It's getting clearer that Banks and Fintechs simply cannot survive without digital KYC! So much so that, if we go by a recent Economic Times article, some of them are interpreting the Supreme Court ruling on Aadhaar-based KYC with potentially dangerous consequences.
The article reports that banks such as Canara Bank and Syndicate Bank are continuing to use Aadhaar-data for authenticating customers, albeit with prior consent from the customer.
Bhavin Patel and Hemant Krishna of Bayside Advisors, IDfy's legal counsel, strike a word of caution for them.
"The question of voluntary submission of Aadhaar number by customers and whether banks may rely on it in connection with KYC was not specifically dealt with in the Supreme Court judgment. However, banks should be wary of using Aadhaar authentication services to conduct KYC in relation to non-DBT accounts," they say.
However, former additional solicitor general of India P. Wilson states emphatically that the 'Supreme Court verdict is very clear and companies cannot be asking for Aadhaar details'.
The industry is now looking at the RBI to come up with KYC guidelines that are clear, practical, and economically viable; ones that help grow the industry rather than hinder its progress.
1) Make it truly paperless
Technology can determine that an ID card is original purely from its picture. KYC using digital documents is auditable using timestamps and secure with encryption. In fact, it’s much more secure than KYC with physical document.
Rather than insisting on hard copies and photo copies, KYC documents should go completely digital and paperless.
2) Digital Signatures
Using digital signatures will remove the need for signed and counter-signed photo copies that are costly, cumbersome, time-consuming, and prone to collusion and fraud.
3) Allow Cloud Services
Smaller banks, fintechs and financial institutions are important for financial inclusion of the masses. However, they cannot always afford an on-premise IT infrastructure.
To support them, the RBI should allow them to consume cloud services hosted in India that they can pay per transaction.
4) Trust machine-based Face Match
It is important to check that the person transacting is the same as the ID card presented.
For years, authorized officers of banks have been matching the face of people against their ID cards for this very reason. Humans, however, are poor at this task, they are accurate in less than 70% of cases (especially false positive scenarios).
Machine-learnt face match is now more accurate and can work together with humans in case of ambiguity. By allowing machine learnt face match to operate, RBI can make onboarding instant, cost effective, 24x7 and truly scalable.
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