Date Posted: Wednesday, June 20, 2012
In my last post, I asked why KYC (Know Your
Customer) is so hard. In many cases, it’s not because the regulators require
it, but because the mobile money has not taken a risk-based approach to
designing their KYC processes. If you examine your KYC processes carefully, you
will probably find many opportunities for improvement. Here are some
Too restrictive: Is your list of allowable documents too
tight? If you only allow a few ID types, you may be excluding many potential
customers. I have found that even in countries with a National ID scheme, huge
numbers of people do not have an ID because the cost to obtain or replace one
is prohibitive. Some operators get around this need by allowing a more informal
ID, such as a letter from a local official certifying the person’s ID.
Too confusing: Is your list of allowable documents too
long? I worked with one operator that started by allowing up to eleven types of
ID. Some of these ID types were almost never used, but the lengthy KYC form
confused the sales agents. We found that by shortening the list of allowable ID
types, the process was simplified and the error rates improved dramatically.
Too much paper: Do you really need to maintain a paper
photocopy of the ID? Having a copy of the ID is useful for the operator’s
compliance team to do reviews of the KYC process, but often provides little
value and creates massive logistical headaches. If you are working in a country
with a widespread National ID system, you may be able to rely on the ID number
Too many requirements: Are you collecting a passport photograph of
the customer? This is very rarely a regulatory requirement. Very few customers
will ever need a face-to-face interaction with the operator, so this places a
large burden on the customer for very little benefit. Why not consider a signed
statement from the agent confirming they have met the person and the ID is
Use checklists: Checklists are powerful tools to reduce
error rates. Your current KYC form probably has a blanket statement to be
signed the agent that the document is correct. Identify your top four or five
most common KYC errors and create a checklist for these individual faults. This
checklist can be used by the agent, the agent network manager and your own back
office staff. For more on checklists, I highly recommend reading “The
Checklist Manifesto” by Awul Gatawande. There’s also a good summary at http://www.newyorker.com/reporting/2007/12/10/071210fa_fact_gawande?currentPage=all. A quick teaser- introducing simple checklists into surgeries across the world, including both developed and developing countries, reduced complications by 36 percent and deaths by an incredible 47 percent.
Instant Activation: I believe that instant activation of
accounts is vital to the success of mobile money. CGAP
released analysis indicating that customers who did two or less
transactions in their first month only had a 4 percent chance of being active in their
third month. Operators need every chance to get customers active in the first
month, and being able to transact immediately, at the point of sign-up is a key
driver. Explore every opportunity for instant activation, including tiered
transaction limits, or enhanced risk reporting on new customers.
Agent Monitoring: A solid agent compliance program is also
essential. Agents who are based on commission will always sign up too many
inactive customers. Whenever an operator finds an agent signing up
non-compliant customers, they must pass this information back to the agent and
discipline them to make sure this behaviour stops. I will provide more
information about effective agent compliance programs in a future post.
Of course, all of these will need careful
thought and honest discussions with your regulator. While mobile money is a new
topic for many Central Banks, Financial Inclusion is not. For many, this is one
of their key goals. I believe all operators should promote the inclusive
aspects of their service when talking to regulators, which will help the
operators and regulators work in a co-operative fashion towards common goals.
In my next post, I will look at an
unfashionable but very important component of mobile money – designing and
securing processes concerning e-money creation.
- Michael Joyce