The Reserve Bank of India (RBI) has invited applications from a number of different non-banking participants in the lending and payment ecosystem looking to obtain an Aadhaar e-KYC licence. The Indian fintech ecosystem has welcomed the move.
In May 2019, the finance ministry had come out with a detailed procedure for processing of applications (under the Prevention Of Money Laundering Act) for use of Aadhaar authentication services by entities other than banking companies. As per provisions of Section 11A of the Act, entities other than banking companies may be permitted to authenticate a client’s Aadhaar number using digital Know Your Customer (e-KYC) facility provided by the Unique Identification Authority of India (UIDAI), if permitted by the central bank. The move will be applicable to non-banking finance companies (NBFCs), payment system providers and payment system participants.
“Accordingly, NBFCs, payment system providers and payment system participants desirous of obtaining Aadhaar Authentication License – KYC User Agency (KUA) License or sub-KUA License (to perform authentication through a KUA), issued by the UIDAI, may submit their application to this Department for onward submission to UIDAI,” the RBI said in a circular.
The RBI has also provided the format of the application.
Ankit Bhatnagar, Head of Product, Mswipe, a payment technology startup, called it a key development for non-banking entities as it speeds up the process of customer on-boarding and also eliminates frauds. The fintech ecosystem believes that paper-based documents still have an element of risk as it is very difficult to ensure 100% verification.
“Now with e-KYC, non-banking entities offering financial services can improve compliance and also ensure that the popular mechanism of customer on-boarding for which they had to depend on third party players can be offered directly through a KUA license. This brings in cost saving for non-banking entities in an increasingly competitive market,” said Bhatnagar.
He added that since e-KYC is full-proof and robust in verification of authenticity, non-bank entities can offer a much safer platform to their customers. This will also improve trust levels among customers because only licensed entities will be permitted to conduct e-KYC.
Arpit Ratan, co-founder and chief business officer, Signzy, an AI-powered fintech platform, noted that the RBI’s recent moves have largely helped non-banking entities play a larger role in the financial ecosystem. With an increasing number of customers opting for smartphone based financial solutions, this move will finally allow these fintech companies to offer faster onboarding and better customer experience.
“Given that the RBI has lately been warning of frauds owing to improper KYC processes, providing a KUA license will definitely stem such activities and increase customers’ trust in non-banking entities which are working hard towards offering affordable and accessible financial services on the go,” said Ratan.
The pandemic hit at a time when a large number of people had access to digital financial services but not enough were educated about the hygiene of these solutions apart from the fact that the fintech ecosystem is still developing its safety measures on the go. This resulted in a number of fraudulent digital lenders misusing the system leading to a slew of suicides witnessed in 2020 following harassment by rogue lenders.
The core concern with the use of digital data assets lies in the safety and security of user data and the RBI has been taking measures to address the digital data collection and processing mechanisms. Last week, the Indian fintech ecosystem welcomed the launch of the account aggregator (AA) architecture as a way to facilitate smoother data collection and processing mechanisms.