eKYC in emerging markets opens new avenues for growth

• New entries are taking advantage of eKYC rules for current accounts as most incumbents ignored major frictions and customer pain points
• Biggest potential yet to emerge by meshing third party API connectivity with eKYC
• Banks could further look into integrating value-added services into the digital account opening processes

Opening unrestricted deposit accounts in emerging markets often resembles running the gauntlet. Customers often have to endure lengthy branch visits, tedious paperwork and long processing time before being able to fund the account and use the debit card. In addition, those accounts come with high minimum balances and initial deposits, which are out of reach for most low income workers and families.

In the last few years, regulators have eased restrictions on know your customer/client (KYC) rules for deposit ‘lite’ accounts. These are savings account for microbusinesses and low-income households with no initial deposit and maintaining balance required and no maximum account balance and total deposit intake per year. Yet uptake of those accounts has been slow as most unbanked shun branches in general. And the target market for a large number of digital challenger banks are the income progressive, urban young professional – a turf commercial banks also are keen to cater to.

Progressive banks and a new breed of digital banks from Thailand, Indonesia and now the Philippines, are using more advanced technology compared to commercial banks by leveraging on program synthesis, natural language processing, optical character recognition (OCR) and machine learning capabilities to automate and optimise client onboarding, documentation and KYC processes. And they are able to convince regulators on a case-by-case basis that their technology stack allows exceptions to the general rule.

The Philippines and Indonesia serve as testbeds for digital and smaller commercial banks

In the Philippines, digital banks CIMB and ING were launched in 2019. Both received approval from the regulator to go ahead with an electronic know your client (eKYC) procedure for opening full savings accounts. The decision was deemed a significant break from the current industry rule. The procedure can be completed in under 10 minutes for both digital banks, though CIMB’s onboarding appears to be slightly faster after testing. Leading global financial institutions (FIs) require an average of five to seven clicks, six data fields and three minutes to complete the process. In comparison, account opening at branches in large local commercial banks in the Philippines can take up to 60 minutes. Customers are often provided an undifferentiated experience regardless if they are affluent clients or a small and medium size enterprise.

CIMB Bank Philippines grew its user base within a span of six month to more than 500,000 accounts as of August 2019 by forging a partnership with GCash from which existing users – with the help of a button – can seamlessly link into the CIMB platform. While an offline online presence for FIs continues to be needed, particularly in serving non-urban areas in countries such as the Philippines, CIMB digital is currently covering the three major urban areas with a pool of 30 million consumers, which the bank deems sufficient enough to work in going forward. CIMB’s mobile-only bank also offers up to eight different IDs to be uploaded.

While ING is focused on its savings account at the moment, CIMB intends to rapidly build up its ecosystem of partners and services and is expected to reach one million users by end of this year or early next year – all that with zero sales force. It offers its customers 8,000 locations to conduct cash in and cash out transactions, including 7-Elevent convenient stores. The bank also provides more than 25,000 automated teller machines (ATMs) for free as compared to a $0.40 fee (PHP 20) onthird party-ATM withdrawals imposed by local banks.  While its savings account is the key entry product, lending will eventually come on top over time. In October 2019, CIMB launched its personal loans of up to $.02 million (PHP 1 million) by instantly scoring applicants, including “thin-file” customers who lack sufficient or any traditional credit bureau data. Traditionally, local banks offer only salary-based personal loans at the branch level.

In Indonesia, banks rapidly integrated eKYC usage into their account opening, with Bank Danamon and CIMB Niaga among those currently offering the best digital onboarding experience.

Bank Danamon became the first commercial bank to be granted eKYC capabilities via mobile banking by the Indonesian financial services authority OJK in the third quarter of 2018.  A prime condition by OJK was that the video banking platform must sit within the bank’s enterprise architecture. Other FIs such as Digibank or Permata Bank, which leverage on external social media platforms such as WhatsApp for video banking, still need to send their client to an agent or branch to be verified.

At Danamon, it takes about 20 minutes end to end, including video banking, to accomplish the onboarding process as the bank still has to get additional data from the national registry. There are about 20 data fields an applicant has to fill out. The account number is generated almost instantly and the account can be funded right after from third party banks. ATM cards, unlike in other banks, will be automatically issued and sent to the applicant’s address. A unique feature of Danamon allows users to start the application on mobile and to resume the process at the branch or via the bank’s tablet relationship manager – for affluent accounts – at a later point. The bank claims that at present, about 10% of all account openings are done via mobile banking.

In Thailand, banks are currently collaborating and testing with the Bank of Thailand’s sandbox to create a fully end-to-end digital onboarding. To get around, KASIKORNBANK allows customers to start their onboarding journey from their mobile app based on biometric capabilities, then complete the authentication process at any of its network points such as branches or partner locations.

In the Middle East, Bank Albilad became the first bank In Saudi Arabia to launch a full eKYC current account.  Customers can utilise a range of services such virtual charge card for online purchases, bill payments, perform international and local fund transfers, and among others, provision their debit cards for Apple Pay, once they open their accounts digitally and register for the digital banking. Customers can fund their accounts through an inward transfer crediting their accounts or using cash deposit machines, after they request their debit cards via online banking, which will be delivered to their doors within three to four days. Bank Albilad provides services to customers through its network of 150 branches across the kingdom, in addition to five sales centres.

Integrating value-added services into digital account opening processes

Going forward banks see the real potential of digital account opening in embedding it via APIs on third party platforms as a business to business to consumer acquisition model. Permata was one of the first in Indonesia to introduce the opening of a securities fund accounts, Rekening Dana Nasabaha or RDN, via API with Indo Premier Securities. Traditionally done via branch banking which will take a few days, it allows customers to open their RDN account faster, simpler and more reliable with the support of the bank’s API technology.  By doing so, the bank was able to increase their number of monthly account openings by more than eight times. While this initiative is still restricted to certain customer segments, banks in Indonesia are planning to offer general savings accounts opening via partnerships with third party marketplaces.

While in general, a digital account opening process should be effortless and accomplished in less than 10 minutes, banks could look further into value-add services such as the choice of banking plan, the ability to resume application within a week in app and other preferences such as style of communication. Large incumbent banks in emerging markets will have to ramp up their efforts as new entries are setting standards of what customers expect in terms of convenience, personalisation, value and transparency. Those challengers are exploiting the mismatch between banks’ inadequate service delivery and customer expectations by combining big data and machine learning to deliver an unparalleled level of convenience and speed throughout the customer onboarding journey.