Biometric technology is making significant strides in the banking sector, offering a powerful tool to enhance financial inclusion and security. The World Bank reports that approximately 1.7 billion people globally still lack access to essential banking services, often residing in remote or impoverished regions. Utilizing biometrics for identity verification can help bridge this gap, offering secure and efficient banking solutions to underserved populations.
Biometrics, which involve unique physical or behavioral characteristics for identifying individuals, are increasingly used in banking to prevent fraud and offer personalized services. These technologies are pivotal in providing financial services to populations previously excluded due to a lack of proper identification. By integrating biometrics, banks can enhance their Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance, building customer trust while reducing fraud risks.
Many of the unbanked, often in countries like Morocco, Vietnam, and Nigeria, face challenges such as lack of money, identification, and financial infrastructure. These factors contribute to their exclusion from formal banking, leaving them reliant on costly and unreliable financial alternatives. Biometric solutions offer a promising avenue to create digital identity systems, facilitating easier access to banking services and paving the way for improved financial inclusion.
Biometric technologies are being developed to cater to the needs of those in remote and challenging environments. Companies like Aratek are producing durable biometric tools like fingerprint scanners and handheld terminals designed for rugged conditions. These innovations enable financial institutions to serve areas previously unreachable by traditional banking models, using mobile branches equipped with biometric devices to extend their reach.
The integration of reliable biometric authentication in banking ensures safer financial transactions, reducing identity theft and increasing customer confidence. This security fosters a broader adoption of banking services, allowing those without bank accounts to partake in economic growth and stability. As financial institutions expand their offerings, they continue to cater to the needs of diverse communities for greater financial empowerment.
In conclusion, biometrics play a crucial role in overcoming barriers to financial inclusion, offering secure and convenient ways to prove identity and access banking services. The drive to integrate these technologies into banking will only intensify, positioning biometrics as a key player in the evolution of global financial systems.
It's hard to imagine how human society would have progressed without banking industry. The world's economy runs on the convenience, security, and easy access to credit that banks provide. Banks have also helped society move toward modernity.
Biometrics are unique physical or behavioral characteristics that can be used to identify an individual; they are frequently used for security purposes.
Biometrics are frequently used in the banking sector to perform identity verification in order to prevent fraud, provide better services, and improve financial inclusion for underserved populations.
Biometric technology
This article will talk about the current state of biometric technology in banking and how it can be used to help achieve financial inclusion. The article will also show a case study of how India Aadhaar is helping to bring financial inclusion through biometric identification and mobile payments. Finally, the article will talk about the future of biometrics in banking and financial services.
Key Takeaways:
- In the banking sector, biometrics are being used to provide to prevent fraud, provide better services, and improve financial inclusion for underserved populations.
- The use of biometrics in banking and financial services will continue to grow as they become more effective and
- The Problems of Being Unbanked / Financial Exclusion
"Unbanked” or "financial exclusion"
"Unbanked” or "financial exclusion" means a person or entity “not having access to the services of a bank or similar financial institutions.” Yet what’s even more difficult to imagine is that some 1.7 billion people across the world are still shut out of the benefits of banking, according the World Bank's report.
Also Morocco, Vietnam, Egypt, Philippines, Mexico, Nigeria, Peru, Colombia, Indonesia, and Argentina top the list of the most unbanked countries in the world with more than 50% of their population unbanked. Those who are unbanked are often among the world's poorest people, living in remote rural areas or urban slums. They have little or no access to basic banking services such as savings accounts, credit lines, and loans.
Most of such individuals belong to low-income brackets in developing markets, although some developed countries also grapple with the problem of a large number of their citizens unable to access services of banks or financial institutions.
Financially excluded
People are said to be "unbanked" or "financially excluded" for a number of different reasons, the most common of which are a lack of money, a lack of proper identification, and a lack of financial infrastructure in rural areas.
People are considered to be "unbanked" when they do not have access to sufficient funds or when they are unable to understand how banks function. People are also considered to be "unbanked" because they are unable to provide proof of their identity, which is made significantly more difficult by the fact that they are illiterate.
If you do not have an identification document, it may be more difficult for you to obtain financial services from a bank because banks want to know who their customers are. This is partially attributable to the fact that these developing countries have informal economies and a dearth of financial infrastructure.
World Bank report
The World Bank report also said that the poor are often forced to use expensive and risky alternatives like "traveller's cheques," "money orders," and cash delivered by "informal agents." These methods not only cost a lot of money, but they also leave them open to fraud and theft. Because of this, people who are "unbanked" are vulnerable to being taken advantage of by shady money brokers.
Since they can't save money or borrow money, people who don't have bank accounts can't really benefit from the effects of economic growth. Many people will live in poverty for the rest of their lives because of this.
Better Financial Inclusion
Fortunately, biometrics is rapidly shaping up to be a cost-effective, convenient and reliable solution to prove identity, thereby providing the means to usher millions into the financial fold. Biometrics can aid in the development of a digital identity system, which is the first and most effective step in providing financial services to people who are not yet part of the formal banking system.
Using biometrics technologies to make a reliable and easy-to-use digital ID system will solve the problem of not having identity documents to open a bank account. This will give people a safe and easy way to prove their identity, help banks get to know their customers, and make sure that their customers can easily access their financial services.
Improving access to financial services in underserved communities can be a top priority, and the use of mobile biometric solutions can be an excellent way to do so.
Underserved areas
Reaching out to underserved areas in this way via a mobile branch is a much more efficient and affordable alternative to opening a new brick-and-mortar location.
Many people in rural areas don't have access to traditional banking services, but thanks to digital ID systems and biometric mobile devices like biometric mobile devices, mobile handheld terminals, biometric tablets, smart phones that connect to biometric scanners, etc., financial institutions can expand their service area and provide better banking options to more people.
The Aadhaar Enabled Payment System (AePS) of India is a great example that shows how mobile biometric solutions can empower the unbanked to participate in financial activities.
More secured banking
Biometric authentication's high reliability allows for more secure monetary transactions. Customer trust in financial institutions will increase, and identity theft and fraud will be reduced, thanks to this measure. People who don't have bank accounts yet can benefit greatly from this kind of confidence in banks because it encourages them to try out the convenience of banking for themselves.
Additionally, it ensures that banks can comply with the increasingly stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations enacted by governments to combat these nefarious practices. As more people enter the financial system, the risks associated with KYC and AML procedures increase; this is especially true when financial inclusion is a major part of their plans.
Furthermore, the promise of security in financial transactions encourages financial institutions to expand their business model and provide more tailored goods and services in order to increase financial inclusion. People without bank accounts require these products and services in order to provide a secure financial future for themselves and their family.
Significant contributions
In less than a decade, biometrics has already made significant contributions to the goal of financial inclusion. Pioneer biometric companies like Aratek, for example, have been hard at work developing products like fingerprint scanner, biometric handheld terminal, and biometric software that can be deployed in rugged terrains and under the most punishing weather conditions, where a great number of the unbanked are found.
As the drive to narrow the banking gap intensifies, the biometrics industry will find itself being thrust into an even more important position in the coming years.
