New offline KYC rules will ease fintech’s woes for now


The Reserve Bank of India has unveiled guidelines for ‘offline KYC’, a major step towards easing the customer onboarding process for financial services companies.The banking regulator’s move has opened up opportunities for the fintech sector, with innovative means of leveraging the Aadhaar database. A few challenges regarding ease of use, however, remain.

“Banks have been allowed to carry out Aadhaar authentication/ offline-verification of an individual who voluntarily uses his Aadhaar number for identification purpose,” the RBI said in an amendment to the KYC guidelines on Wednesday.

For offline Know Your Customer verification, companies can capture customer details using a QR Code, or through an XML-based process, prescribed by the Unique Identification Authority of India (UIDAI) which manages the biometric database of consumers.
Both of these processes are better than paper documentation, which was the norm before Aadhaar became widespread.Entrepreneurs, however, told ET that the convenience of One-time Password and biometric-based authentication was way higher.

Fintech startups have been eagerly waiting for modifications to the KYC guidelines to make it easier to onboard customers, but the industry had sought more convenience for remote KYC mechanisms.

“The amended circular on KYC has incorporated offline KYC, which is a welcome step for paperless KYC based on Aadhaar. However, it’s a bit of a complex process compared to biometric or OTP-based eKYC and could be difficult to scale,” said Sunil Kulkarni, joint managing director, Oxigen Services India, a digital payments company.

Further, the payments industry is also waiting for the incorporation of the eKYC norms for non-banks, as per an order by the Department of Revenue on May 9. As of now, the RBI directions prohibit eKYC for any non-DBT (Direct Benefit Transfer, or subsidy-linked) accounts.

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The guidelines show the way for mass adoption of offline KYC, which can be done through three major steps — paperless XML, eAadhaar pdf and Secure QR code scan, said Saru Tumuluri, chief executive officer of Khosla Labs.

Offline Aadhaar can never be equivalent to Aadhaar authentication in the eyes of the regulator, said Wriju Ray, cofounder of IDfy, a startup operating in the remote customer verification space.

“Regulated entities can either complete a physical KYC through Aadhaar or conduct an OTP-based authentication, which has limited validity and is currently only allowed for banks,” said Ray.

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