Investment and broking platforms are looking at new digital know-your-customer (KYC) guidelines from market regulator, Securities and Exchange Board of India (Sebi), as an opportunity to widen investments to a cross section of the country. But issues around lack of popularity of DigiLocker, mobile numbers not updated with the Aadhaar database and lack of awareness around video-based verification are some of the problems they are facing while onboarding new users.
The digital KYC process laid out by Sebi has made Aadhaar-based authentication the cornerstone of the onboarding process. While industry insiders pointed out that these guidelines have helped, drop offs while onboarding still continue. Platforms are taking their own measures to ensure it gets minimised.
Bengaluru-based Zerodha insists on a Rs 200 charge to be paid by consumers while onboarding to the platform for trading. Nithin Kamath, Chief Executive of Zerodha, said while drop offs still happen, the charge ensures only serious investors join the platform. “Those who pay for onboarding will be ready to go through the strict documentation process and complete all formalities,” he said.
According to the guidelines released by Sebi at the end of April, companies can use the Income Tax database to cross check the permanent account number (PAN), verify the bank account by carrying out a single transaction and use DigiLocker for submission of proof of identity documents. If a customer does not use DigiLocker, he or she can scan copies of identity documents accompanied by an electronic signature.
“If a customer does not have Aadhaar seeded with the mobile number, neither can he/she eSign nor can they use DigiLocker. This is one major problem that we are seeing during the customer onboarding process,” said Wriju Ray, cofounder of IDfy. Mumbai-based IDfy works with brokers and banks to offer video-based KYC service for customer onboarding.
“One alternative to this process could simply let the investor say out loud 'I accept' during the video-based KYC process, then there would be no need for a separate e-sign process at all,” said Ray.
At a time when the coronavirus pandemic has thrown the entire financial system into a tizzy, interest in the stock market has continued unabated. Harsh Jain, who co-founded investment platform Groww, said new customers are joining the platform at twice the rate compared to the period before COVID-19. He expects even faster growth once Aadhaar-based digital KYC process comes back.
The Ministry of Finance has allowed nine entities under Sebi like National Securities Depository (NSDL), Central Depository Services (CDSL) and others to restart Aadhaar-based authentication services. They will become authenticating agencies namely Aadhaar Authentication Services (AUA) or KYC User Agency (KUA). Brokers and mutual fund players can be a part of the ecosystem by becoming licensed sub entities, referred to as sub-AUAs and sub-KUAs.
Players have already started applying for respective licences. It will still take a couple of months for all certifications to go through and all licences to be issued. But once the OTP-based authentication service is restored, brokers say it will allow a new crop of investors into the ecosystem.
Prateek Mehta, Chief Business Officer at Scripbox, hopes this will be an opportunity for consumers to update their mobile numbers with Aadhaar and also start adopting DigiLocker as a service to ease up digital submission of documents. “Now if we get common KYC between banks, brokers and mutual funds, that will be extremely helpful,” Mehta added.
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