NBFCs can now apply for an Aadhaar-e-KYC: RBI license

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In its efforts to promote the use of digital technology in financial institutions, the Reserve Bank of India (RBI) has given the green light to non-bank financial corporations (NBFCs) to apply for the Aadhaar e-KYC authentication license.

In its official statement, the banking regulator said that NBFCs, payment system providers and payment system participants aspiring to obtain an Aadhaar authentication license – KYC User Agency (KUA) license or sub-KUA license, can complete their application and submit it to the central bank for submission to the Unique Identification Authority of India (UIDAI).

Calling it a positive gesture, Ankit Bhatnagar, Product Manager, Mswipe said, “This is certainly a key development for non-bank entities as it speeds up the process of onboarding customers and also eliminates fraud. Paper documents always carry an element of risk as it is very difficult to ensure 100% verification. Now, with eKYC, non-bank entities providing financial services can improve compliance and also ensure that the popular customer onboarding mechanism that they had to depend on from third-party players can be offered directly through a KUA license. This allows non-bank entities to save money in an increasingly competitive market. Another important development is the drastic reduction in fraud. Since eKYC is foolproof and robust in verifying authenticity, non-bank entities can provide a much more secure platform for their customers. It will also be improve trust levels between clients as only approved entities will be allowed to perform eKYC.

Manoj Chopra, Head of Innovation and Product Development, Infrasoft Technologies Limited “The latest notification will simplify customer onboarding for NBFCs, NBFC-Micro Finance Institutions (NBFC-MFI), payment system operators and payment system participants. Earlier, NBFC‘depend on offline Aadhar validation or paper-based authentication mechanisms like PAN verification. Since these methods involved sharing images of physical documents such as PAN and Aadhar cards, the process was slightly cumbersome and prone to rejections, as the quality of the shared images may not be up to par. Now, using the Aadhar Authentication License – KYC User Agency (KUA) license or KUA sub-license, these NBFCs can directly operate an online database in Aadhar and verify identity, including photograph, in a way transparent. Besides, Aadhar validation also provides an additional layer of security against fraud. He does it by offering additional OTP or biometric validation. Thus, when a financial institution authenticates a customer with Aadhar, the person’s photo and address are returned. This is to ensure that an authentic photograph is available for comparison, as opposed to PAN where the photo can potentially be tampered with or retouched. In addition, many NBFCs and MFIs operate in semi-urban and rural areas. The new directive will allow them to onboard customers who may not have PAN cards or who do not wish to share their PAN card details. As Aadhar numbers are available to most people and they are relatively more comfortable sharing their Aadhar details, NBFCs will now be able to scale their customer base. Although the PAN can be used as proof of identity (POI), you need an additional document for proof of address (POA). With Aadhar validation, NBFCs can complete their e-KYC with just the Aadhar number which serves as both POI and POA.

Read also: RBI appoints DCB Bank as bank branch to facilitate government transactions

Gurjodhpal Singh, CEO of Tide (India), said “RBI’s recent decision to allow NBFCs, payment system providers and payment system participants to use eKYC for customer onboarding is a welcome move for the fintech ecosystem. This will promote digitization, resulting in an avant-garde approach to ensure rapid delivery of financial products in the sector and thus improve the experience of many customers facing many problems. This is one of the most positive actions for ecosystem players and will help make the onboarding journey less bumpy for customers. “

Arpit Ratan, Co-Founder and Commercial Director of Signzy, said: “A truly democratic takeover NBFC, payment system providers and participants to make the digital journey for customers faster, easier and more secure. Over the past two years, RBI has strived to create a more enabling and compliant digital ecosystem that helps nonbanks play a more participatory role in the digitalization of financial services. Apart from payments, customers increasingly prefer smartphones to access several other financial services such as insurance, loans, business banking, payroll, alternative investments, which requires rapid monitoring of onboarding processes for improve the customer experience and increase access. As RBI recently warned against fraud due to improper KYC processes, the provision of a KUA license will permanently end these activities and increase customer confidence in non-bank entities that strive to offer affordable and accessible financial services on the go.

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