KYC is a crucial aspect of the customer onboarding process as it gives the financial institution a good opportunity to confirm one’s identity and build a certain level of trust.
By Michael Akuchie
Recently, I logged into my PalmPay account to make a transaction. Upon authentication with my fingerprint, I expected to immediately see the dashboard. However, a page asking me to verify my address popped up instead. I was confused by the notification because I was confident that I had completed the address verification process more than a year ago. But there was something different about this new address verification. And as I read the text on the page, I soon noted the difference.
Per the new directives of the Central Bank of Nigeria which seeks to implement stricter KYC requirements, PalmPay now mandates customers to take a picture of their home address, the surrounding area to be precise. This requirement is now the standard, regardless of whether you have confirmed your address in the past. Refusal to do so would result in the account being downgraded from Tier 3 to Tier 2 which is meant for account holders who only submitted their Bank Verification Number (BVN) and National Identity Number (NIN).
Kuda, another popular fintech company in Nigeria, recently announced plans to update the process of address verification for all customers regardless of whether they had done it before. Unlike PalmPay where you are asked to snap and upload a photo of the home environment, Kuda requires that you upload proof of address such as a utility bill not older than three months, a rent receipt, or proof of tax remittance. Now this practice is not entirely new, seeing as traditional banks usually ask for proof of address via utility bills. However, Kuda takes things up a notch by adding that upon uploading, it will still send a verification agent to conduct a physical check. What does this mean? Well, per their blog post, the verification agent will be sent your address and ask anyone living around that area if they know you by your full name and if you truly occupy that address. This puts those who have travelled abroad but have a Nigerian home address on Kuda’s file at a huge disadvantage.
When opening any account with a financial institution such as commercial banks, microfinance banks, or fintech companies, you are mandated to provide certain documents to help the institution verify your identity. This requirement is known as Know Your Customer, or popularly shortened as KYC. To address any concern with supplying sensitive information such as a home address and a means of identification to a bank, The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a vast network that banks use to make cross-border payments, sheds some light on this compliance. “KYC includes several steps to: establish customer identity, understand the nature of customer’ activities, and qualify that the source of funds is legitimate, and assess money laundering risks associated with customers”, says SWIFT.
KYC is a crucial aspect of the customer onboarding process as it gives the financial institution a good opportunity to confirm one’s identity and build a certain level of trust. On a security level, KYC helps tackle financial crimes such as money laundering and identity theft. Having a record of a customer’s identity makes it difficult for said customer to launder money through their account or even finance terrorism efforts.
Regarding identity theft, a robust KYC system will help financial institutions easily ascertain whether a customer is who they claim to be via multi-factor authentication (MFA), biometric verification, and so on. So even if someone manages to gain access to your mobile app, they’ll likely have to confirm transaction attempts with a registered fingerprint or a password which only you should know.
It is worth mentioning that the documents required for KYC compliance vary among financial institutions. However, the most common items are a means of identification (international passport, driver’s licence, or national identity card), proof of address (a recent electricity or waste bill), face verification, and fingerprint verification.
KYC compliance does not end when a customer signs up with a new bank. If they’re keen on upgrading their transfer and balance limit, then they may be required to undergo an additional stage of compliance. For context, I upgraded my account in a commercial bank from a student account to a regular savings account three months ago. To do this, I had to present a national identity card which replaced the student ID card they had on file. Upon completion, my daily transaction limit and maximum balance increased.
Now that the meaning and relevance of KYC have been established, it’s important to consider how seamless fintech companies can make the KYC compliance process for customers. Although KYC compliance is a mandatory requirement, it is the responsibility of financial institutions to tailor their KYC process to not overwhelm the customer. This makes for a bad customer experience. Tech Target defines customer experience as the “sum total of customers’ perception and feelings resulting from interactions with a brand’s products and services.” The customer experience journey starts from the moment a customer interacts with a brand. For banks, that is the account opening process. What’s more, customer experience continues until the end of a customer’s relationship with a brand. So until you decide to jump ship from Bank A to Bank B, Bank A is responsible for delivering a memorable customer experience.
Let’s circle back to PalmPay’s requirement. Asking for a photograph of a registered address seems like a far stretch, particularly if the customer has moved away from that location. Perhaps a better option could have been asking customers to pin their locations using Google Maps. The fintech also does not consider its section of customers who have since travelled abroad and may find it difficult to partake in this verification exercise. It is also worth noting that while Palmpay’s new address verification policy is influenced by the CBN, it may seek to address the possibility of some technologically inept users inputting the wrong address. To avoid that, a photo of one’s home address seems like a fair alternative. However, the cons seem to outweigh the pros.
Beyond the inconvenience of this task, there is also the concern about the safety of this data. What is the guarantee that the photos of customers’ home addresses will be safe in the event of a data breach? As cybercriminals keep expanding their arsenal of tricks, many Nigerian financial institutions have yet to improve their security architecture. Early this month, one of Africa’s biggest payment system providers, Flutterwave, suffered a data breach. Although it claimed that customer funds were safe, the fact that they managed to launch a cyber attack should be worrisome. Once in a while, I get a call from someone claiming to be a worker at one of the banks I have an account with as a means to get me to reveal sensitive account information to scam me. I always wonder how these scammers get my number and how they seem to have an idea that I have an account with said bank. It could also be that they mentioned the bank’s name at random and it was a coincidence.
Fintech companies like PalmPay, Opay, and Kuda have succeeded in a harsh economic climate like Nigeria due to their ease of transactions and solid network. On a good day, you were at least 70% certain that a transfer would be completed without hassle. You could not say the same for most traditional banks. Until recently, the mobile app of one of the banks I have an account with typically failed to open on the first day of a new month. This was a frustrating experience each time I wanted to send money or pay for an item at the market that day. However, this Tier 3 requirement changes things for fintech and neo banks, and one wonders whether returning to traditional banks will be a better alternative.
Although the requirement of proof of address is an important aspect of KYC compliance, the new methods that these fintechs have adopted do not seem fair to the customers at all. Fintech companies should roll out initiatives that put the customer at the centre. Doing this ensures that their customer retention stays at a healthy level. Asking customers to take a photo of their physical address or wait for an agent to ask around if anyone knows them is anything but a customer-centric approach. A less controversial alternative would be for customers to easily upload proof of address such as utility bills. Policies like the new proof of address verification often force customers to look elsewhere for financial institutions with convenient KYC requirements. I wonder if this will be the case here.
Michael Akuchie is a tech journalist with four years of experience covering cybersecurity, AI, automotive trends, and startups. He reads human-angle stories in his spare time. He’s on X (fka Twitter) as @Michael_Akuchie & michael_akuchie on Instagram.