In the financial technology business (fintech), implementing a user verification system before onboarding and making transactions in an application is urgent. This process is a 'human verification' form that determines whether they are valid users, whether the information entered is correct, and whether the submitted identity is appropriate. The process is called Know Your Customer (KYC) in financial terminology. The digital version is called Electronic Know Your Customer (e-KYC).
What is e-KYC?
According to the Financial Services Authority (FSA) rules, e-KYC is a platform that helps provide identification and verification services to prospective customers by using population data from the Directorate General of Population and Civil Registration (Dukcapil). The application of e-KYC exists in almost every fintech platform, including digital banking, e-wallet, fintech lending, insurtech, and digital brokers.
The implementation of e-KYC is essentially mandatory for fintech players. Besides verification, financial service providers have the potential to gain a larger customer niche by streamlining the account opening administration process.
With e-KYC, everything can be done online, both through mobile applications and developed websites. The organizers of the e-KYC platforms are under the current regulations of the FSA, specifically in the Digital Financial Innovation regulatory sandbox.
How e-KYC works
Unlike traditional KYC, which requires prospective customers to be present at the nearest branch office, e-KYC is entirely online. In general, several stages are applied in e-KYC systems, including:
- Data Input; at first, prospective customers will be asked to fill in some information related to their identity. This includes uploading some required documents. Usually, the organizer will take advantage of technologies such as Optical Character Recognition (OCR) to be able to read the uploaded identity documents online and fast.
- Data Verification; from the data submitted by the user, the system will perform verification. Related to the account, the verification may use a One-Time Password (OTP) sent via SMS or email. As for population data, the system can also verify them with the database from the DG of Dukcapil. The platform organizer connects its system via a secure API connection to the Dukcapil system to accommodate this process.
- User Verification; once the information is successfully verified, some services such as digital banking perform user verification over a video call connection.
Here is an overview of the e-KYC process as well as its fundamental differences from traditional KYC services:
e-KYC in different countries
E-KYC is also part of digital financial innovation intensified in other countries, not just Indonesia. For example, the Monetary Authority of Singapore (MAS), in collaboration with the Smart National Digital Government Office and the Government Technology Agency, developed a National Digital Identity platform for citizens to prove their identity and sign documents digitally to transact comfortably and securely online.
Meanwhile, in the Philippines, Bangko Sentral ng Pilipinas, the local central bank, is working on implementing the national ID system, which is also intended for the needs of e-KYC in the onboarding process of consumers for digital financial services. Not only that, Bank Negara Malaysia started to create a national standard for implementing e-KYC for the operation of receiving individual customers in the financial business in 2019.
According to the Polaris Market Research report, the business potential of e-KYC services is quite enormous. In 2021, the market capitalization value reached $447.53 million and will rise to $1.9 billion in 2029 with a CAGR of 22%. This is one of the reasons that the increasingly mature fintech ecosystem has been adopted in various countries and government roadmaps in the world to encourage financial inclusion.
e-KYC in Open Finance
Open Finance is a technology infrastructure service that technology businesses can utilize. Through a secure API (Application Programming Interface) connection, the latest financial features can be integrated and implemented in advanced financial applications. E-KYC is one of the various products in the open Finance ecosystem.
Finantier is a leading innovator in Open Finance Innovation. Regarding e-KYC, Finantier has a Verification product that delivers instant verification capabilities for the e-KYC process. Finantier's e-KYC service guarantees the accuracy of the data and the updated information in real time by connecting to the regulator's database.
Some financial businesses need the data to help them in analyzing customer eligibility. The data that Finantier can verify is not only related to identity data but also data related to income or earnings. This is to reflect the financial profile of the prospective customer.
In addition, the application of Product Verification can be used in various cases, including customized products—from personal financial services, and payments, to financing. The implementation process is also relatively concise with a safe Open API to minimize manual stages, which provides efficiency for application developers.
On the user side, this instant e-KYC provides an impressive experience. The average maximum time is only 3 minutes, or even faster. That could increase user acquisition and retention.
Implementing the e-KYC system has become a must for financial business people who want to go digital. Choosing the right partner, in addition to guaranteed security and reliability of the system, has the potential to provide more benefits to developers and users. The e-KYC also enables the fintech platform to get more capabilities through various available features and can be connected.