Lack of Transparency Hinders the Unbanked

A new report from LexisNexis Risk Solutions focusing on financial transparency and inclusion has found that among Americans, those most financially at risk are the “unbanked”—or those without a traditional bank account—and that increasing financial inclusion in a responsible and sustainable way can help these people grow financially. 

LexisNexis worked with Celnet in order to complete an extensive survey of banks, insurers, and non-bank financial institutions in 13 countries to gather data for their report. They also relied on information from The World Bank which found that there are approximately 1.4 billion unbanked individuals globally. 

There are many reasons that the unbanked are not part of the system, they include: lack of appropriate citizenship/documentation necessary to obtain an account, poverty, a new/thin credit file, having a cash-based lifestyle, history of debt, or lack of financial education are all common responses. 

According to LexisNexis, one way to convert the unbanked to a banked customer is to improve financial transparency; financial institutions need to have the drive and ability to identify consumers and understand their unique risk profiles to maintain regulatory compliance and support extending financial services to consumers. 

However, the survey revealed that 69% of respondents said that the unbanked (or underbanked) are harder to connect with and therefore are harder to onboard as a customer than other types of consumers. 

In addition, a growing number of institutions also say they are willing to share internal data for such purposes, further showing that institutions are aware of the challenges the unbanked face.  

“Comparing this year’s results with previous editions of the survey suggest that it has become harder, not easier for financial institutions to source KYC data, making it more difficult to extend services to new client segments including the financially excluded,” said Neil Katov, Director at Celnet. “As a result, there is increasing interest in exploring new sourcing models, such as data sharing and utilities, and more financial institutions say they are willing to share their data for this purpose.”

Key Findings from the Report: 

• Financial institutions remain strongly interested in financial transparency and inclusion, with two-thirds of institutions expressing commitment to supporting financial inclusion. 
• 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. 
• Interest in data sharing to support KYC processes is growing. Nearly 80% of financial institutions express interest in a global Customer Due Diligence (CDD) utility, compared to just over 70% in 2019. 
• The pandemic posed a challenge to financial crime and compliance operations at financial institutions, with large numbers of applicants seeking government assistance loans and financial institutions unable to verify identities in person due to lockdowns. However, it also led to financial institutions embracing more digital practices, with ninety percent (90%) of institutions reporting that the pandemic has accelerated adoption of Artificial Intelligence (AI) and other next-generation technologies. 

"Financial institutions have clear responsibilities to verify customer identities and ensure compliance with national and international regulation," said Leslie Bailey, VP, 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." 

Click here to view the report in its entirety; registration is required.