Uganda Bankers Association Recommends KYC To Stem Fraud

Uganda Bankers Association (UBA) has recommended that banks and other financial institutions fully adopt the electronic Know Your Customer (e-KYC) system to eliminate or prevent more than 90 per cent fraud from their operations.

The UBA CEO, Wilbrod Owor, says there is still room for more enhancement through collaborations with other stakeholders and institutions, ultimately contributing to better customer experience and improvements in financial inclusion numbers. He says challenges like system slowdowns which usually happen at the banks to the frustration of customers, are being worked on with National Identification and Registration Authority (NIRA) and National Information Technology Authority (NITA-U).

Owor adds that the system is another example to show that there should be no competition between banking and telecommunication because internet convergence is integrating sectors. He clarifies that there is a need for more collaboration and sharing of infrastructure to make business cheaper and quicker.

“The electronic system that enables the user to verify the identity of the customer and authenticate financial transactions has been developed by Laboremus Uganda, a financial technology company, facilitated by the Financial Sector Deepening (FSD) Uganda. In 2019, the Bank of Uganda and the Uganda Bankers Association contracted the two companies to develop the system that would make the process of identifying customers more easily, faster, and a cheaper way”, says Owor.

He pointed out that this was also meant to boost confidence in the banking industry and eliminate fraud and other losses related to human error, on the side of the bankers. The e-KYC enables the commercial banks and other financial institutions regulated by the Bank of Uganda, to have access to the National Identification Database at the National Identification and Registration Authority.

Currently, 25 out of 36 financial institutions supervised by the Bank of Uganda have taken on the system and another eight are installing the system. Institutions that have fully implemented the system only require a customer’s thumbprint to verify the identity, authenticate transactions or open an account and update existing customers’ information.

Laboremus CEO, Timothy Musoke, says at each level or stage of implementation of the system, a bank enhances the security of its transactions, and it can provide up to 90 per cent security. He says the system uses NIRA’s existing records and the National ID card system to help banks validate the identity of existing and prospective customers. Specifically, the system checks whether the Ugandan National ID details match those in the NIRA database.

“The solution allows for seamless remote onboarding of customers into the formal financial system. By providing the National ID Number (NIN), the card number, the names, and the date of birth, the bank can verify a customer’s identity,” he said.

The verification happens automatically and in seconds. Additionally, the solution verifies directly against the source database (as opposed to existing procedures involving manual checks of the Electoral Commissions database). The e-KYC system is not only for banking transactions but can also help lenders make decisions concerning products for their customers.

This is because they can understand their financial-related habits including saving, spending, their income sources among others, according to Rashmi Pillai, the Executive Director, FSD Uganda. She says this system should be expanded to other lending institutions, including SACCOs and Village Savings and Lending Associations, to include more Ugandans who are outside the banking sector. She adds “this will boost government programmes under the National Development Plan (NDP) and the Parish Development Model (PDM), thereby contributing more to national development.” According to the developers of the system, its use can be diversified into other sectors away from financial, to when identity verification is crucial.

Premon Ogwok, the Senior Principal Bank Examiner at Bank of Uganda, says the Central Bank of Uganda will support any idea aimed at strengthening the industry. He adds that “the system’s use can be diversified away from the banking industry to other sectors where documentation and identity registration and authentication are critical.”