Banks would need to spend Rs 60-66 cr for re-KYC of Paytm Payments Bank merchant customers

The re-KYC process follows reports of deficiencies in the KYC done at Paytm Payments Bank.

Banks that are keen to take over the business of Paytm Payments Bank would have to spend Rs 60-66 crore to conduct the re-KYC process for the banks’ merchant customers, bankers and industry experts said.

Know-your-customer, or KYC, is a process under which a financial institution or an intermediary collects certain data and documents to establish the identity of a client. re-KYC is where the process is done after initial identity establishment.

According to the Paytm website, as of January 31, 2023, Paytm Payments Bank had around 60 lakh merchant customers. Bankers and industry experts said banks will conduct re-KYC for compliance purposes, and the per customer charges for the process will range between Rs 90-110.

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“There are two types of KYC — for customers and for merchants. For merchants, the charges are around Rs 100 per person,” said a senior banker with a Mumbai-based public sector bank.

Another senior public sector banker, who did not wish to be named, said that banks generally do re-KYC in such situations for extra compliance. “It will cost around Rs 90-110 for a merchant customer’s re-KYC. And banks generally do re-KYC in these situations to adhere to all the compliance processes,” said the banker.

Why re-KYC?

The re-KYC process follows reports of deficiencies in the KYC done at Paytm Payments Bank. According to experts, it was these deficiencies that led to the regulatory action at Paytm Payments Bank.

Moneycontrol on February 3 reported that a system audit conducted by the Reserve Bank of India (RBI) into Paytm Payments Bank found several lapses pertaining to adherence to anti-money laundering laws regarding KYC documents. People in the know of the matter said, “There were large volumes of transactions via merchant accounts where the audit found that proper KYC measures were not taken to establish the origin of funds.”

How is re-KYC done?

A former chief executive officer (CEO) of a payments bank, speaking on condition of anonymity, said that re-KYC happens in two ways. “A designated agent either goes to the shop or the establishment of the merchant to conduct KYC. Or the process is done digitally through video KYC,” the former CEO said.

Additionally, a chief technology officer (CTO) of a private sector bank said that public sector banks conduct the re-KYC process by themselves, whereas their private peers hire a third-party entity for the process.

“Private banks hire a third-party company to do KYC, and they have to bear the cost,” the CTO said.

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How long can re-KYC take?

The RBI, on January 31, imposed major business restrictions on Paytm Payments Bank, including a ban on accepting fresh deposits and making credit transactions. As per the notification, Paytm Payments Bank will not be allowed to accept fresh deposits, undertake credit transactions, or top-ups in any customer accounts. The RBI said the order would come into force after February 29, 2024.

The former CEO quoted above said that after the regulatory period for Paytm Payments Bank comes to an end, the interested banks would want to start the re-KYC process, which may take a few months considering the size of the customer base.

“Expect the re-KYC to be completed in two months or so. The customer base is huge,” the former CEO said.

However, the CEO of a fintech company, who also did not wish to be named, pointed out that not all the merchant customers' data will have to go through the re-KYC process. “The concerns around KYC are not for all the customers. Hence, merchant customers’ data with a good record need not have to go through the re-KYC process,” the CEO said.