion.