With No Solution In Sight, RBI Gives Wallet Cos A Breather On KYC Deadline

Amidst the ongoing debate on using Aadhaar for know-your-customer (KYC) processes, online payment companies received a temporary relief as the Reserve Bank of India extended the deadline for full KYC compliance by six months.

The central bank had mandated the prepaid payment instrument (PPI) providers and online wallet companies to complete their KYC process by February 28, 2019. The central bank had introduced KYC guidelines for all banks in 2002. Under this rule, all financial institutions are mandated to get information about the users and authenticate their identity, in order to prevent financial crimes such as money laundering.

For a full KYC process, the companies will have to ensure completion of a physical verification or a biometric check of the users.

The fintech companies which relied on Aadhaar-based eKYC process for customer onboarding lost their footing after the Supreme Court struck down Section 57 of the Aadhaar Act in 2018. Due to this, private companies lost the authority to access Aadhaar details of the users.

Since then the players have been looking for alternatives to comply with the KYC directive. In order to relieve the players, the RBI has now extended the deadline.

“Based on requests received from various stakeholders to increase the above timeline on account of difficulties in undertaking Aadhaar e-KYC and time necessary to put in place alternative systems for completing the KYC process, it has been decided to allow PPI issuers additional time of six months for completion of the KYC,” the RBI notification read.

In response to the RBI decision to extend the deadline, Hemant Gala, head of payments, banking and financial services at PhonePe said, “Post the Aadhaar judgement, the entire PPI industry was anxiously awaiting clarity on how to do KYC moving forward. This six months extension will help settle things down smoothly”.

In October 2018, the Payments Council of India (PCI), an apex body representing companies in payments and settlement system, had also requested the regulator to extend the deadline for converting minimum-KYC accounts to full-KYC accounts till February 28, 2020, due to the Aadhaar restrictions on eKYC process.

The payment companies had also turned to the regulator seeking an alternative solution to eKYC for user onboarding and verification as physical verification of user details was a costly and time consuming process.

Following this, it was reported that the central government and the RBI are reportedly considering the use of an ‘offline Aadhaar’ verification system which will operate on QR codes instead of biometrics.

Speculations were also rife that the RBI had been considering to introduce live video verification for the customer authentication process. The bank regulator had also shown interest in rolling out a digital authentication process which will use XML internet format to get very limited information about the users from the Aadhaar database where the biometric information will not be included.

In a bid to comply with the RBI norms, Amazon Pay had begun rolling out doorstep KYC services for its mobile wallet users in January.

Not only the fintech but the telecom players have also been directly affected by the SC ruling as the companies relied on eKYC process to complete user verification.

In order to comply with the SC ruling, the Department of Telecom (DoT) had suggested the use of a live photograph of the customer at retail outlet and customer acquisition form (CAF) for KYC process.