Over the past couple of years, Africa’s financial tech industry has taken off. There has been a significant rise in mobile money. However, as you could expect, the increase of financial situations has also resulted in the need for ID verification and extensive onboarding measures. As Africa’s financial systems continue to grow, they’ll need to continue to improve their onboarding systems.
A Boom In Online Banking
In 2017 and early 2018, mobile payment options began to explode in Africa. In late 2018 and early 2019, there has been an explosion in online banking. For instance, one of the most popular options available is Bank Zero, whose founders include former First National Bank CEO Michael Jordaan. The company has long been at the forefront of innovation, launching a banking app as far back as 2010. Now, they look to offer mutual funds, even without brick-and-mortar locations.
Jordaan told Forbes, “WhatsApp, Facebook, and Twitter do not have a branch infrastructure, nor call centers, nor do they require extensive paperwork to be signed to join them. If banking were to be developed from first principles, it would be like those popular Apps and be smartphone-based, which is exactly what Bank Zero will do.”
The scenario provides an ideal example of the need for ID verification. Because Bank Zero will not have any physical locations, they’ll need to be able to confirm the identities of their users remotely.
Payment And Remittance Startups In Africa
Another example of the need for ID verification can be seen in the fact that a majority of Africa’s startups are in the fintech industry. Africa has more than 300 startups in the fintech industry, with remittances and payment companies making up a majority of these companies. The Finnovating for Africa: Exploring the African Fintech Ecosystem Report details the significant boom in the fintech industry that’s occurred over the past two years.
The report details how African fintech startups are particularly attractive to investors. However, it’s not just investors who find the industry attractive. Because the industry is so young, thieves and criminals know that there is a significant lack of security. Individuals will look to use these organizations to launder money or funnel funds for terrorism.
Furthermore, these fintech companies are going to need to stress security so that they meet international regulations. Many other global fintech companies and exchanges require two-way authentication. Not only must the front-end user provide verification, but the back-end user must do so as well. African fintech companies may soon need to do so the same, which means they’ll need to move quickly to update their onboarding and verification processes.
KYC Regulation Makes Its Way Into South Africa
Fortunately, it appears that KYC regulation is already beginning to make its way into Africa. South Africa has been on the cutting edge of such rules, as evident by the Thomason Reuters KYC that took place in July 2016. During this meeting, three prominent banks in South Africa worked with the financial company Thompson Reuters to launch a KYC moderation service. Those banks were:
• Barclays Africa
• Standard Bank of South Africa
• Rand Merchant Bank
These banks agreed to work together, agreeing to a set of requirements that they could use to execute KYC regulations. The goal of the meetup was to define rules that proved to be more compliant, cost-effective, and efficient. One of the most significant parts of the pact was that the companies agreed to a database that they could use to share information.
At the time, the head of operations at Standard Bank, Samuel van Nieker, said, “I really think this initiative will sort out the chaos that exists within the KYC process from the collection process and the storage of the documentation within their different entities.” He continued, “the clients will no longer have to run to different banks or financial institutions to provide the information. All of this will be centrally available.”
When the banks initially met, the need for KYC remediation in South Africa was dire. For interest, one of the most common global issues preventing KYC remediation is a lack of people resources. In 2016, the global rate was 36 percent. However, in South Africa, the rate was 45 percent. Similarly, a lack of time was also an issue. The global rate was 33 percent, but the South African rate was 45 percent.
The South African banks have made efforts to expand their KYC remediation throughout the country and then throughout the state. The framework for KYC regulations is already existent in the country. As banks continue to offer mobile banking apps and payment options, they’re going need to focus more on providing KYC mediation. This will not only help streamline the onboarding process, but it will help keep companies sensitive data safe as well.