The Top 10  Most Difficult Countries for Identity Verification

The Top 10  Most Difficult Countries for Identity Verification

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    Fathoming Financial Inclusion, Innovative KYC Solutions, and Integrity

    Fathoming Financial Inclusion, Innovative KYC Solutions, and Integrity

    Identity – ensures active participation of an individual in social, political and economic life. As per regulators and international conventions, without an identity, a person cannot exercise an array of human rights. About one billion people in the world do not have an official recognizable identity. These people belong to developing countries that lack identification mechanisms. This is a huge concern, not only for governments but for individuals who are stateless and have no form of identification. Such individuals are excluded from the scope of financial services and assistance provided by major government sectors, banks, and other financial institutions. 

    However, the identification mechanisms are highly dependent on Know Your Customer (KYC) practices as well as Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) law. Financial institutions unable to verify prospective customers are, unfortunately, promoting financial exclusion. Financial exclusion is ultimately a threat to integrity in the financial systems. Regulators such as the Financial Action Task Force (FATF) and many others have recognized the need for AML/ CFT practices and procedures. To meet the objective of financial inclusion, considerations should be entertained by aligning the identification mechanisms. 

    The growth of the FinTech industry is accelerating financial inclusion by ensuring Customer Due Diligence (CDD) practices that cover both KYC and AML methods. Innovations in the FinTech industry have made identity verification practices convenient for both businesses and customers. These practices are adjusted as per regulatory requirements, for instance, limiting the online transaction value or identity verification against electronic document verification. Moreover, taking technology assistance in streamlining the KYC and AML procedures, data analytics technology to analyze customer behavior during the whole customer lifecycle and blockchain technology that provides virtual identity to individuals. All these innovations help assurance of financial services and products and so promote financial inclusion.

    Importance of Identity in Financial Inclusion

    Identity is important for participation in the financial, social, economic, and political market. If identity is not available, basic rights are not provided to an individual. Identity is composed of a set of attributes. Although the attributes individually do not need to be unique whereas collectively, the set should be unique. By verifying the identity of an individual, services can be provided. This is because identity verification of an individual gives government or private businesses confidence that they are facilitating an honest identity and is not a risk for the organization.

    Identification can be done in three steps:

    • First, identification is done against information a person knows
    • Secondly, identification is done against something a person has such as government-issued ID card
    • Thirdly, identification against something a person is, such as unique biological trait 

    Biometric identification is an example of identification against unique biological traits in which fingerprints, iris/retina, and facial biometrics, etc are included. Biometric authentication is done by financial institutions to deter the risks of unauthorized entities in the legitimate financial system.

    Concept of Digital Identity

    A digital identity is formed when the digital attributes of an individual are stored in the digital world. The world is growing at a rapid pace towards digitization. As more and more businesses have created a digital identity, individuals participate in it that should be identified and verified to keep businesses sound against cyberattacks and uncontrolled access. For this, online identity verification is done that is cost-effective and efficient. Online identity verification is capable of authenticating an online identity without compromising the user experience. Hence both security and customer experience remain intact. 

    Online financial service providers, whether banks, insurance companies, real estate or virtual currency, all are obliged to perform identity verification to eliminate the risks of bad actors that perform various malevolent activities in the system. The purpose of financial inclusion can be well-achieved by taking in place innovative KYC mechanisms that perform due diligence procedures for digital identities. 

    Cross-sectional insights about financial inclusion 

    This section highlights the cross-sectional insights that emerged from the above-mentioned cases. 

    Due Diligence Requirements

    Due Diligence requirements help in customer identification against what an individual has. For this, an individual should provide proof of identity in the form of some official document. The very first challenge in the way of financial inclusion is to identify an individual while competing with the pace of the digital world. Opportunities are available to streamline the customer onboarding experience and affordability for businesses in order to perform identity verification. Such processes extend the scope for institutions by fulfilling regulatory requirements and reducing the risks of bad actors from the financial system. The world is introducing innovative means to widen the scope of identity verification measures. South Africa supports innovation and approaches to the establishment of identity verification solutions and stringent regulatory framework. Institutions in South Africa are supposed to maintain a risk management strategy and comply with the regimes. The objective of inclusive integrity can be supported by encouraging efficient and innovative ways of identification. 

    Approaches and Results of CDD

    Customer Due Diligence approaches are different and give different results. Some countries perform document verification of an individual to verify identity.  Others use risk-based approaches in which document verification is not confined. Other principle-based due diligence processes are performed that are related to requirements needed to identify an identity. Regulatory authorities provide flexibility to institutions to apply processes that ultimately support the objectives of inclusive integrity. 

    Adoption of KYC Regulations around the World

    Countries across the globe are adopting KYC regimes. From Nigeria to Egypt and Russia to Peru, countries are performing due diligence of customers as mobile banking is promoted. Egyptian regimes encourage benefits by mitigating the risk of bad actors. Digital banking and money transfer methods with simplified KYC requirements have revolutionized the FinTech industry. The adoption of stringent KYC regimes have produced positive outcomes for obliged countries.  

    Penetration of Innovative Technologies

    The FinTech industry is prone to major online security challenges among which dealing with uncontrolled access is on the top. Biometric authentication, one of the KYC innovations ensures authorized access over online banking accounts of customers. This helps fight against several cybercrimes that vary from payment scams, credit card fraud to even severe, money laundering and terrorist financing. Biometric authentication methods help identify each onboarding identity that isare capable of keeping intact customer experience and security, both.

    FinTech Innovations preparing the way for Financial Inclusion

    Financial services and products provided by the FinTech industry are contributing to financial inclusion and integrity. The innovative ideas of FinTech innovators hold the potential to fulfil the purpose of financial inclusion by introducing digital means of banking. The challenge is to fight against bad actors that can be harmful to the FinTech industry. KYC innovative solutions can help in customer identification using technological advancements in the form of electronic identification and biometric authentication. Digitally globalized world requires both security as well as friendly online experience that can be achieved by integrating KYC solutions that are robust and efficient. The following are some technologies that are helping the FinTech industry promote financial inclusion and integrity.

    Facial Recognition Technology

    Biometric authentication APIs employing facial recognition technology are developed and used by the FinTech industry to authenticate onboarding customers against face/video. Technology has the capability of recognizing various other elements such as liveness and spoofing detection to avoid online fraudsters and their tricks.

    Artificial Intelligence

    AI technology is used with its string underlying algorithms that help the FinTech industry in fraud detection. AI and Machine learning technologies are used together to detect suspicious entities and activities in the financial system.

    Secure Data Storage

    To ensure the security of personal and financial information of customers, FinTech industry establishes decentralized data storage that is efficient, cost-effective and protected from any unauthorized access.  

    To conclude, KYC innovations are promising with respect to the objective of financial inclusion and integrity. Innovative KYC solutions can help to create a digital world free of financial crimes and activities. Ensuring a decentralized database to protect the confidential data of customers and by customer identification against facial biometric is paving the way for a secure FinTech industry. Moreover, regulatory compliance is achieved by not compromising customer experience and security. 

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