Financial inclusion is essential for the economic upliftment of the underprivileged population and plays a major role in inclusive growth. It is essentially ensuring the delivery of financial products and services, in a low-cost and transparent manner, to every individual from every section of society.
From bank accounts and financial advisory services to loans and insurance facilities, financial inclusion initiatives empower the vulnerable sections of the community.
It is surprising to know that nearly 1.7 billion individuals worldwide are still unbanked and face challenges with gaining access to financial services.
Some of the main factors that have resulted in this poor degree of financial inclusion are lack of awareness and financial literacy, limited access to social services, lack of inclusive measures in the strategies adopted by financial institutions and banks, poor implementation of technology by financial bodies, and low availability of resources.
Costs incurred in the lending process
The entire lending cycle is typically viewed from a lens that focuses on the execution of the process. Most often, the financial aspect focusing on the costs incurred is neglected, which is noteworthy since several steps in the process can be quite expensive.
This impacts the decision-making process of financial institutions and also affects the lending strategy adopted by banks. Here are a few areas that incur costs pertaining to the lending process.
1. Lead origin and evaluation
Identifying a reasonable set of potential customers as leads can be a time-consuming and cost-intensive task for banks and financial institutions. Typically, there are dedicated teams assigned with these lead generation activities and to ensure that the identified people meet the required criteria to be granted credit.
As a result, a large number of human resources are dedicated to this wing of activities that come along with heavy capital investment.
2. Lead qualification through KYC
KYC operations for financial institutions bear a high amount of cost as it involves a thorough verification of several aspects of the potential customer.
Due to the thoroughness required for the KYC process, banks and financial institutions have been forced to set up entire departments dedicated to this, thereby requiring increasingly larger budgets and mobilising significant resources.
3. Risk assessment and underwriting
Verifying the identity of customers as well as their potential risks comes with investment. To assess the lending risk associated with a candidate, financial institutions use data from the candidate’s past credit behaviour, traditionally relying on credit scores from bureaus. Using this data involves technology costs as well as human resources.
4. Disbursal of Funds and Collection
Both the disbursal as well as the collection of funds are prime to the functioning of a financial institution. As a result, dedicated resources are assigned to these processes.
All of these processes with respect to KYC, accumulating and managing paperwork, and physical verification include high costs. The solution to address these challenges is implementing video KYC. Video KYC doesn’t just reduce execution costs, it also helps financial institutions onboard customers faster, wherever they may be.
The video KYC landscape
Video KYC is essentially the process of digitally authenticating the identity of any particular customer as they start their relationship with a financial institution. The concept of KYC was introduced in India in 2002 and has been extremely beneficial with helping individuals in the tier 2 and tier 3 cities gain access to credit.
In general, tier 2 and tier 3 cities do not have plenty of banks and financial institutions in the locality thereby preventing individuals from obtaining credit. With video KYC, even the most remote rural regions can be covered thereby boosting financial inclusion.
However, we need to take into account network connectivity and device and camera varieties while serving this segment.
Video KYC tools that reach even the farthest of rural areas with provisions for a low bandwidth mode and guided step-by-step processes are essential to increase access to all community segments. These features will bridge the gap between customers and businesses, all geographies.
With plenty of more individuals in tier 2 and tier 3 cities being able to get their hands on credit, achieving financial inclusion has been made possible. Moreover, video KYC has also helped mitigate accessibility concerns with respect to documentation. With a digital verification system, this issue of accessibility pertaining to documentation has been removed.
Benefits of video KYC with financial inclusion
There are a plethora of benefits of adopting video KYC. Here are the three most important benefits.
1. Increased financial inclusion
Video KYC ensures that the underbanked population gets access to loans, credit lines and insurance, irrespective of their geographical location and proximity to a physical bank branch.
Moreover, the digital verification process of video KYC has also encouraged more individuals to apply for credit as it has simplified the process as opposed to physical paper verification.
2. Improved customer inclusion
Typically, customers view the KYC process as a painstaking one as it requires their repeated physical presence. This barrier has often led to resistance among customers in completing the KYC process. With video KYC, this barrier has been removed thereby increasing the convenience of the customer as it saves plenty of time.
It also helps with the banking process in rural and semi-urban areas as a completely digital onboarding of customers without bank visits can help due to the limited number of branches available in these areas.
3. Reduced costs and resources
One of the main advantages of using video KYC is that it reduces the capital requirement and expenditure from the bank or financial institution. As video KYC is conducted on an online platform with the help of a digital process and digital maintenance of records, the operational capacity required is much lesser.
Shifting from physical verification to digital verification also reduces costs with respect to the manpower, paperwork required, activities such as region-level specific plans for improved market penetration, awareness schemes, financial policies, etc.
Future of video KYC
With the increased adoption of video KYC, it is not uncommon to expect this process to become a standardised procedure and take over the physical and traditional methodology of KYC that currently exists in a few financial institutes. This revolutionary process is expected to enhance customer experience throughout the financial and lending sector.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)
