The centralised KYC, designed to reduce the burden of producing KYC documents and getting verified every time when the customer creates a new relationship with a financial entity; has been under the scanner due to its high costs and hybrid model of physical + digital verification . Additionally, data protection concerns of the banks and other institutes has never allowed it to take the growth curve, it was expected to. However, the advantages offered by the centralised database can never be denied.With CKYCR a number of risks can get mitigated as unlike Aadhaar (which offered similar KYC functionality), the CKYCR does not include biometric information, which reduces potential data protection risks.
What needs to be acknowledged here is that CKYCR was meant to be interoperable without sensitive personal information sharing. It falls under the rules of data protection framed under the Information Technology Act and the proposed data protection law provided that data collected from a customer can only be used for the purpose to which the customer consented to. Nonetheless, large banks remain wary about making the public database accessible since they will be the biggest contributor of data and are also fixated on security concerns and misuse of data by small FinTech’s or regulators –that can threaten the reputation of the bank providing the data.
While the industry players/FinTechs are still juggling with different options as an alternative of paper-based KYC verification; a number of brands are banking on these innovations. Tata Mutual Fund has launched “video KYC” as a digital solution to KYC verification. Evidently, video solution comes as one of the most secure, efficient and accurate form of verification that caters to most of the concerns stated above.
Open banking is already in use as a collaborative model in which banking data is shared through APIs between two or more unaffiliated parties. APIs have been used for decades, particularly in the United States, to enable personal financial management software, to present billing detail at bank websites, and to connect developers to payments networks like Visa and Mastercard. To date, in India however, these connections have been used primarily to share information rather than to transfer money. Given the little justification for repeating the same KYC procedure across different financial products and the time and cost this entails –dedicated API as developed by NCPI could instead be used for the benefit of investors.
Answer comes in the form of DigiLocker as well. It can leverage synergies towards a better KYC and can also be used beyond identity-related documents. Many banks have already started using it for various purposes, including reviewing documents for loan applications. Recently, ICICI Bank has integrated its retail internet banking platform with DigiLocker.
In a recent event at MCCI Fintech Forum 2019, Shri Deepak Kumar, CGM-In-Charge, Department of Information Technology, Reserve Bank of India said, “As a technologist, I have no doubt that options beyond Aadhaar based KYC has any limitations in execution. However, compliance issues still remains a key challenge. The sooner it gets solved, the better it is”.
As banks continue to refrain from sharing KYC data in the absence of mutual benefits the Government has allowed non-banking firms to verify customer data through offline Aadhaar verification, which can be done by the use of KYC XML or QR code. Though the process is still evolving, the year 2019 can be a deciding one. Keep your eyes open!