Banking the Unbanked: Can Video KYC Create a Financially Inclusive Future?
- By adopting advanced technologies like video interview KYC, banks can extend their reach and create new opportunities.
An estimated one-fifth of the world’s population which is almost 1.7 billion people are unbanked. Historically, it has not been viable for financial institutions to provide services to these individuals. Several reasons contribute to this non-inclusion. The problem is not just in developing economies but also in developed ones, such as the US and UK. According to the Federal Reserve, an estimated 6% of adults, about 15 million people in the U.S. are unbanked. The advancement in technologies has the potential to overcome hurdles that stop people from accessing the financial system – be it geographic constraints, regulatory inaccessibility or lack of trust.
Technological advancement is expected to convert the previously unbanked individuals into valued members of the formal economy. Financial institutions in emerging markets, worth $200 billion, are already adopting technologies to capture the potential share. However, the situation is not the same for every region and each unbanked individual. Some regions and individuals lack access to banking services while others may not trust the banking system. Even with an encouraging environment, banks need to tailor their existing systems to achieve a profitable financial inclusion.
Why Banks Need to Reach the Unbanked?
With payment methods shifting to the digital sphere, reaching the unbanked becomes more important than ever. A decade ago, people were commonly paid in cash for their work. But with a global shift towards digitization
Victor Fredung, CEO of Shufti Pro Ltd
, employees who previously got paid in cash need to find ways to receive their work Payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term. According to a report, 9% of the global population opened a bank account to start receiving their work payments.
Since the majority is looking for digital payment options and moving away from a cash-based economy, traditional financial institutions need to take benefit of it and make their services easily accessible to the unbanked or underbanked.
Some of the major reasons why banks should focus on reaching the unbanked are:
Chance to Increase Revenue
With more customers using banking services, the opportunity for earning more revenue increases for the banks. For instance, in the emerging economies, most people rely on international remittance sent to them by overseas relatives. If banks make these services easily accessible to these people, their revenue will automatically increase.
Creating Opportunity for Emerging Middle Class
Providing easy access to banking services allows the middle class to develop and thrive. Even though alternative financial services provide affordable options for the people to use them, some services such as payday loans and check to cash are often very expensive when compared with traditional banking services. By providing affordable options, banks can help to reduce the cycle of poverty and increase their revenue at the same time. This creates a win-win situation for banks and customers.
Possibility to Reach Emerging Market
As per a survey, 75% of the underbanked households have access to a smartphone compared to 71% of the banked households. By adopting mobile banking technologies, banks can create a possibility to reach emerging markets without a physical presence in these markets.
Removing Barriers to Expand Acces to Banking
The majority of unbanked people believe that creating an account in the traditional bank is somehow out of reach due to the lengthy processes and extra scrutiny they have to go through. On the other hand, banks are legally bound to conduct due diligence of the customers before onboarding them and conduct ongoing monitoring to avoid being involved in crimes like money laundering and terror financing.
Moreover, the technologically advanced customers are more interested in completing transactions online from the comfort of their home without having to physically visit bank branches. Banks that do not have technology are reluctant to go online because of cybersecurity threats.
Banks can create digital channels to provide great convenience for customers and lower the costs for banking services. Digital channels can prove instrumental in helping providers overcome challenges related to infrastructure and geography. However, the major problem for the banks is onboarding customers that cannot visit bank branches or do not have access to one.
Remote customer onboarding can prove to be a game-changer for banks and help in reaching a wider population. But, there is a need to make the onboarding process secure. Many technologies are emerging that are useful for secure onboarding and video KYC is one of them.
How Video KYC Can Assist in the Secure Onboarding Process?
Banks had to follow certain customer due diligence procedures to fulfil Know Your Customer (KYC) Know Your Customer (KYC) Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks Read this Term) regulations. Manually, completing this procedure requires ample time and costs a lot to the banks which is why most banks cannot reach remote developing regions around the globe. Video Identification is the solution to this problem. Banks can simply verify their customers’ identity remotely through video chat consequently reducing the overhead costs and time required for manual verification. Customers can open a bank account by completing their KYC verification remotely from the comfort of their home.
Adopting advanced technologies like video interview KYC, banks can simply reach out to areas where they do not have a physical presence reaching to the regions unexplored before and acquainting the previously unbanked customers.
Victor Fredung is CEO of Shufti Pro Ltd
An estimated one-fifth of the world’s population which is almost 1.7 billion people are unbanked. Historically, it has not been viable for financial institutions to provide services to these individuals. Several reasons contribute to this non-inclusion. The problem is not just in developing economies but also in developed ones, such as the US and UK. According to the Federal Reserve, an estimated 6% of adults, about 15 million people in the U.S. are unbanked. The advancement in technologies has the potential to overcome hurdles that stop people from accessing the financial system – be it geographic constraints, regulatory inaccessibility or lack of trust.
Technological advancement is expected to convert the previously unbanked individuals into valued members of the formal economy. Financial institutions in emerging markets, worth $200 billion, are already adopting technologies to capture the potential share. However, the situation is not the same for every region and each unbanked individual. Some regions and individuals lack access to banking services while others may not trust the banking system. Even with an encouraging environment, banks need to tailor their existing systems to achieve a profitable financial inclusion.
Why Banks Need to Reach the Unbanked?
With payment methods shifting to the digital sphere, reaching the unbanked becomes more important than ever. A decade ago, people were commonly paid in cash for their work. But with a global shift towards digitization
Victor Fredung, CEO of Shufti Pro Ltd
, employees who previously got paid in cash need to find ways to receive their work Payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term. According to a report, 9% of the global population opened a bank account to start receiving their work payments.
Since the majority is looking for digital payment options and moving away from a cash-based economy, traditional financial institutions need to take benefit of it and make their services easily accessible to the unbanked or underbanked.
Some of the major reasons why banks should focus on reaching the unbanked are:
Chance to Increase Revenue
With more customers using banking services, the opportunity for earning more revenue increases for the banks. For instance, in the emerging economies, most people rely on international remittance sent to them by overseas relatives. If banks make these services easily accessible to these people, their revenue will automatically increase.
Creating Opportunity for Emerging Middle Class
Providing easy access to banking services allows the middle class to develop and thrive. Even though alternative financial services provide affordable options for the people to use them, some services such as payday loans and check to cash are often very expensive when compared with traditional banking services. By providing affordable options, banks can help to reduce the cycle of poverty and increase their revenue at the same time. This creates a win-win situation for banks and customers.
Possibility to Reach Emerging Market
As per a survey, 75% of the underbanked households have access to a smartphone compared to 71% of the banked households. By adopting mobile banking technologies, banks can create a possibility to reach emerging markets without a physical presence in these markets.
Removing Barriers to Expand Acces to Banking
The majority of unbanked people believe that creating an account in the traditional bank is somehow out of reach due to the lengthy processes and extra scrutiny they have to go through. On the other hand, banks are legally bound to conduct due diligence of the customers before onboarding them and conduct ongoing monitoring to avoid being involved in crimes like money laundering and terror financing.
Moreover, the technologically advanced customers are more interested in completing transactions online from the comfort of their home without having to physically visit bank branches. Banks that do not have technology are reluctant to go online because of cybersecurity threats.
Banks can create digital channels to provide great convenience for customers and lower the costs for banking services. Digital channels can prove instrumental in helping providers overcome challenges related to infrastructure and geography. However, the major problem for the banks is onboarding customers that cannot visit bank branches or do not have access to one.
Remote customer onboarding can prove to be a game-changer for banks and help in reaching a wider population. But, there is a need to make the onboarding process secure. Many technologies are emerging that are useful for secure onboarding and video KYC is one of them.
How Video KYC Can Assist in the Secure Onboarding Process?
Banks had to follow certain customer due diligence procedures to fulfil Know Your Customer (KYC) Know Your Customer (KYC) Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks Read this Term) regulations. Manually, completing this procedure requires ample time and costs a lot to the banks which is why most banks cannot reach remote developing regions around the globe. Video Identification is the solution to this problem. Banks can simply verify their customers’ identity remotely through video chat consequently reducing the overhead costs and time required for manual verification. Customers can open a bank account by completing their KYC verification remotely from the comfort of their home.
Adopting advanced technologies like video interview KYC, banks can simply reach out to areas where they do not have a physical presence reaching to the regions unexplored before and acquainting the previously unbanked customers.
Victor Fredung is CEO of Shufti Pro Ltd