Aadhaar-Based EKYC Limitations Cause Trouble For Fintech Startups

Since the Supreme Court extended the deadline for linking of Aadhaar to host of services, the fintech segment has been riddled with burdens of limited Aadhaar-based eKYC. The companies have been unable to access Aadhaar database for verification of their customers.

Impact Of Aadhaar KYC On Fintech Startups

The limited access to Aadhaar-based verification has also caused a major jolt to fintech startups, that had based their backend systems on the basis of access to Aadhaar database of a customer.

According to reports, fintech startups across the insurance, lending and broking sectors are being denied access to authentication agencies for eKYC to verify customer antecedents on the Aadhaar database amidst rising concern over data privacy.

Since its heydays, fintech industry has relied on the network of sub-authentication user agency or AUAs registered with UIDAI as well as sub-AUAs to access the Aadhaar database for quick customer verification.

Ashok Hariharan, founder of IDfy, which provides authentication services on Aadhaar and electoral databases as a sub-authentication user agency or AUA for Khosla Labs told ET, “We have stopped allowing private unregulated entities from using the Aadhaar database for authentication of their customer base till further notice from UIDAI. This has been done on the basis of the Supreme Court observation on March 27.”

The reports also surfaced that on January 12, a number of industry executives formed a coalition to reach out to the Supreme Court to ensure that Aadhaar authentication for service providers do not get stopped.

The impact on customer verification by such companies can be understood by the data shared by UIDAI which states that the number of eKYC transactions that have happened till now stands at 5 Bn, being done through 254 authentication agencies. Also, almost 18 Bn authentications for customers have been done till date.

Clarifications By Insurance Authority

The Insurance Regulatory and Development Authority of India (IRDAI) has clarified that Aadhaar is not required to buy an insurance policy.

In a circular, the authority said, “In view of the order of the Hon’ble Supreme Court of India… for existing insurance policies, the date of linking Aadhaar is extended till the matter is finally heard and the judgment is pronounced by Hon’ble Supreme Court of India.”

The insurance authority also clarified that “for new insurance policies, the consumer is allowed 6 months from the date of commencement of account-based relationship to submit her Aadhaar number and permanent account number (PAN) or Form 60 to the insurer.”

Also, “In absence of Aadhaar, (a) client shall submit any of the “Officially Valid Documents” as mentioned in the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 (as amended from time to time),” the circular stated.

The list of these ‘officially valid documents’ includes passport, driving licence, PAN card, voter identity card issued by the Election Commission of India, job card issued by Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Aadhaar card.

However, it is to be noted that, PAN doesn’t serve as an address proof but only as a proof of identity.

Also, the e-KYC done by insurance companies is mandated to be enough for them to verify the customers. This also puts the onus on insurers to ensure that insurance products are not used for money laundering.

In case of life insurance products, the guidelines have mandated such KYC be done before the sale, and if it’s done online, then the KYC should be completed within 15 days of the sale.

Also, for non-life insurance products like motor and health covers, the guidelines mandate that the KYC be done at the time of claim. Additionally, no KYC will apply only when the claim settlement is over $1,538.29(INR 1 lakh).

Most importantly, if Aadhaar has been used for KYC, there is no need of additional documents for proof. However, if the photograph in your Aadhaar is not clear, or there is a mismatch, the insurer can ask for additional documents.

Also, as an added level of security of data, UIDAI enables verification of our Aadhaar authentication history through an option available on its website. And if any unauthorised authentication is found, you should register a complaint with UIDAI.

In the slew of directives, the Supreme Court has been critical of the Aadhaar security and also gave a chance to UIDAI to defend the Aadhaar system. However, with continuous clarifications coming from various regulatory bodies for issues like insurance policy along with limitations of eKYC causing troubles etc are a proof of how deep the Aadhaar has already entered the system and the interventions that would cause a ripple in the country.