india kenya romania south africa tanzania Identity Verification Emerging Markets

For most, the subject of identity verification isn’t something that comes up in daily conversations. Unless you are directly involved in identity access and management in your work, research, or both, identity verification may not even be on your radar. However, as we continually read and hear of the rising number of high-profile data breaches suffered by major companies and organizations, perhaps the time has come to make identity verification part of our everyday conversation.

Why is identity verification so important?

In a world where proof of identity has become essential for access to goods and services, when criminals gain access to our identity information, the consequences can be devastating. With a few pieces of critical personal information, hackers can suddenly assume your identity and ruin your credit history and reputation through fraudulent credit cards, loans, and purchases. By doing so, you may be left with the difficult task of re-establishing your credit rating by jumping through numerous hoops with credit bureaus to prove that you didn’t make all of those suspicious transactions.

But what if you live in a nation where your identity is a privilege and not a right? In developing countries, having a government-issued ID document or other proof of identity is a luxury that few have, mainly because of a lack of resources and infrastructure.

For people living in emerging markets, fraud is less of an issue, since the majority of the population usually lacks access to even the most basic financial services. For these people, identity verification has a very different focus. Rather than fraud prevention, it can be a powerful tool to financially empower the poor.

Companies such as VoLo Africa are taking a fresh approach. It is a privately-owned African company that aims to improve financial inclusion and increase health care access by building a database that combines biographical, biometric, and sector-relevant data to verify identities. VoLo has developed a trust information platform that combines data from financial and utility records, court judgments, and other public records and documents to provide reliable credit information to financial services companies.

Although many Africans may not have formal bank accounts, an increasingly popular trend has been the use of mobile money. The forerunner and pioneer in the mobile money sphere is definitely Kenya’s M-Pesa. It has become so popular and widely used that it has spread to other countries, including Tanzania, South Africa, and even in Asia (India) and Eastern Europe (Romania).

Another African initiative taking place is in the West African Economic and Monetary Union (WAEMU) region headed by the regional West African central bank (BCEAO) in partnership with The MasterCard Foundation and the Consultative Group to Assist the Poor (CGAP). The BCEAO began regulating electronic money as early as 2006, and since that time, 25 mobile money service providers have set up shop in the WAEMU.

While mobile money is making great strides in building greater financial inclusion, the question of fraud prevention and regulatory compliance remains. Without a doubt, it is more important than ever to verify mobile money customers to keep transactions as transparent and secure as possible.

Can effective regulatory compliance and financial innovation peacefully coexist?

According to CGAP, compliance and innovation need not be mutually exclusive. Some countries have introduced “tiered KYC (know your customer)” regulations, which provide less stringent requirements and lower the cost for financial institutions to onboard lower-risk and lower-income customers. Despite the challenge posed by a lack of national ID cards in most developing countries, companies like VoLo and projects like Aadhar in India are addressing the issue and provide effective solutions for better and more affordable KYC compliance.

Using electronic identity verification (eIDV) in emerging markets can play an important role in ensuring that new customers for financial services are onboarded quickly and affordably. Manual identity verification is an extremely slow and costly process that can add lengthy delays as well as frustration for customers.

It’s an exciting time for financial inclusion advocates. There is so much great potential for mobile technology in emerging markets. Mobile money can reach so many more people than traditional bricks-and-mortar financial institutions, since mobile phone adoption is so widespread. However, like any new frontier, there is a definite need for law and order in the form of effective regulation and enforcement.

Watch this educational 5-minute video from the Center for Financial Inclusion on why financial inclusion matters and how we can expand access to financial services to the unbanked, while managing risk.

What opportunities and challenges do you see for financial inclusion? How close are we to achieving financial inclusion in 2020?