Aadhaar (Image: Wikipedia)
FinTech in India, though at a nascent stage, presents massive opportunities for the country’s economy. The Indian FinTech software market holds the potential to reach USD 2.4 billion by 2020, notes a 2015 report titled ‘Fintech in India: a Global Growth Story’ by KPMG in India and NASSCOM 10000 Start-ups. With 2000+ startups operating in this sector, the nation has also emerged as the world’s second-largest FinTech hub, trailing only the US. Buoyed by a multitude of factors, including favorable regulatory policies, a large population and a new breed of digitally-empowered entrepreneurs, the FinTech industry is ripe for disruption. However, the increasing digitalization of financial services poses some unique challenges to businesses, ranging from identity theft and service misuse to money laundering.
In its fifth annual PACE report, FIS revealed that nearly 96% of the Indian respondents fell victim to financial fraud last year. What is even more alarming is that the majority of FinTech players are yet to realize the importance of safeguarding themselves from potential financial fraud arising from identity theft.
Why identity verification is crucial for the modern FinTech landscape
Identity fraud is perhaps the biggest threat plaguing the FinTech sector. While the Government of India has brought in a host of preventive measures to address this concern, the current identity systems do not necessarily ensure the secure delivery of financial services.
On the other hand, banks and financial institutions continue to rely on outdated approaches for identity verification that are not up to scratch in the current landscape.
This brings us to the most commonly asked question,
How do we tackle this situation?
The solution lies in leveraging technologies like AI (artificial intelligence) and machine learning to achieve context-aware identity verification. This can involve real-time account checking, ID document capture, Aadhaar-based KYC, and biometric verification, i.e. taking a ‘selfie’ or recording a voice note to match with ID. By combining traditional methods with such new-age practices, business enterprises and financial institutions can access and analyze the information derived from various sources and across multiple digital channels to make more informed security decisions in real-time. This, in turn, helps them mitigate the possibility of identity fraud and malpractice.
Transparency, credibility, and convenience: Top three factors propelling the growth of India’s FinTech
In the world of remote payments, modern identity verification platforms are offering Big Data risk analysis to corporations, bringing a higher level of transparency and credibility to the FinTech sector. Lending, financial institutions can now identify prospective borrowers while weeding out cases with a higher probability of fraud, save costs and reduce the loan processing time.
This can prove to be crucial to the very existence of SMEs and MSMEs, which often turn to informal lenders for credit.. However, the benefits of tech-based identity verification go beyond preventing fraud. It also plays a significant role in encouraging traditional banks to digitize their services to better serve their customers. Especially, at a time when consumer expectations are constantly evolving, it becomes critical for financial institutions to provide a fully digital, seamless banking experience. If banks deploy digital identity checks that verify customers’ identity remotely without compromising on the security, then this will enable faster onboarding process, enhanced user experience and reduced application abandonment rate. Ultimately driving financial inclusion in India.
Digital identity verification firms are paving the way for a secure FinTech world
In September 2018, the Supreme Court had announced that private entities would be barred from using Aadhaar details for eKYC authentication purposes. The landmark judgement sparked discussion around the future of India’s BFSI industry, and the need for a widespread data protection framework for the country’s internet user base. Amidst this scenario, private companies have come forward to offer their own digital identity verification solutions to India’s FinTech players. Through facial and voice recognition tools, these digital identity verification firms are helping businesses detect fake or stolen identities, fraud, and even the possibility of fraud in the future. India’s FinTech market is poised for exponential growth. But, it must address the rising cases of identity fraud to achieve its full potential. And, this is where identity verification technologies come in, allowing financial instructions to gauge the risks in the industry and prevent revenue losses.The author is CEO, Khosla Labs.