Equal Access: How does eKYC work for the unbanked

As the unbanked do not have a bank account, it is difficult for banks and financial institutions to conduct the necessary KYC checks on them.

21 days ago   •   3 min read

By Tun Yong Yap

Though it may sound foreign, know-your-customer (KYC) policies have been present within the financial services industry for decades.

As part of efforts to fight against money laundering and terrorist financing, KYC measures have become a mandatory framework for banks and financial institutions to adopt. These are often implemented at the customer identification stage when a new account is opened.

Previously, conventional KYC methods included multi-page forms where individuals are required to manually fill in personal details ranging from their income history to assets and liabilities, depending on the level of checks required.

Over the years, KYC has evolved into eKYC, with ‘e’ denoting the shift towards electronic identification methods.

Current digital identification methods include verifying personal identity documents (eg. ID cards, passports) and using digital verification tools to check if they are genuine.

Certain banks and financial institutions go one step further and conduct biometric verification involving fingerprints or facial recognition.

The conventional flow of an eKYC process
The conventional flow of an eKYC process

Even though digital verification tools have evolved over time to take advantage of artificial intelligence and machine learning capabilities, fraudsters have been equally adaptive.

Today, counterfeit passports and altered images are not uncommon.

Combating fraud

When such documents are used in a financial industry that is notorious for having legacy digital infrastructure, it is thus no surprise that fraud has been rising globally.

In 2019, US$260 million was lost to digital fraud in Southeast Asia, with identity theft (71 per cent) and account fraud (63 per cent) among the leading methods.

In an effort to address the rising cases of financial fraud, US agencies, including the Federal Reserve, have encouraged banks and financial institutions to adopt more sophisticated approaches to identify suspicious activity and conduct more in-depth eKYC processes.

Meanwhile, the European Union (EU) has encouraged the usage of more detailed biometric data such as irises and smarter technologies to detect any images where facial features might have been tampered with.

A different problem

While these measures are effective in fighting fraud in developed economies such as the US and EU, developing economies such as those within Southeast Asia have to contend with a different problem altogether - the lack of information.

Within Indonesia, 140 million people (or half of the total population) are unbanked.

As they do not have an existing bank account and an offline financial identity, it is difficult for banks and financial institutions to conduct the necessary KYC processes on them.

However, Indonesia also has one of the highest numbers of internet users in the world.

Internet penetration in Indonesia stands at 73.7 per cent and the number of mobile connections in Indonesia was equivalent to 125.6 per cent of the total population.

Hence, the majority of the population are on the internet and the country’s digital economy is thriving. This represents a wealth of consumer data for Indonesian firms to conduct their eKYC checks.

Localised solution

Therefore, how can we leverage this and build a more inclusive and robust eKYC feature to enable more Indonesians to access financial services?

The answer lies with Finantier’s eKYC APIs.

Connecting to a wide range of partners including gig platforms and telcos, it provides the most in-depth data coverage for companies to handle their eKYC processes.

By adopting a more diverse approach towards data aggregation, we enable companies to more accurately assess and verify the identities of their customers, eliminating fraud.

Besides, by aggregating data from sources outside conventional financial institutions such as banks, our eKYC APIs enable banks to confidently conduct eKYC checks on the unbanked, opening up access to financial services for over 140 million Indonesians.

Speak to us today to learn more about our eKYC API and find out how you can verify more customers and increase your user base while staying secure and combating digital fraud.

At a Glance

✅ KYC policies have evolved to include digital verification of personal identity documents such as ID cards and passports.

✅ Indonesian companies need to access alternative data for eKYC processes due to the high unbanked population.

✅ Finantier’s eKYC APIs sources data from a wide range of partners including telcos and gig platforms to ensure companies can conduct a more detailed verification process.

Spread the word

Keep reading