Know your customer, (henceforth KYC) is a standard of rules about collecting and storing information about customers. It covers aspects such as identity, biometrics, residence, and to an advanced extent, creditworthiness. Furthermore, it can extend to cover risk profile and exposure to events such as politics. This piece will delve into the importance of KYC, some challenges of KYC in Africa and opportunities for growth and better service.
Who are you serving?
KYC is akin to fuel for the service industry. How can companies serve people without the relevant information about them? How will they improve on services without insights on demand or customer satisfaction? KYC is a legal requirement in the financial service industry, more so for crypto, because it’s the first layer of creating protective measures for both people companies, and people engaging in the ecosystem.
In contrast to the established financial services industry, the crypto industry is developing its own framework to strike a balance between the promise of decentralized governance, identity anonymity, and client protection. KYC is impossible to do without, and it can be done better.
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500 million citizens lack national identification. This happens because many countries don’t register people at birth. Secondly, the cost problem comes up in the physical delivery of identification cards. The difference in quality and dimensions of existing identity cards also makes them hard to verify digitally using a phone camera. For example, the 2019 rollout of the Huduma Number in Kenya proposed a new identification system integrating biometrics and functional data. The system was however mired in controversy, as there was no data framework in place to support the data collection. The legal community moved to challenge the process of the rollout in court, which would make the new system a win-win scenario for the country.
The diversity of the African continent communities remains to be one of its greatest advantages. However, it’s also a disadvantage in regard to biometrics. Machine learning algorithms, for example, lack the ability to capture differences in skin tones, placing darker skin tones at a disadvantage. In contrast, the same algorithms recognize Caucasian faces with great accuracy. Increasing existing data sets also to improve facial recognition will go a long way in financial inclusivity.
Personality identification concept. Facial verification of African American lady on grey background, … [+]
Many buildings, both commercial and residential on the continent are unnamed. A simple utility bill or bank statement, additionally may not capture one’s residential address. About 57% of people do not have a formal bank account. Another 43% of people lack access to grid electricity, on average. Millions still lack access to clean water over long periods of time. Reaching people where they are is a great challenge. Digitally functional companies may not all be able to do without verifiable proof of address.
Africa is the most population-rich continent, with a youthful average age of 19. Potentially the home of 1.5 billion people by 2025, Africa holds plenty of opportunities to serve people who will be diverse contributors to the global economy. The gaps in formal KYC infrastructure present opportunities to leapfrog the same challenges.
Regulators, entrepreneurs, and communities need to establish new avenues for service delivery with reduced cost implications and greater efficiency. Regulatory bodies need to extend collaborative platforms to invite virtual asset service providers (VASPs) with access to identity frameworks to provide insight into how they work. It needs to be easier for governments to understand VASP customer profiles, instead of blanketing them as rogue players dealing in unregulated instruments. Additionally, access to identity verification frameworks will make it easier for VASPs to monitor suspicious or fraudulent activity on their platforms.
A good win-win scenario is VASPs gaining access to national identity systems to assist in financial incidence investigations. Occurrences of fraud are impossible to trace in cash, but possible in digital systems. What if VASPs could offer a trail of data regarding cases traced over a period of time? It would be easier for law enforcement authorities to find criminals who might try to launder crime proceeds through their platforms. This collaborative effort needs to gain ground for a healthier financial ecosystem across the board. More milestones need to be covered.
Another solid win would be in regard to the SDG goals to reduce poverty. Through collaborative efforts, VASPs can educate communities on best practices for investing in digital assets. This will limit the adverse effect of scams, and reduce the same communities’ exposure to market volatility by a better understanding of trends. Crypto assets offer a lower barrier to entry for potential investors, making them a fair avenue of learning personal investment. This is, however, somewhat contingent on their access to KYC for better service delivery in regard to tailoring educational content.
Collaboration is the foundation of this much-needed future, to unlock seamless trade and value transfer for communities on the continent.
Disclaimer: I hold bitcoin and other cryptocurrencies.
Author
Administraroot
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