Banks, fintech companies stare at higher KYC costs after Aadhaar verdict

Aadhaar

Banks and fintech companies expect that onboarding new customers will get tougher with the Supreme Court barring private companies from mandating Aadhaar for e-KYC compliance.

Several fintech companies have, by the dint of the erstwhile Section 57 of the Aadhaar Act, acquired customers through e-KYC with just biometric identification. Such companies had used the Aadhaar to verify customers’ details for minimal cost and virtually no time, both of which will go up after SC’s judgment.

Most of the conventional financial firms and fintech companies, including discount brokerage firms, peer-to-peer lending platforms and financial product aggregators, had built their business models around this. Digital accounts of public sector banks like State Bank of India and India Post Payments Bank and digital wallets like Paytm were also based on Aadhaar.

Now that this provision has been removed, the cost of getting new customers on board will shoot up significantly. A lot of discount brokerage firms, peer-to-peer lending platforms and financial product aggregators depend on Aadhaar-based KYC verification and e-signatures.

The cost of e-KYC was Rs 15. Physical KYC will jump to Rs 100 per person, according to Harshil Mathur, CEO of payments firm Razorpay.

SBI chairman Rajnish Kumar said that using Aadhaar, a customer can open an account instantly and this convenience had drawn in nearly 27,000 customers to the SBI internet banking app. Similarly, Kotak Mahindra Bank’s Kotak 811 scheme is based on RBI’s Aadhaar-based OTP authentication guideline. It was a convenient, paperless and quick process.

However, Virat Diwanji of Kotak Mahindra says that there may not be adverse effects on the number of accounts opened as Aadhaar is still available as a KYC option, even if it is not mandatory.

"We do not foresee any adverse impact on Kotak’s savings account opening growth because of the Supreme Court ruling. Aadhaar continues to be available as a KYC document if a customer voluntarily chooses to submit the same. Further, Aadhaar continues to be one of the six  Officially Valid Documents (OVDs) available to customers for completing KYC requirements. Customers are welcome to use any one of the six OVDs of their choice for the purpose of account opening. We are also examining in detail the recent SC ruling in this regard and will be further guided by the same, and the RBI guidelines," said Virat Diwanji, President - Retail Liabilities & Branch Banking, Kotak Mahindra Bank.

Cyrus Khambata, CEO of security depository CDSL Ventures, told TOI, “Online brokerage houses will be affected as nearly 100 percent of their customer onboarding is via e-KYC. Offline broking houses source 35-40 percent business online. The physical model takes at least three days and online authentication takes 10 minutes.”

India’s fintech industry

Players in the country's fintech space secured big investments from private equity and venture capital firms after the launch of Aadhaar. The sector attracted a $4 billion investment in the first half of 2018, according to a report by EY. Many industry players think that the government should come out with a solution to this problem, while some are confident that this will not have any impact on business.