Rethinking Proof of Address in Africa’s Informal and Digital Economies
A customer wants to open a bank account.
They have a valid national identity document.
Their identity can be verified.
Their phone number is active.
They have a mobile money wallet.
They receive regular payments.
They may even have a clear financial history.
But there is one problem:
They cannot provide a traditional proof of address.
No utility bill.
No rental agreement.
No official property document.
Perhaps they live in an informal settlement.
Perhaps the address has no street name or house number.
Perhaps they rent a room informally.
Perhaps they live with relatives.
Perhaps they move frequently for work.
The application is rejected.
The reason?
“Proof of address required.”
This creates an important question for financial institutions, fintechs and regulators:
Can you really know your customer if the customer does not have a formal address?
The short answer is:
Yes—but the KYC process may need to be designed around the customer’s actual reality rather than assuming that every customer lives within a formal addressing system.
The problem with traditional KYC assumptions
Traditional KYC processes often rely on a relatively simple model.
The customer provides:
- A government-issued identity document;
- A residential address;
- Proof of that address;
- Information about their occupation and income.
For customers living in formal housing systems, this may work reasonably well.
But in many African markets, the reality is more complex.
A person may live in a location where:
- There is no official street address;
- Utility bills are not issued in the customer’s name;
- Electricity is shared between multiple households;
- The customer rents informally;
- The customer lives with family;
- The customer has no formal tenancy agreement;
- The address is described through landmarks rather than street numbers;
- The customer is highly mobile.
The absence of a traditional proof-of-address document does not automatically mean the customer is anonymous.
It may simply mean that the institution’s verification model is not adapted to the customer’s environment.
The FATF has explicitly recognised that overly cautious AML/CFT controls can unintentionally exclude legitimate customers from the formal financial system. Its financial inclusion guidance supports proportionate, risk-based approaches and alternative forms of verification where traditional documentation is unavailable.
A formal address is not the same as an identity
This distinction is essential.
A customer’s identity and their physical address are different pieces of information.
A customer may have:
- A reliable identity;
- A valid phone number;
- A biometric record;
- A verified national ID;
- A consistent financial profile;
while not having a conventional proof-of-address document.
The question should therefore not necessarily be:
“Does this person have a utility bill?”
It should be:
“Can we establish, with sufficient confidence, who this person is and where they are connected to?”
This may involve several data points rather than one document.
The goal of KYC is not to collect paperwork for its own sake.
The goal is to understand the customer sufficiently to manage financial crime risk.
The African address problem
In many African markets, addressing systems are evolving.
A customer may describe their location using:
- A village name;
- A neighbourhood;
- A nearby market;
- A religious building;
- A school;
- A landmark;
- A local community name.
For example:
“Behind the central market, near the blue mosque.”
This may not look like a conventional Western address.
But locally, it may be a perfectly meaningful way of identifying where someone lives.
A rigid system may reject the information because it does not fit a standard format.
A risk-based system may ask:
Can this information be captured, verified and used effectively?
This is an important difference.
A lack of a postcode does not necessarily mean a lack of identity.
What alternative evidence could be considered?
The exact requirements depend on the jurisdiction, product and risk level.
However, a risk-based KYC framework may consider a combination of alternative evidence, such as:
1. Government-issued identification
National identity cards, passports or other official identification documents may establish the customer’s identity even if they do not prove a residential address.
2. Digital identity
Reliable digital ID systems can potentially support customer identification and verification.
The FATF’s guidance on digital identity explains that appropriately reliable digital ID systems can support customer due diligence and may also support ongoing monitoring.
3. Mobile phone information
A verified mobile number can provide an important connection to the customer.
However, a phone number alone should not be treated as proof of identity.
It is one data point.
4. Agent verification
In mobile money ecosystems, local agents may have valuable knowledge of the customer’s community and location.
This does not mean agents should replace formal KYC controls.
But carefully designed agent-based processes may support customer onboarding where traditional documentation is unavailable.
5. Community-based information
Depending on the jurisdiction and risk level, information from recognised local structures may contribute to establishing a customer’s connection to a location.
6. Financial behaviour
The customer’s transaction activity may provide additional information.
For example:
- Where are transactions taking place?
- What is the normal transaction pattern?
- Are the transactions consistent with the customer’s profile?
- Is the account being used for personal or commercial purposes?
Behaviour cannot replace identification.
But it can contribute to ongoing customer understanding.
The danger of treating every missing document as high risk
There is a major difference between:
“The customer has no formal proof of address.”
and:
“The customer presents a high risk of money laundering or terrorist financing.”
These are not automatically the same thing.
A person may lack a utility bill because:
- They live in a rural area;
- They rent informally;
- They live with relatives;
- Utilities are registered under another person’s name;
- They live in an area without formal addressing.
None of these facts, by themselves, prove criminal activity.
The risk comes when the lack of address information is combined with other indicators.
For example:
- Inconsistent identity information;
- Unexplained high-value transactions;
- Multiple unrelated counterparties;
- Suspicious geographic activity;
- Adverse media;
- Links to high-risk individuals or entities;
- Unexplained source of funds.
This is the foundation of a genuine risk-based approach.
But alternative KYC cannot mean “no KYC”
This is where the debate becomes important.
The answer to financial exclusion is not to eliminate customer due diligence.
A customer without a formal address can still present financial crime risks.
Criminals may also exploit:
- Informal addresses;
- Weak identity controls;
- Agent networks;
- Mobile wallets;
- SIM cards;
- Account rentals;
- Synthetic identities.
Therefore, the objective should not be:
“Accept everyone without verification.”
The objective should be:
“Use appropriate and proportionate verification methods that reflect the actual risk.”
This may mean:
Lower-risk customer
- Simplified onboarding;
- Lower transaction limits;
- Progressive verification;
- Additional controls as usage increases.
Higher-risk customer
- Enhanced due diligence;
- Additional source-of-funds information;
- More extensive identity verification;
- Senior approval;
- Enhanced ongoing monitoring.
The FATF’s financial inclusion guidance supports proportionate approaches rather than automatically excluding customers simply because traditional documentation is unavailable.
Progressive KYC: a possible solution
One approach is to avoid treating onboarding as a single moment.
Instead, KYC can develop over time.
For example:
Stage 1: Basic access
The customer provides reliable identity information.
The account has limited functionality.
Transaction limits apply.
Stage 2: Additional verification
The customer provides further information as their relationship with the institution develops.
Stage 3: Expanded access
The customer can access additional products or higher transaction limits after completing enhanced verification.
This model may be particularly relevant to financial inclusion.
A customer should not necessarily need to prove every aspect of their financial life before accessing even the most basic regulated financial service.
At the same time, increased access and higher transaction volumes can justify additional information.
The FATF has discussed the potential role of tiered and progressive customer due diligence in supporting financial inclusion, particularly where digital identity systems can provide different levels of assurance.
Digital identity could change the debate
One of the most important developments is the growth of digital identity systems.
A reliable digital ID may help institutions verify customers without relying entirely on:
- Paper documents;
- Utility bills;
- Physical branch visits;
- Traditional address formats.
Digital identity can potentially:
- Improve onboarding;
- Reduce fraud;
- Support remote verification;
- Improve access to financial services;
- Support ongoing due diligence.
However, digital identity is not automatically risk-free.
Institutions must still consider:
- The reliability of the system;
- How identity is initially established;
- Authentication controls;
- Data quality;
- Fraud risks;
- Data protection;
- The assurance level of the identity system.
The FATF recommends assessing the assurance levels, technology and governance of digital ID systems before relying on them for customer due diligence.
Technology can improve KYC.
But technology does not eliminate the need for risk assessment.
The role of geolocation
Geolocation can also provide useful information.
For example, an institution may be able to assess:
- Whether a device is consistently used in a particular region;
- Whether login activity is consistent with the customer’s stated location;
- Whether transactions are occurring in unexpected locations.
However, an important distinction must be made:
Geolocation is not proof of address.
It can be a supporting risk signal.
It should not automatically be treated as documentary proof of residence.
For example, a customer’s device location may indicate that they are regularly located in a specific area.
That may contribute to the overall customer profile.
But it does not, by itself, prove legal residence at a specific address.
This distinction is important because good compliance is not simply about collecting more data.
It is about understanding what each piece of data actually proves.
The informal economy makes address verification even more complicated
The issue is closely connected to another KYC challenge:
Many customers do not have formal employment either.
A customer may not have:
- A payslip;
- A formal employer;
- A tax return;
- A company registration;
- A traditional bank statement.
They may be:
- A market trader;
- A taxi driver;
- A farmer;
- A cross-border trader;
- A small-scale entrepreneur;
- A freelancer;
- A seasonal worker.
This does not mean that the customer is impossible to understand.
It means the institution may need to understand the customer’s economic reality differently.
A KYC model built around:
Address + Payslip + Utility Bill
may be poorly adapted to a large part of the population.
The risk of digital exclusion
When customers cannot satisfy traditional KYC requirements, they may have several options.
They may:
- Abandon the application;
- Remain outside the formal financial system;
- Use informal financial channels;
- Ask someone else to open an account on their behalf;
- Use accounts belonging to friends or relatives.
This creates an unintended consequence.
A strict onboarding process designed to prevent financial crime may unintentionally push some legitimate customers towards less transparent channels.
The FATF has recognised this tension, noting that exclusion from regulated financial services can push customers toward cash and unregulated channels, potentially making financial activity less transparent.
This does not mean that every customer should be accepted.
It means that compliance decisions should consider the consequences of exclusion.
A better question for financial institutions
Instead of asking:
“Can the customer provide a utility bill?”
A more sophisticated question might be:
“What is the most reliable combination of information available to establish the customer’s identity, location, expected activity and risk?”
This could involve a combination of:
- Identity documents;
- Digital identity;
- Biometrics;
- Phone information;
- Agent verification;
- Customer declarations;
- Transaction behaviour;
- Geographic information;
- Product limits;
- Ongoing monitoring.
No single data point is necessarily perfect.
But multiple independent data points may collectively provide a reasonable level of confidence.
This is one of the central principles of risk-based KYC.
What should financial institutions consider?
A practical framework might ask:
1. What is the customer’s actual risk?
Not:
“Does the customer have a utility bill?”
But:
“What is the overall ML/TF risk associated with this customer and product?”
2. What reliable information is available?
Can the institution verify:
- Identity?
- Phone number?
- Digital identity?
- Location?
- Expected activity?
- Source of funds?
3. What product is the customer seeking?
A basic, low-value wallet is not the same as:
- A corporate bank account;
- A high-value payment account;
- A cross-border remittance account;
- A crypto platform account.
The level of due diligence should be proportionate to the risk.
4. Can risk be managed through limits?
Lower transaction limits may reduce exposure while allowing legitimate customers to access basic financial services.
5. Can verification be progressive?
Additional information can be requested when the customer’s activity or risk profile justifies it.
6. Is the process creating unnecessary exclusion?
Institutions should periodically analyse:
- Rejection rates;
- Abandoned applications;
- Demographic impacts;
- Geographic impacts;
- Reasons for failed onboarding.
If large populations are systematically excluded because they cannot produce a document that is not realistically available to them, the institution may need to reconsider its approach.
The future of KYC may be less about documents
The future of KYC is unlikely to eliminate documents completely.
Documents remain important.
But the direction of travel is toward a more sophisticated model.
A model that combines:
Identity
Digital verification
Behaviour
Context
Risk
The question is no longer simply:
“What document did the customer provide?”
It is increasingly:
“How confident are we that we understand who this customer is and how they are likely to use the financial service?”
This is a more complex question.
But it may also be a more effective one.
Final Thoughts
Can you KYC someone who has no formal address?
Yes.
But the answer depends on the jurisdiction, the product, the customer’s risk profile and the quality of the alternative information available.
The absence of a utility bill should not automatically be treated as proof of criminal intent.
At the same time, financial institutions must not use financial inclusion as a reason to abandon effective customer due diligence.
The real challenge is finding the balance.
A customer should not be excluded simply because their life does not fit the format of a Western utility bill.
But:
A financial institution should also not accept an identity it cannot reasonably verify.
The future of KYC in Africa will require institutions to move beyond a document-centric approach and toward a more contextual understanding of identity.
Because the most important question is not always:
“Does this customer have a formal address?”
It may be:
“Do we have sufficient, reliable and proportionate evidence to understand who this customer is, where they are connected to, how they earn and how they intend to use the financial system?”
That is the real challenge.
#AML #KYC #FinancialInclusion #FintechAfrica #DigitalIdentity #CustomerDueDiligence #FinancialCrime #Africa #RegTech #MobileMoney
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