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04 January 2017

Banking on refugees: The refugee crisis is also an identity crisis

There are now more geographically displaced people today (c. 63 million) than after the Second World War. After making a long and arduous journey, refugees look to settle and begin their new lives, but face a multitude of challenges such as housing and employment. Though it’s often overlooked, among the most important of their needs is access to financial services.

To open an account, banks use a vetting process to ensure they know exactly who you are (KYC). This is due to stringent identity and anti-money laundering (AML) regulations. However, many refugees arrive without formal documentation such as a Passport or ID card. To solve this issue, governments, regulators and banks need to work together. This blog will focus on the three key areas in which they can be creative about regulation, technology and product design to include those without conventional documentation in the formal financial system:

  1. review the KYC and AML requirements: An obvious option is to ease the KYC requirements to open an account. This approach was taken by the German Federal Financial Supervisory Authority (“BaFin”) in 2015 as they believed being able to monitor account activity was better than having more than 1m people using informal financial services. However this approach has not been replicated elsewhere.  The corresponding increase in financial crime risk is difficult to negate, and requires a robust supervisory and monitoring infrastructure alongside strong political will 
  2. digital ID solution: Perhaps a more suitable candidate is to develop an ID solution that can overcome geographic, demographic and institutional constraints. Project Taqanu does just this by creating an entry banking solution that can onboard people without governmental ID. It places ID reliance on the use of a reputation-based identification (ie Facebook). Another example has been the adoption of iris scanning and biometrics. EyeBank is a financial assistance scheme that has facilitated ATMs with iris scanners to biometrically identify registered refugees to enable them to withdraw a monthly stipend.  Currently, more than 1.8m refugees are enrolled in Eyebank and other financial products, such as micro loans and savings accounts, are being considered
  3. product or proposition design: With more flexible KYC requirements and FinTech opportunities, financial services providers can simplify their products for those with less than air-tight forms of identification. For example, a product with limitations on cash movement can significantly reduce the risk of financial crime. A successful example is MONI, a Finnish fintech that provides refugees with prepaid cards and mobile-first customisable payment accounts. This has enabled refugees to transact in the formal financial system without a traditional style account.

When a financial institution says we are trustworthy, even for a bank account, doors open for many services such as basic utilities, housing contracts or education. Solving the identity challenge through policy, technology and product design will act as a ramp to a productive life in new societies for refugees. But we can also use this challenge as a petri dish for wider innovation and application in consumer banking. Who knows – we could even start to take these lessons learned to chip away at the billion people worldwide that are currently unbanked.