Page 96 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

5.1 Finance

Our literature review reveals that 50 percent of the 48 ID programs reviewed are linked to financial uses. Four
financial “sub-categories” emerged in our search (Figure 8):

• Know your customer – ID used by financial entities to comply with KYC laws
• Digital banking – ID is linked to citizen bank accounts or bank loans, facilitating movement of e-money
(often in conjunction with a government social service program)

• Mobile money – ID is used for mobile money registration, access to accounts, and/or payments
• Social transfers – ID is linked to government assistance programs, which include cash transfers, relief,
and welfare

Figure 8 – Financial Connections to ID Programs

Know Your Customer

In many countries, certain individuals or populations lack the necessary identity documents to open a bank
account. Know-Your-Customer (KYC) laws require banks to be able to confirm a customer’s identity with
“reasonable belief” in a four-step process outlined by the Federal Financial Institutions Examination Council:
“collecting credentials from the customer, verifying the credentials and the customer against them, checking
the customer against government lists, and record keeping” (Dahan & Sudan, 2015).

Identity cards and the issuance of unique ID numbers can promote financial inclusion by providing unbanked
individuals with the credentials banks need in order to verify customer identities (Brewer, Meniers, & Schott,
2015). We find this is the most common financial function associated with ID cards. Of 24 ID programs with
financial connections in the literature, 22 are mentioned as helping to facilitate adherence to KYC regulations.
In nearly all cases, the card functions simply to verify identity. In Tanzania, for example, the Deputy Minister of
Home Affairs remarked that the country’s new, biometric electronic ID can guarantee the identity of individuals
during any given transaction (iD People, 2015). India is taking implications for KYC a step further by taking the
onus off of banks to perform KYC processes each time a financial interaction occurs. Before recent innovations,
a customer who had already opened up a savings account would have to repeat the KYC process to open up
a fixed deposit account, even if both accounts are at the same bank. Now, however, customer information
is being recorded in a central database, using the unique identity number issued as part of India’s Aadhaar
national ID program as an identifier. Banks, insurance companies, and others can access the database as part of
their KYC activities. The database is expected to cut down bureaucratic processes for both financial institutions
and customers (Sikarwar, 2015).
In Nigeria, the connection between KYC for financial transactions and the Bank Verification Number (BVN)
initiative poses a possible threat to increased financial inclusion. BVN assigns a single identification number
to bank account owners for verification at all banks and points of transaction. The centralized biometric-
based system is expected to increase the efficiency of banking operations and establish a single, standard
identification form that meets KYC requirements for all customers (Central Bank of Nigeria, 2014). However,

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