The role MNOs will play in supporting robust KYC processes

Over the past few years, KYC (Know Your Customer) has become critical to a wide number of different businesses, including banking, financial services, cryptocurrency exchanges, ecommerce, online gambling, MNOs, and many others. KYC is a regulatory requirement, ensuring that businesses know the customer with which they are dealing, and is a critical anti-fraud capability. However, KYC has not always been an easy process. Ensuring that KYC processes are robust is challenging and requires access to broad data sets that contain detailed information. As large data holders and with increasing authentication capabilities, MNOs have a role to play here, which we anticipate will expand significantly over the next 5 years.

A large factor in the KYC area is the ongoing transition to digital onboarding and KYC processes. The pandemic has accelerated existing trends towards digital use in areas such as banking and ecommerce, leading to a surge in digital usage across many markets. Lockdowns are in force in several countries and have limited trips to essential purposes; banks for example have had to shift to even greater levels of digital onboarding to ensure that they can still add new customers, and this is a problem that has been replicated throughout the digital ecosystem. With these pressures, consumer habits have shifted towards the use of digital services during the pandemic, and this is a behaviour we anticipate will only intensify in a post-pandemic world. As such, the burden on KYC processes is higher than ever to remain robust in varying and challenging circumstances.

The other element that is important to note here is that fraud is growing rapidly at the same time as disruptions to existing KYC processes. As transactions have flowed towards digital channels, so have the fraudsters, which has put pressure on existing KYC processes.

The graph below demonstrates the rising scale of the fraud challenge in the digital ecosystem.

Figure 1: Total Transaction Value of Ecommerce Fraud ($m), Split by Vertical, 2019 versus 2024

This fraud is being driven by tactics such as account takeover fraud and the use of synthetic identities. In a perfect world, if KYC processes could truly allow businesses to fully know each customer, their transaction history, their identity and their typical behaviour, fraud would not exist. While this is not likely to occur in full and fraudsters will always find a way to enter systems, KYC processes and increasing their robustness play a pivotal role in meeting the rising challenge of fraud prevention. This challenge also represents a significant opportunity for MNOs to assist.

In this complex and rapidly changing market, it is highly important to understand the important role that MNOs can play in supporting robust KYC processes. There are several different aspects to this role. Conceptually, it is important to understand the idea of identity networks here. We define identity networks as ‘emerging collaborative ecosystems where different parties can share identity-related data to improve digital identity use and reduce fraud.’ Under this collaborative model, MNOs have a large, multi-faceted role to play.

Firstly, MNOs can add data to the KYC equation. MNOs undertake their KYC processes, and the data they gather from users during this process can be an extra point of validation for third-party KYC checks. Under the identity networks model, MNOs can choose to share this data with other businesses within their identity networks, such as banks, ecommerce vendors, credit bureaus and others, to improve KYC processes across the network, adding value.

Secondly, MNOs can provide several different capabilities in terms of verifying identities. MNOs can provide subscriber identity solutions to verify the identity of their users. This revolves around the GSMA’s Mobile Connect service, which is delivered by APIs (Application Programming Interfaces) that can match end users to their mobile phone number. The service features a federated architecture and has been deployed with more than 70 operators around the world to date. The identity confirmation that services like this can give is highly important to add more security to KYC processes with an increased number of validation methods.

Thirdly and most importantly, MNOs can offer additional mobile authentication methods that can be used in ensuring robust KYC procedures are followed. These are ultimately in the area of multi-factor authentication, including features like OTPs (One Time Passwords) delivered via A2P (Application to Person) messaging and automated voice calls delivered via a CPaaS (Communications Platform as a Service) system. These capabilities ensure that KYC processes, particularly in the digital environment, remain robust and secure, and this is reflected in how many banks already leverage many of these capabilities.

Ultimately, via a combination of these different capabilities, MNOs can become increasingly central to the concept of identity networks, both as a supplier of identity-related data and authentication services.

The potential evident in this area means that MNOs should prioritise this market as an important one for them. MNOs are under pressure from high infrastructure costs with 5G rollouts, and the increasing commoditisation of the services they offer their users. As such, any potential source of additional revenue should be a priority for them. Not only this but via greater involvement in identity networks, MNOs can benefit from improved KYC processes and reduced fraud risks themselves, which will ultimately improve their efficiency. The last element is reach – all mobile connections have SMS capability, so their reach is wide and not subject to fragmentation, which is a problem for many other verification methods.

About Nick Maynard

Nick Maynard is a Lead Analyst at Juniper Research. His key area of focus is providing expert market sizing and trend analysis, with experience throughout the digital ecosystem. His recent research reports include Digital Wallets, Mobile Money in Emerging Markets and QR Code Payments. Nick has a BA (Hons) in History from the University of Reading.

About Juniper Research

Juniper Research specialises in providing best-in-class market research across mobile, online, and disruptive technologies. We offer in-depth reports, forecasts, annual subscriptions, and consultancy. Our global clients include Tier One operators and vendors.