Can Blockchain Offer A Better Alternative To EcoCash’s Agent Problem?
It has been an interesting yet unsurprising past couple of weeks for Zimbabwe’s most popular mobile money firm EcoCash.
The company has been in a row with the Central Bank which has claimed loopholes in the EcoCash platform have driven up currency exchange rates and devalued local currency – one of the major issues is regarding EcoCash’s handling of KYC (Know Your Customer) processes.
As reported by Constituency, ‘the allegations made by the Financial Intelligence Unit (FIU), EcoCash is failing or neglecting its obligation to carry out routine but thorough Know Your Customer (KYC) processes on users of the mobile money service’.
The RBZ says these failures have led to abuse of the platform and driven up exchange rates. The Reserve Bank of Zimbabwe told EcoCash to suspend all Agent accounts with transaction volume over Z$100,000 per month.
The double-edged sword that is “financial inclusion”
Agents pose a critical flaw when it comes to onboarding customers. This flaw exists owing to the contrast of aggressively pushing the ‘helping the unbanked’ narrative that’s become common in the financial industry, and the need to fulfil KYC guidelines as often issued by the Central Bank and other regulators.
In essence, the need to get as many customers as possible, overrides the need to on-board the right customers (i.e. identity verified users) and in the EcoCash saga, this was and still is the case.
Agents who for long were seen as a necessary pillar in providing liquidity to the mobile money ecosystem have now been abusing the system with black-market transactions under the guise of false identities and enterprises.
This has all been happening under the watch of EcoCash and cousin operators, why keep it that way though? Simple, large transaction volumes equal profit, and more worryingly, nobody seems to really know who is behind these transactions; thus, the full wrath of the Reserve Bank of Zimbabwe (RBZ).
Can blockchain offer a better KYC alternative?
When we started our journey to bring FlexID to the world and in broader context, blockchain powered self-sovereign digital identities, we knew organizations i.e. financial institutions; banks, insurance, telecom companies etc. would all be facing the same challenge sooner or later.
Take KYC for example, the problem with a mobile money company or bank having an internal KYC process is that it is easily subjected to:
- Corruption (registration agents can easily be bribed to enter false information or even create ghost accounts themselves) and even;
- Negligence (punching in typos in the raw data or not thoroughly checking documents).
Identity fraud is the biggest crime, where unscrupulous entities falsify identity documentation to access Agent lines or bulk mobile wallet accounts.
The question is, how can an institution know if the documents are authentic? Today’s process would require back and forth communication with central ID registries, tax authority, company registrar etc, all time consuming and virtually unscalable. The shortcut (as done by numerous firms) is to simply request for these credentials and take them at face value in order to ‘comply’. We’ve now seen, this has dire consequences!
With self-sovereign identity, the solution is to use Verifiable Credentials (VCs), who’s Issuers can be traced back and trusted, with virtually no room for falsification.
A FlexID is a Digital Identity Wallet that stores these Verifiable Credentials as issued by trusted authorities i.e. only organizations in our network can issue a credential. By knowing: Who the issuing organization is; Who the holder/ receiver of the credential is and; What the data the credential contains, organizations such as banks and telecom companies can leverage the Flex Network to verify the authenticity of users in their ecosystem.
It nullifies the gamification of the KYC process as one cannot simply spin up a false ID or false company registration documents as a cryptographically signed signature by an Issuer would be required for registrations.
It is imperative that EcoCash and other organisation realise the need to have secure, verifiable solutions and partner with trusted parties which would ensure the integrity of data in their ecosystems and potentially increase the right customer base.
Victor Mapunga is a serial entrepreneur, Co-Founder & CEO of FlexFinTx (www.flexfintx.com), a Blockchain & Digital Identity firm, creators of FlexID. A renowned expert & pioneer on blockchain in Africa, he’s been a speaker at the Blockchain Africa Conference, presenting on the practical application of digital identity in the financial industry
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