Beyond the binary: Fixing KYC for the LGBTQ+ economy

Finextra

4 hours ago

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This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.
This Finextra long read series will focus on how the fintech industry can serve underrepresented LGBTQ+ customers during and after Pride Month – a celebration of the LGBTQ+ community and the contributions of lesbian, gay, bisexual, transgender and queer culture. By recognising that many individuals within the LGBTQ+ community, particularly transgender and non-binary individuals, may face challenges obtaining or updating official identification that accurately reflects their affirmed name and gender, financial services players can be supportive.
Further, by removing legal barriers, complex procedures, and high costs associated with name and gender marker changes – and prioritising reconciliation of chosen names with legal names – financial institutions and fintech firms can work towards developing identity verification solutions that are inclusive of diverse gender identities and expressions. By addressing this challenge and others, organisations can create more inclusive and equitable experiences for LGBTQ+ individuals and families.
Creating identity systems that respect chosen names and gender identity
The biggest technical challenges in creating inclusive identity systems that respect chosen names and gender identity include ensuring system-wide consistency, updating existing systems and databases, and addressing potential biases in facial recognition and other technologies. In conversation with Meri Williams, CTO, Pleo, integrating these changes are 'just not that hard.'
They continue to explain that 'technical issues should never get in the way of basic human dignity, and I genuinely think when people hide behind 'it's hard technically' they usually haven't even properly investigated how to do it. They are of course some archaic legacy systems with gender and names hard-coded, but those are just as likely to cause problems for international customers (e.g. not everyone in the world has a surname!) as they are for trans customers.'
Williams also references how many cultures have different concepts of family names or preferred names – calling out how in South Africa, because of noemnaam, which means 'the name you are called', systems are accustomed to accommodating this.
Pri Nagashima, VP of data, analytics and AI, Pleo, advises that data collection must also be respectful of users' gender identity and sexual orientation – while still enabling strong analytics. 'We really do keep data collection to what's absolutely essential, always giving people clear choices and respecting their privacy. If we do need something related to identity for a legitimate business reason, we make it optional and are crystal clear about why we're asking. We want to empower users, removing needless stress to set teams free, so it's about helping them visualise a better way to work, rather than just hammering them with information,' Nagashima explores.
Balancing KYC/AML with the need for inclusion in identity verification processes
A risk-based approach that prioritises user experience requires careful consideration of the specific context and the needs of the individuals being verified, while also ensuring that compliance obligation are met. Financial players, even in these circumstances, must implement more stringent verification processes for higher value transactions, allowing for more streamlined processes for lower risk cases. Alongside this, leveraging automation and technology can simplify the verification process, providing options, protecting customer data and remaining compliant with KYC and AML regulations.
As Monzo CTO, Williams explains that the early engineering team happened to have a number of trans engineers and 'they were brave enough to share how it felt to have their 'deadnames' used by official systems and banks and similar. So a couple of our most senior engineers in Security and FinCrime took it on as a challenge: how could we respect people's gender and accommodate the fact we needed government-issued ID that often didn't reflect it accurately?
'The answer was a combination of technical and training. For instance, Customer Operations were trained to never ask what someone's 'real gender' was but instead to be clear when we needed to know what gender was on their ID documents. And we made the systems ensure that people were never called by their ID document name, but always by the name they told us they wanted to be known as. This can seem small, but like so many acts of inclusion, it benefits people far beyond the initial group, even if you're just like me and used to your full name only being used when your grandma is angry! (I'm Meri to everyone, only Meredith if I'm in trouble!!).'
Embedding inclusivity into the product development lifecycle
In their current role at Pleo, Williams explains that user research with diverse participants must be prioritised in order to foster a culture of belonging within the team, and embrace accessibility-first design principles.
'First of all, we try to have a team that is as representative as possible. If we reflect our customers, we are more likely to be able to understand and meet their needs. We supplement that with a real focus on user research and understanding – what we don't immediately know from our own experiences we have to get from well-designed research. We also have a Product Development Lifecycle which defines how we go from assessing opportunities → discovery → development → testing → deployment, and have peppered this with reminders to consider different needs and users, not just from an LGBTQ+ point of view, but also e.g. accessibility for disabled users,' Williams says.
Being aware of individual and group biases and actively working to mitigate their impact on the design process can encourage organisations to embrace human-centred design, accessibility-first design and one that regularly assesses and iterates. Also, employee resource groups (ERGs) being involved in the product development process and help to gain diverse perspectives.
Rethinking data policies to avoid reinforcing exclusion
Fintech firms must take the time to audit for bias in AI models too, particularly where identity data intersects with risk scoring or onboarding decisions. Nagashima mentions that Pleo are 'big believers in speaking the truth and not hiding things. For AI, that means rigorous, ongoing audits and a strong emphasis on transparency and accountability. We're constantly checking our models with diverse datasets, looking for any hidden biases that might creep in from historical data.'
Data collection also requires a fine balance. Nagashima adds: 'Over-collecting can alienate people, raise privacy concerns, and just add unnecessary complexity. Under-collecting, on the other hand, means you might miss important insights needed to build truly inclusive products or might not meet regulatory requirements.' In the context of KYC/AML, financial institutions must rethink their data policies to avoid reinforcing exclusion, particularly for transgender and nonbinary users.
'We talk to our customers the way we talk to each other, and that means being genuine and empathetic. For KYC/AML, it's about being flexible and understanding, especially when dealing with identity. We need to ensure our policies accommodate diverse identity documents and names, rather than forcing people into restrictive categories. This means often collaborating with regulators to establish frameworks that guide ethical and responsible AI use, ensuring transparency and inclusivity. Our focus is on removing needless stress to set teams free, making the process as smooth and inclusive as possible,' Nagashima says.
Williams adds that CTOs can help normalise the integration of inclusive UX practices across the fintech ecosystem by making it 'part of the 'definition of done' i.e. a feature or product is not complete or ready for production usage until it meets ALL user needs, not just a subset of able-bodied people.'