The process of eKYC can be applied to many different services such as purchasing new policies, opening bank accounts, submitting claims, and many others
eKYC, called Aadhaar-based eKYC, allows your identity to be verified electronically via Aadhar-based substantiation, in real-time. It has provided a new frontier in value creation for many businesses and individuals across the world.
Nearly 1 billion people worldwide lack the traditional form of identification and documents that are required to access any means of credit from banks and NBFCs. According to a report published by McKinsey Global Institute, there is a great potential impact of unlocking nearly 3% to 13% of the GDP of the seven focus countries they analysed by the year 2030, by utilizing digital identification.
When it comes to banks and NBFCs, the process of eKYC can improve customer experience while simultaneously boosting productivity and improving risk management from an organizational perspective. From a customer’s standpoint, there is more scope for improving financial accessibility for individuals who do not have the necessary paperwork that is traditionally required or cannot visit physical branches for in-person processes.
The Recent Shift
The Reserve Bank of India enforced KYC guidelines on the 29th of May this year and has amended its master direction towards the norms pertaining to the KYC process. The main goal behind this change was to enable the use of Aadhaar for opening an account with a bank or an NBFC regulated by it. This way, banks will be able to instantly conduct account opening activities using eKYC on the basis of Aadhaar authentication through an OTP.
Another reason for the introduction of this new direction to the eKYC process is in regards to money laundering. The new changes brought in by the RBI are in line with the PMLA rules (Prevention of Money-Laundering Act) in February 2019. It is also along the lines of the Aadhaar and Other Laws Ordinance passed in 2019.
According to the PMLA rules passed in 2019, banks and NBFCs are permitted to authenticate an applicant or a client using their Aadhaar number with the help of the eKYC facility that is provided by the UIDAI (Unique Identification Authority of India).
The RBI also released a statement that mentioned that payment system providers, NBFCs, and payment system participants who desire to obtain the Aadhaar Authentication License such as sub-KYA license or KUA user agency that are issued by the UIDAI can submit their application to the RBI for further and onward submission to UIDAI.
How is eKYC Beneficial?
One of the most important benefits of the eKYC process is its simplicity. Usually, the concept of digital processes has been feared due to the plethora of privacy concerns and security issues. However, the process of eKYC has made it highly secured. The new rules allow for the usage of eKYC verification only by private entities which have been verified by the UIDAI. This prevents your Aadhaar data from being misused by unverified third parties. Owing to this digital process, the incidences of fraud can also be reduced.
In addition, eKYC also improved efficiency. With this process, separate important documents such as age proof, address proof, identity proof, and others don’t have to be submitted by the individual. When a certain entity, organization, or institution requests information for verification, the request is directly sent to UIDAI. Details linked to your Aadhaar, such as name, address, gender, date of birth, mobile number and email address can be accessed by the service provider from the database of the UIDAI. Thus, Aadhaar-based eKYC provides your proof of identity and address to the service provider instantly, dispensing the need for the tedious in-person verification. This allows for a tamper-proof digital document thereby mitigating the chances of digital fraud.
The process of eKYC can be applied to many different services such as purchasing new policies, opening bank accounts, submitting claims, and many others.
eKYC is considered to be the pioneer of several businesses, banks, and NBFCs due to its multitude of benefits. Ranging from improving the experience of customers, mitigating fraud, reducing risks, and easing up the verification process, eKYC has been beneficial across several aspects. Private capital firms and entities have also acknowledged the key importance of eKYC and have adopted these practices widely.
The author is CEO & Co-Founder at Think360.ai