Meanwhile, the COVID 19 pandemic has accelerated Fintech and Digital Financial Services (DFS) due to demands for contactless and remote operations. Here, Digital ID plays a role at all stages of the use of financial services, as digital IDs allow for the validation of a customer's identity with a higher degree of certainty, which in turn improves the reliability, security, privacy and efficiency of to identify persons in the financial sector. This paper elaborates on various approaches currently observed for ID verification in the financial sector.
It also discusses various challenges to intensive adoption of digital ID in the financial sector, including, but not limited to, the level of coverage of Legal ID, digital capabilities, pricing of the digital solutions, the efficiency and reliability of digital ID process, in addition to regulations that the AML/CFT and identity frameworks. The increased focus on promoting greater use of digital payments in the context of the COVID-19 pandemic has greatly boosted the emerging developments in many countries, including in several Arab countries. While financial inclusion has been proven to reduce poverty rates and boost economic growth, Fintech and digital financial services (DFS) are playing a major role in increasing financial inclusion rates in the Arab region due to the innovative remote methods in exporting of financial activities, i.e.
Measuring Financial Inclusion in the Arab World, Working Paper, CGAP and Arab Monetary Fund Financial Inclusion Task Force. Financial Services (DFS)9 has the potential to expand access to financial services in the region, thereby improving rates of financial inclusion. 14 Currently, some practices rely on paper-based identity system verification and one-photo credentials under remote account opening scenarios, which allow for 'real-time' verification of the customer's identity (eg by examining credentials and comparing the photo with the person presenting it), however the level of security is likely to be lower than in the case of a digital ID system.
The approaches currently observed in the financial sector for ID verification in the context of onboarding a new customer can be broadly grouped into In-Person Authentication and Remote Authentication. The latter case necessarily requires the availability of a physical credential, often in the form of a chip card. The ID service provider then programmatically compares the photo on the physical ID credential to the captured video of the individual and further validates the ID information against the ID system.
The financial service provider is provided with an answer on the level of confidence in the authentication of the individual. This approach verifies the authenticity of the ID card, but relies on a visual inspection, such as the photo in the ID card, to determine whether the individual representing the ID card is the same person. Digital identification systems can improve the reliability, security, privacy and efficiency of identifying individuals in the financial sector for the benefit of customers and regulated entities.
Coverage of Legal ID: As previously mentioned for a digital ID to be useful in the financial sector, there must be official recognition of the underlying ID - ie. The limited penetration of legal ID may be a major challenge in the wider adoption of digital ID in the financial sector. Process efficiency and reliability: For digital ID to be useful, the process must be efficient for both the VAT and the customer and there must be a very high degree of confidence in the reliability of the overall process.
Pricing: In many cases, the digital ID solutions are provided by an external entity – either in the public sector or industrial supply or as an agreed service from a service provider.
Digital ID, eKYC
Regarding the current infrastructure supporting customer remote onboarding, such as digital ID system and/or eKYC procedures, two Arab countries use both arrangements, which are the UAE and Bahrain; while four other Arab countries namely Tunisia, Saudi Arabia, Oman and Egypt; adopt simplified or eKYC procedures to accommodate remote boarding. Central Bank of Iraq is currently working with a leading financial institution for development to start eKYC project. A high-level stock survey of recent trends regarding the digital ID and eKYC in Arab countries is presented below.
In Jordan, the Central Bank of Jordan (CBJ) has issued special instructions for “Regulating the procedures for knowing your customer and dealing with them electronically”, which allow banks and electronic payment and money transfer companies to register their customers electronically by applying the requirement contained in these instructions.
OnboardingDriving
Demand
Enabling Digital Financial Infrastructure
- Genuineness Check
- Data Capturing and Validation
- Liveness Check and Image Matching i. Liveness Check
- Biometric Recognition
- Customer(s) Consent(s) and Data Access
- KYC Data Sharing
- Adopt consent mechanisms for
- Oversight Framework for
The strategy of the Central Bank of Iraq in digital identification and e-KYC depends on the concepts of interoperability and the establishment of an eKYC group. In order to issue clear concepts dependent on sharing of National Identity Card information, establishment of e-KYC entity and issuance of digital instructions for onboarding digital banking services. It leverages the national data repository infrastructure of citizens and residents with the Office of Information and e-Government and extends it to the financial sector for KYC purposes upon customer consent and enables the sharing of KYC data between financial institutions via blockchain.
Launched in Bahrain before the COVID19 pandemic, this eKYC service was timely and helped the financial sector deal with some of the challenges brought about by the pandemic. This led to the emergence of “Valify”, a digital identification solution that allows customers to digitally board in three steps consisting of information extraction, facial recognition and. Soon after, the Covid-19 outbreak highlighted the increased need for digital customer onboarding and CBE was quick to respond to the fallout from the crisis; with the aim of making it easier to carry out financial transactions digitally and thereby contribute to reducing the spread of the virus.
The platform provides participants with the below services that enable remote onboarding and access to their services for the customers. Using the customer's mobile phone camera, the platform verifies the authenticity of the scanned document based on the applicable security markings, along with the validity and relevance of the document's Machine Readable Zones (MRZ). The data capture is performed to extract all the data in the document and perform the initial validation of the data against the data retrieved from data providers, if applicable.
Using the selfie captured via the customer's mobile phone camera, the platform will confirm the liveliness of the individual and detect any attempted phishing attacks. The selfie taken during the liveness check will be matched with the image captured from the scanned identification document and with the image residing at the data provider (such as CSPD), subject to the availability of images at the data provider. In addition, all KYC data updates will be published to participants who have access to the data.
Furthermore, the "Digital Identity and e-KYC Guidelines for the Arab Region" entails a set of policy actions within the same directions in addition to the following: (i) Establish a "risk-based" CDD regime that balances the AML/CFT objective and objectives of financial inclusion; (ii) Prioritize the integrity of user data and facilitate processes and procedures for minimalist sharing of the information under CDD; (iii) Provide regulatory clarity, remove barriers and promote an enabling regulatory environment for innovation that can provide novel solutions to CDD; (iv) create benchmarks and standards for the use of any "non-government" supported identity system; (v) Ensure complete, accurate and better integrated databases that can be used for customer identification and verification purposes. The Financial Inclusion Global Initiative (FIGI) Digital Identity Working Group elaborated on five policy considerations that are specifically relevant to financial sector regulators looking to accelerate the use of digital ID to expand access to and deployment of financial services. These approaches are intended to help countries assess and implement key policies needed to access and use digital ID in the financial sector, with the understanding that these approaches should be tailored to the needs of each country.
Develop clear guidelines or regulations that allow appropriate, risk-based use of digital ID systems. Assess whether the existing legal and regulatory framework covers the use of Digital ID and e-verification of customers' identity.
