On 27 March 2024, the Bank of Mozambique published Notice no. 06/2024, which defines the new Bank Accounts Regime Regulation (the implementation of which has an adaptation period of 180 days). These regulations define the procedures for opening and managing bank accounts and apply to all credit institutions that take deposits in Mozambique.
Within the scope of this Notice, we have seen a number of relevant changes introduced, both in terms of documentation requirements and the definition of specific rules for the regulation of joint accounts and the management of dormant accounts. Of the approximately thirty-four articles contained in BoM Notice 06/2024, the innovation underlying Article 5 stands out, defining that ‘credit institutions must identify their customers using biometric mechanisms’.
The introduction of the compulsory collection of biometric data by the Central Bank, applicable to credit institutions (which take deposits) operating in the banking sector in Mozambique, is therefore a new challenge for the players in this market, and it is expected that there will be a need for considerable adjustments to the internal processes and controls in place within the process of opening and managing customers’ bank accounts. However, could this challenge materialise into added benefits for the sector and its clients?
Although a pioneer in Mozambique, the use of biometric data in the banking sector is far more common than many of us realise. Globally, several financial institutions have replaced ‘traditional’ customer identification systems with systems based on biometric data. In particular, for the verification process known as Know Your Customer (KYC), Biometrics helps ensure regulatory compliance by creating a more secure and reliable digital identity verification process. One of the main benefits of Biometrics is its advantage over traditional knowledge-based authentication methods (namely PIN – Personal Identification Numbers or OTP – One Time Passwords), which can be easily stolen or forgotten. In contrast, biometric verification methods allow users to access their accounts using their unique biological traits.
Although a pioneer in Mozambique, the use of biometric data in the banking sector is far more common than most of us realise
So how can we assess the potential benefits of this new requirement for Mozambique’s banking sector? To answer this question, it is important to start by understanding the following aspects:
1. What is biometrics in the banking sector?
Biometrics in the banking sector consists of the use of unique physiological or behavioural characteristics of individuals for authentication and security purposes in digital banking transactions and access to bank accounts. These characteristics can be divided into around six broad categories: facial recognition, voice recognition, fingerprint recognition, retinal recognition, behavioural biometrics and finger and/or palm vein recognition.
2. What are the benefits of capturing biometric data for credit institutions?
The introduction of biometrics in financial institutions has three main benefits for banks and their customers: firstly, (i) greater compliance with the regulatory requirements for the Prevention of Money Laundering and Financing of Terrorism (PBC-FT). This point is extremely important, not only because of its compliance with Banco de Moçambique Law 11/2022 and international best practice in matters of AML-TF, but also because of its alignment with the focus of GIFIM – Mozambique’s Financial Information Office, to remove the country from the FATF’s Grey List. Secondly, it is worth highlighting (ii) the improvement of capacity in the fraud prevention process at credit institutions, which in itself will enable them to reduce the amount of operational losses and avoid reputational damage in a market with increasing competitiveness. Finally, it is worth emphasising (iii) the increase in efficiency/velocity in the customer identity verification process, since whenever a financial services provider faces delays during the customer identity verification process, this not only generates a poor user experience, but also increases the likelihood of customers abandoning the process.
Biometrics in the banking sector makes it possible to identify specific characteristics of individuals for security purposes
In practical terms, and although Banco de Moçambique Notice 06/2024 only defines the obligation for credit institutions to ‘identify their customers through biometric mechanisms’, we can see that the benefits for credit institutions mentioned above can be captured above all by maximising the investment needed to meet them in other parts of the business. Analysing the financial sector in an international context, we see that some of the main areas of use for biometrics include: (a) the customer onboarding process and re-authentication of customer identification, particularly in the context of customer acceptance, KYC and identity verification procedures for data access and transaction processing; (b) the identification process when accessing mobile banking services and in branches, allowing institutions to reduce the risk of fraud in the banking services provided via both channels; and (c) ATM access, minimising the possibility of fraudulent access to bank accounts via customer cards that may have been lost, cloned or stolen.
On the other hand, it is also important to be aware of the challenges that the implementation of Biometrics in the sector will pose for credit institutions: the necessary investment will have to be carried out in an integrated manner, and not just in terms of acquiring technology for capturing and storing data. Initially, it will be necessary to re-evaluate the IT environment and understand the integration capacity of the systems and platforms in place with the tools and technology needed to implement Biometrics. At a procedural level, it will be essential to reassess, update and (possibly) redesign existing procedures and controls, ensuring that they are properly formalised internally within the institutions. At the same time, the strengthening of organisations’ internal data protection and cybersecurity skills should be promoted, as well as the training of the necessary human resources, so that they can ensure the operation and future management of this new process in an autonomous manner. At EY, we are aware of the challenges that this new reality represents for credit institutions in Mozambique, and we are totally confident about the opportunities and potential that Biometrics presents for their distinction and reputation in the market. As digital transformation is one of our current strategic pillars, we could not fail to accompany the (re)evolution that this initiative represents and contribute in an active and differentiating way to the digitisation and transparency of the sector which, in turn, will make it possible to boost greater efficiency for institutions and greater user satisfaction, while also promoting compliance with Central Bank requirements and international best practices.
