ITEM: Most financial institutions say they are keen on financial inclusion, but lack of transparency is hindering service access for the very people they’re trying to include.
According to the 2022 Financial Transparency and Inclusion Report from LexisNexis Risk Solutions, 69% of respondents worldwide agree that the unbanked or underbanked are harder to onboard than other types of customers and businesses due to lack of data.
The report says that financial institutions can do more to achieve greater transparency, indicated by the 64% of respondents who say identity verification is a challenge when onboarding individuals.
Financial inclusion transparency challenges
According to The World Bank, there are 1.4 billion unbanked individuals globally. Not unexpectedly, the financial services industry faces complex challenges decreasing this number. Factors that impede access to financial services range from poverty, a thin credit file and living in a cash-based society to history of bad debt and/or lack of financial education.
This is why financial transparency is essential to converting unbanked people to banked customers, the report says:
Financial institutions need the ability to identify consumers and understand their risk profiles, both to maintain regulatory compliance and support extending financial services to consumers. The more institutions understand about consumers, the easier it is to offer appropriate financial services.
According to the report’s findings, financial institutions understand all this. In fact, two-thirds of institutions expressed commitment to supporting financial inclusion. At the same time, however, many financial institutions turn away significant numbers of potential customers due to current Know Your Customer (KYC) processes. The most challenging customer onboarding hurdles faced by institutions lay within difficulties collecting and verifying customer information.
Data sharing to support KYC processes can help, and the report found that interest in this is growing. Nearly 80% of respondents expressed interest in a global Customer Due Diligence (CDD) utility, compared to just over 70% in 2019.
Robust data and processes essential
“Financial institutions have clear responsibilities to verify customer identities and ensure compliance with national and international regulation,” said Leslie Bailey, vice president, financial crime compliance, LexisNexis Risk Solutions. “Rejecting potential customers due to inefficient or manual processes rather than regulatory reasons can be detrimental to genuine individuals trying to access financial services. With robust data and the right technology and processes in place, institutions can help improve global rates of financial inclusion without compromising on compliance.”
One other finding of note: the COVID-19 pandemic has also played a role in transparency issues. Large numbers of applicants seeking government assistance loans and financial institutions were unable to verify their identities in person due to lockdowns.
On the bright side, the pandemic also pushed financial institutions to embrace more digital practices. Around 90% of institutions said that the pandemic has accelerated adoption of AI and other next-generation technologies.
The full report is here.
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