Africa’s Fintech Industry faces various issues that a sophisticated digital KYC system has the capabilities of fixing
- It is a standard implemented in investments, Fintech and blockchain startups that can verify a customer’s identity and know their investment knowledge, pattern and financial profile.
- KYC has three components; customer identification program, Customer due diligence and enhanced due diligence.
- The African fintech Industry is the most lucrative venture having a projection of $131.10 billion in total transaction value by 2023.
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With the high rate of blockchain adoption, the African Fintech Industry is at an all-time high. The increase in financial inclusion and the increased revenue have made this new venture a success in Africa. According to reports, Africa’s fintech Industry funding stood at$1.45 billion. This represents a third of the total funding received for all tech startups within the country. Unfortunately, due to its high rise, it is also a primary target for financial fraud and cyber attacks.
The past five years of heightened financial inclusion is also the same period as the highest rate of cybercrime in Africa. Fortunately, due to recent technological advancements digital KYC systems might come to solve all of Africa’s fintech problems.
Understanding a digital KYC System
A digital KYC system is merely an acronym that stands for Know-Your-Client. It is a standard implemented in investments, Fintech and blockchain startups. It ensures an organization can verify a customer’s identity and know their investment knowledge, pattern and financial profile. Essentially it is a self-explanatory system where an organization has enough information on their customers or clients to such an extent their system can identify and predict any peculiar financial patterns.
Parts of a digital KYC system
A digital KYC system comprises three main elements to ensure efficient and proper functionality.
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The first is a customer identification program. It mainly comprises biometric information such as fingerprint, face or even voice. This is often the first measure a digital KYC system incorporates to prevent financial fraud. Having unique factors recorded and established in the system make it hard for hackers to use social engineering to acquire your credential unless they are physically near you.
The second is Customer due diligence. This is a process used by an African fintech Industry to collect and evaluate relevant information about a customer or a potential client. CDD typically represents the backbone of a digital KYC system since it is a crucial step in the entire process. It caters mainly to the organization since it alerts them of any potential risk before doing any business with a customer. Think of it as a background check. In other applications, it provides a baseline of customer financial activities. This allows the African fintech industry to understand that some events are common or uncommon to a specific client.
The final and equally crucial component is ongoing monitoring or enhanced due diligence of a customer’s account. It is a bit similar to CDD since it involves gathering data and information to verify the client’s identity and monitor their accounts. It differs since EDD has greater precision and scrutiny to maintain high attention levels on the customer. Some digital KYC systems monitor customers at a higher risk of infiltration, terrorist financing or money laundering.
When all these three components combine, the KYC system creates an elaborate security system. It prevents financial fraud by monitoring patterns and knowing who is who in any system.
African fintech industry heavily undermines its cybersecurity
The 4th industrial revolution brought blockchain adoption within Africa. From its first application(cryptocurrency), plenty of innovators and entrepreneurs saw the goldmine it presented. Soon blockchain developers emerged from all corners of Africa and steadily built the African fintech Industry.
The past decade has truly been a revolutionary time for Africa’s financial inclusion rate. Unfortunately, due to its inclined trajectory African fintech industry is now the primary target for cyber hackers. According to TechCabal, Africa is losing $4 billion annually to various cybercrime activities such as financial fraud, hacking and impersonation. The cyber resilience of Africa is significantly low, mainly because most organizations don’t recognize the innumerable ways a hacker can access a system.
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Unfortunately, the attempts and rate of cybercrime in Africa will only increase as the year process, especially with the mass adoption of Web3.
It is detrimental to understand that despite the vast application of Web3, its primary and key attributes will always emphasize digital money. Let’s paint a picture to understand the sheer number of hurdles Africa’s economy is about to face.
In 1970 there were over 2000 bank heists before the concept of mobile banking even was conceived. During the age of Web2 in 1991, they reported at least 9,388 bank robbery attempts in the US alone. In a nutshell, where money is stored, there is a possibility that threat actors will emerge to take it.
The African fintech Industry is the most lucrative venture having a projection of $131.10 billion in total transaction value by 2023.
Given the large number and rapid blockchain adoption rate, it creates the perfect ecosystem for hackers. Despite this dreaded expectation, cybersecurity in the African fintech industry will receive a complete makeover due to the application of digital KYC systems.
Digital KYC system improves African Fintech Industry
A digital KYC system offers three main factors to blockchain adoption and cybersecurity for the African fintech industry; accuracy, Flexibility and Innovation.
It offers numerous benefits that go above and beyond the typical regulatory compliance stems. This is mainly due to the three components mentioned earlier. When combined, a digital KYC system can gather essential data vital for giving insights to the customers and clients the African Fintech Industry serves. It can rely on such a system to provide reliable information on clients.
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This enables better analysis and detects any suspicious activities in any transaction. For example, if the digital KYC system profiles an African citizen to perform transactions ranging between $3000 to $ 5000, a sudden $11000 transaction will instantly flag an alert. This is because its in-built mechanisms gather and process information accurately depicts the kind of activities that an account normally conducts. Aside from offering enhanced cybersecurity in the African fintech Industry, it also aids in product optimization and marketing.
One of the common attributes the African fintech Industry shares with a digital KYC system is flexibility. Normally, fintech organizations in Africa facilitate daily transactions. This offers a digital KYC site with real-time customer information. In addition, most areas within Africa have varying conditions.
These conditions range from; a degree of Internet connectivity, and a lack of the proper addressing system to a lack of technical literacy. All these factors build a diverse market for the African fintech industry. To ensure maximum product penetration, deploying a digital KYC system is often a good option. Its ability to process different client data enables it to form a standard database that uniquely applies to different demographics. This essentially builds a system that s diverse and can withstand any form of financial fraud lowering the rate of cybercrime in Africa.
Innovation is the final contributing factor that a KYC system can offer to the African fintech industry. One of the few contributing factors to the steady blockchain adoption rate in Africa is the ability to innovate. Although the African fintech industry comprises different organizations, each has a unique approach to establishing financial inclusion in the continent. The same attributes govern the establishment of a digital KYC system.
In a nutshell, there is no right way to build it. Due to the different environments in Africa, each KYC process would require to cater for it specifically. For instance, some organizations within the African fintech Industry incorporate AI to automate their processes. A KYC system can incorporate its automation process further. This allows the business to have additional functionalities.
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Aside from dealing with the high rate of cyber crimes in Africa and curbing financial fraud, a digital KYC system can also improve its functionality.
A digital KYC system is by far one of the most significant tools any fintech company can incorporate. It can cater to cybersecurity in the African fintech Industry. In addition, improve its performance. Finding a way to incorporate these two would highly increase the blockchain adoption rate in Africa and improve the livelihood of its unbanked citizens.