PETALING JAYA – With the spike of interest within the e-KYC space, it is easy to forget that each country has different optics and approaches towards e-KYC in terms of policies and regulations. The technology is also not spread evenly across the world, and national development within this space and adoption rate of this technology may not be in sync.
What is in sync, however, is the high demand for Fintech innovation and virtual banking and the undeniable growth of the e-KYC industry, which is prevalent in both developed and developing countries.
With the Covid-19 pandemic remaining a prevalent problem, governments are now heavily considering the adoption of e-KYC in their own bureaucratic processes in the public sector. Today, we will explore the different e-KYC models across the world and understand the unique quirks each nation has towards its respective e-KYC industry.
When we think of e-KYC, we typically think of the traditional KYC processes being replaced by biometric authentication, face recognition and optical character recognition systems. The Germans have taken a much more straightforward approach, by replacing in-person meetings during the e-KYC process with two-way video calls.
Video verification has the distinct advantage of preventing some forms of identity theft that could potentially bypass e-KYC processes, such as DeepFake technology and spoofing. It also enables the KYC process to be conducted across vast distances, as long as there is a stable and reliable internet connection. However, this method still heavily relies on manual labour and effective scheduling, which is challenging to automate.
In 2014, the German regulator BaFin responded to public demands for a much more convenient onboarding process by exploring ways to incorporate video verification within the e-KYC process. In 2017, the updated regulations enabled institutions to conduct customer identification and verification via a live two-way video link with a compliance professional.
Another notable example would be the Reserve Bank of India, which announced plans to allow video-based KYC as an option to establish customers’ identities in Jan 2020. This is particularly important to India, as it was costly and inefficient to reach out to customers located at remote locations.
Singapore is also considering adopting video since 2018, with the Monetary Authority of Singapore suggesting that real-time video conferencing identity verification must be comparable to face-to-face communication in order for the process to be effective.
Digital ID Schemes
Sweden and India are considering a much more radical approach to e-KYC, which involves the creation of a federated Digital ID framework. Such methods put the responsibility of collecting, processing, and safeguarding citizen data onto the government, which financial institutions can refer to when verifying the identity of a prospective custom — a process similar to a standard NRIC.
Such methods are prone to cyberattacks and hacking and are vulnerable to implementation faults. However, a centralised KYC utility and platform can deliver great cost savings to financial institutions, which do not need to go through the process of establishing their own respective e-KYC framework.
India’s Aadhaar e-KYC system is one of the pioneers of such a model. Launched in 2009, it actually serves as the reference point for current standard e-KYC models years down the road. The system now serves more than 1.21 billion users.
Instead of being an initiative promoted by the government, Sweden’s federated digital ID scheme was actually first introduced by the financial sector, which was slowly adopted by government authorities. Large banking groups in Sweden first introduced the BankID system in 2003, and it is estimated that 80% of the country’s population are now consistently using it.
Simplified KYC process
For most countries, policies and regulations surrounding e-KYC models dictate that every user is subjected to the same stringent and lengthy KYC processes for each account opening or transaction. However, the United Kingdom’s Joint Money Laundering Steering Group (JMLSG) has issued guidelines to greatly simplify the e-KYC process with the help of governmental agencies.
Under the guidelines, low-risk customers are eligible for a simplified version of due diligence, where customers are only identified by their name, date of birth and residential address. Further details of the customer are then sourced and verified from other official government sources, such as electoral register, court judgements and credit facilities.
The guidelines also insist on a two plus two verification process, where financial institutions are required to match the two data points given by the customer, to two data points from an official trustworthy source.