As more and more digital financial service providers enter the African market, there is a need to make sure that fintech startups lay the groundwork for a strong risk, fraud, anti-money laundering (AML/CFT), and compliance framework.
This is to make sure that they have a system that quickly detects fraud, and that their platforms are not used for money laundering, cybercrime, and other crimes.
Fraudulent transactions in Nigeria are very common, people use ATM card numbers and mobile banking PINs to fraud. There were cases of electronic bank fraud in Nigeria that cost lenders $14.2 million between 2016 and 2018. Says Nigeria Electronic Fraud Forum.
There must be an effective and efficient Know Your Customer (KYC) process in line with regulatory requirements. There must also be an effective and efficient fraud prevention program; a transaction monitoring process that can quickly detect and report suspicious activities and transactions; a risk assessment and sanctions screening program.
“KYC is a way for banks and other financial institutions to make sure that customers are who they say they are,” Mobolaji Bammeke, Flutterwave’s Chief Compliance Officer, tells TechCabal. “It’s at the heart of fraud prevention processes, as required by laws and regulations.” Read also; Don’t Let Web 3 Repeat Web 2’s Mistakes
In essence, KYC entails fintech companies and other financial institutions gathering particular information (such as complete name, phone numbers, national ID numbers, utility bills, international passports, and so on) from potential consumers, whether individuals or corporate entities.
This is usually done at the time of onboarding, and if necessary, identity documents are checked before customers can be approved by a service provider.
What is the significance of this? These safeguards are used to combat financial crimes like money laundering and terrorism financing. KYC checks are often basic and straightforward to administer, but when done correctly, they can be quite effective in preventing fraud.
According to Bammeke, “compliance with KYC rules stops money launderers from using your site as a conduit for fraud or other illegal financial activities.” “It complies with anti-money laundering and counter-terrorist financing legislation.” Users who do not meet the KYC standards are typically denied access.”
It’s crucial to remember that KYC is a never-ending process. After the initial onboarding, a financial company is obligated to monitor customer accounts on a regular basis for suspicious behaviour that could indicate fraud or be related to financial crimes. A new KYC review process is required if such atypical activities occur.
KYC regulations ensure sound company operations and provide valuable data on clients in addition to identity checks. They can, for example, assist businesses in evaluating their client’s financial situations and determining creditworthiness as necessary.
How can fintechs get compliance right?
Fintech companies aren’t always financial institutions (that store money), but they do much of their business with traditional banks.
They must comply with KYC laws to handle money laundering and terrorist financing (ML/TF) risk as a result of doing business with lenders who are subject to them.
What are the most important considerations for gamers to be aware of?
The KYC process is a crucial step in client acquisition, and any restrictions established should ideally have minimal impact on prospective customers’ onboarding experience.
“Fintechs must combine client needs with risk management when crafting KYC compliance strategies,” Bammeke argues. “It’s critical not to miss out on lawful clients because of overly stringent procedures.” However, this does not excuse you from taking the essential precautions to maintain regulatory compliance. “All that is required is a delicate balance.” This equilibrium is necessary to provide clients with a pleasant experience.
More importantly, as the firm grows, the KYC process should be improved on a regular basis to keep up with emerging dangers. Read more: Different Type of Laptop RAM and The Best One
Innovation in KYC: A look at what the future
Fintechs are nimble and have faster, more accessible processes than legacy institutions, which are notorious for lengthier, more sophisticated KYC compliance procedures. Fintechs are nimble and have faster, more accessible processes since their services are totally digital. As a result, the latter is better positioned to unleash novel methods to regulatory needs such as KYC.
Modern technologies such as biometrics, artificial intelligence, and blockchain are already providing firms with new solutions to meet KYC standards while improving user onboarding, eliminating human involvement, and enabling more access to financial services.
“Fintechs can also experiment with various methods of identity verification, such as video KYC and semantic analytics,” says Bammeke. “While legacy systems continue to dominate the market, we’re seeing more KYC and AML advances driven by new technology.” They improve the speed, accuracy, and transparency of the procedures.”
A significant motivation for fintechs to create an effective identity and verification systems is the link between KYC and fraud mitigation.
Failure to comply not only exposes the company to financial crimes but may also result in hefty regulatory fines, depending on the jurisdiction. For example, last year, crypto exchange BitMex had to pay a $100 million fine to settle charges of unlawful trading and AML violations.
“Ultimately, KYC is a continual process that entails striking a balance between identifying and validating your client’s identification while also avoiding risk in order to provide access to services to your customer base without sacrificing a fantastic customer experience,” Bammeke says.