[WATCH] The Know Your Customer (KYC) Challenge for Crypto Companies in Africa

Insight··4 min read

Know Your Customer (KYC) has been a big challenge for crypto companies in Africa. In this virtual session, experts from Paxful, Luno, and Jumio discuss how they overcome these challenges and offer solutions on how to improve the entire process.

A recurring problem in the discussion was a lack of a clear definition of what exactly is KYC. As a result, different jurisdictions on the continent have adopted different approaches in this regard.

SEE ALSO: [VIDEO] Top 10 Key Questions Paxful Founders Responded to About Africa – Paxful AMA in Africa

This informative discussion included:

  • Kimberly Beth Watson – Compliance Analyst, Paxful
  • Lana Schwartzman – Chief Compliance Officer, Paxful
  • Naledi Ngobeni – Head of Financial Crime, Luno
  • Dean Nicolls – VP of Marketing, Jumio
  • Neal Reiter – VP, Compliance Products, IdentityMind

Common KYC challenges in Africa highlighted by luno and PaPaxful include:

  • Limiting KYC – Some are face-to-face systems limiting online companies while others have a variety of IDs
  • A Lack of strong national ID systems
  • Lack of clear regulatory framework – A lack of clarity on what is allowed or not and in some cases, there is an overlapping between authorities
  • An unfriendly digital user experience

How to do KYC in Africa using technology in Africa:

  • Looking at the IP address without offering customer friction
  • Phone data to identify who the customer
  • Device fingerprints helps identify bad actors and blacklisting
  • Digital identity – Physical and digital attributes of an email, physical or phone address helps to risk rate customers

FATF has not defined what exactly is proof-of-address and most African countries have simply adopted these standards from the 70s.

While KYC was, in the beginning, frowned upon in the crypto space, it is now becoming more acceptable, and in some cases preferred, with less friction in this regard.

According to Dean of Jumio, a company that offers KYC to 8 out of the 10 largest crypto companies globally:

“There used to be this feeling that KYC is a necessary evil. I don’t think it is viewed that way anymore. Many of the largest exchanges want to have an air or legitimacy about what they’re doing and this gives them that legitimacy, that they are playing by the same rules as the banks, and I think it is changing for the better.”

Here is a curated list of comments from the discussion:

“We need to contextualize KYC – point to a particular customer at a particular customer in time.” ~ Naledi of Luno

By requesting for a selfie, we get a sense of whether the address exists in the real world and this is a challenge in some countries in Africa. Utility bills also help as proof of address.” ~ Dean of Jumio

“Using a combination of the above methods helps to offer a layering to establish risks.” ~ Dean of Jumio

“You have to strike a balance between the highest standards of the West and then what is the highest standard for Africa and what is available to us.” ~ Lana of Paxful

“You have a national ID card but you cannot validate it against anything. It is not matured enough to take it independently since you cannot speak to the national identity system. e-KYC is something very very fundamental to look at in the continent.” ~ Naledi

Some of the key reasons mentioned why e-KYC is the most favorable approach to identity on the continent include:

  • Eliminates paper-based IDE procedures
  • Allows you to onboard faster and effectively
  • Alllows customer identity verifications more effectively with less information collected from the customers

The move towards e-KYC is definitely the future. However, according to Neal, it will take a significant amount of time and effort from financial institutions as they push regulation to change to accommodate this.

Interestingly, Dean highlighted the notion of regulatory sandboxes as key to getting central banks, financial institutions, and fintechs working together to shape regulation. He mentioned that this would be key to push and drive e-KYC faster.

The future of KYC was also highlighted with a focus on Africa. Some of the trends mentioned include:

  • The rise of global banking
  • The rise of apps
  • The rise of mobile payments – This is likely going to push e-KYC fastest
  • The rise of AI and machine learning – Comparing a selfie and ID is a classic example
  • The rise of financial inclusion – e-KYC will open up new markets to enable speed this
  • The rise of KYC platforms – Point solutions are becoming platforms offering fraud signals

However, caution on sophisticated fraud mechanisms was highlighted as a key challenge in the space.

According to the experts industry collaboration which allows conversations with the right people and at the right time, will be helpful to ensure all satisfy all the regulators and move KYC to the next level.

Rather than blanket all of Africa with the same rules, Paxful and Luno believe KYC should take a risk-based approach, which essentially does not deviate from the regulatory framework, but allows more people get onto the financial system.

All in all, it was encouraging to hear the interest in KYC and the positive direction experts hope to see KYC take shape in the next 5-10 years.

 

 

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