LexisNexis Risk Solutions has revealed the results of its 2022 financial transparency and inclusion report.
The survey of banks, insurers and non-bank financial institutions in 13 countries and regions aims to better understand financial institutions’ commitment to financial transparency and financial inclusion, as well as the challenges they face in achieving these twin goals.
Financial inclusion is a global issue. According to the World Bank, there are 1.4 billion unbanked individuals globally, and the financial services industry faces challenges in bringing this number down.
There are many factors affecting financial inclusion: poverty, a thin credit file, living in a cash-based society, a history of bad debt, and/or a lack of financial education can all impede access to financial services.
One way to convert an unbanked customer into a banked one is to improve financial transparency.
Financial institutions need the ability to identify consumers and understand their risk profiles, both to maintain regulatory compliance and to support the extension of financial services to consumers.
The more institutions understand consumers, the easier it is for such entitles to offer them appropriate financial services. However, 69% of respondents agree that the unbanked or under-banked are harder to on-board than other types of customers and businesses, owing to a lack of data.
The report reveals that financial institutions can do more to achieve greater transparency, indicated by the 64% of respondents who say identity verification is a challenge when on-boarding individuals.
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 processes.
The most challenging customer on-boarding hurdles faced by institutions involve 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 utility, compared with 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 being unable to verify identities in person due to lockdowns.
However, it also led to financial institutions embracing more digital practices, with 90% of institutions reporting that the pandemic had accelerated adoption of artificial intelligence and other next-generation technologies.
“Financial institutions have clear responsibilities to verify customer identities and ensure compliance with national and international regulations,” said Leslie Bailey, the vice-president of financial crime compliance at 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,” she said.
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