After SC verdict, online lending startups worried about costs of KYC without Aadhaar

Online lending startups are worried about the cost of KYCs and inefficiencies in the e-KYC process because of the absence of mandatory Aadhaar linkage.

CoinTribe founder and CEO Amit Sachdev said the verdict will likely have a mixed impact on the digital lending sector. The apex court focused on linkage of Aadhaar and PAN for welfare schemes and income tax returns. “However, an absence of mandatory linkage of Aadhaar to mobile numbers will create process inefficiencies in paperless e-KYC and e-Sign processes, which are otherwise expected to bring a significant transformation in customer experience," he added.

Many fintechs used Aadhaar for quick and low-cost e-KYCs. Now, they are unclear about the process.“Since KYC is a statutorily mandated requirement under the law and by the RBI, even though it is conducted by private entities, it remains to be seen if the UIDAI, together with the government and the RBI, can come up with a utility to conduct e-KYC without the need to share Aadhaar with any private party. Virtual Aadhaar is one such possibility and a further development on this front is possible,” said Gaurav Gupta, co-founder and CEO of MyLoanCare.

“After the verdict, my understanding is that companies have to take consent on Aadhaar. The problem will arise when they don’t have consent. It will be a slow process for both of them to conduct the KYC and it will be costly. The data privacy policy draft will also place restrictions on usage of data collected by them. But there is no clarity on what will happen to data already collected by these companies,” said Neel Ratan, partner, PwC.

Some suggest the change will have a major impact on fintechs giving microloans with the loan collection mechanism undergoing a major change. “Aadhaar linkage to the bank would have eliminated the need for a physical check or electronic clearance form pick up. Existing policies on OTP-based e-KYC only permitted loans up to Rs 60,000. Thus, all fintechs lending more than this amount was anyway doing physical KYC.  Thus, the impacted here will be majorly on fintechs giving microloans. Also, before forming any view, we need to wait for revised RBI circular on KYCs,” said Vikas Kumar, CTO and co-founder, LoanTap.

Fintechs such as MoneyTap has a process which is not mandatory but optional, whereas the companies that assumed that everybody has Aadhaar, now add a new process. “This is like a toll booth. Service providers can encourage people to use Aadhaar if they want to take the fast lane, but if they don't have Aadhaar or if they don't want to use it, no problem, they can still take the slow lane. So basically, we give the consumers a choice, instead of denying them services,” said Bala Parthasarathy, co-founder and CEO MoneyTap.