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Electronic ‘Know Your Customer’ System Cuts Financial Fraud- Bankers Association

Uganda Bankers Association Chief Executive Wilbrod Owor

Banks and other financial institutions that have fully adopted the electronic Know Your Customer (e-KYC) system are able to eliminate or prevent more than 90 percent fraud from their operations.


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 cheaper way.


This also was meant to boost confidence in the 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, NIRA.


Currently, 25 out of 36 financial institutions supervised by BOU 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 Chief Executive 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 percent security.


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.


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).


On-boarded banks use the platform during customer onboarding, account opening, and loan origination processes.


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 are able to understand their financial-related habits including saving, spending, their income sources among others, according to Rashmi Pillai, the Executive Director, FSD Uganda.

Pillai 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.


This, according to her will boost government programs under the National Development Plan and the Parish Development Model, thus 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.


Uganda Bankers Association Chief Executive 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 NIRA and NITA-U.


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


According to the Bank of Uganda, the system’s use can be diversified away from the banking industry to other sectors where documentation and identity registration, and authentication are critical.


Premon Ogwok, the Senior Principal Bank Examiner at BOU says the bank will support any idea aimed at strengthening the industry.


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