10 Ways eKYC Influences Startups In India
What Is KYC?
KYC is Know Your Customer and is basically customer identification and verification through official documents. Under the Prevention of Money Laundering Act, 2002, the Securities Exchange Control board of India (SEBI) laid down that any institute or startup that deals with financial transactions or functions as financial intermediaries needs to verify their customer’s identity. KYC is a one-time process that may be mandatory depending on the service utilized.
What Is eKYC?
Electronic Know Your Customer or eKYC is the process of an institution, firm or startup getting acquainted with their customer electronically. The main objective of electronic KYC is to reduce the use of physical paperwork, storage space for such paper work, a retrieval system, the cost and time taken for the same for processing the same. eKYC permits filing to happen in real-time. This has made the process streamlined and less prone to corruption in industries such as banking, finance, telecom, etc. whereby several customers can be catered to simultaneously with the use of the world wide web or through an app.
eKYC Influence On Startups
Startups have started to effectively utilize eKYC for running business operations because of the following advantages:
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Quick customer on-boarding
Similar to what companies like Jio and ICICI are doing, startups can onboard customers quickly with the help of eKYC. Some startups require customers to provide authentic identity before availing a service (e.g. a customer is required to provide KYC details to transact above INR 20,000 per month on PAYtm). A customer will be able to use a service within minutes of providing e-KYC details.
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Vendor/client onboarding with the use of digital signatures
Startups can use digital signature certificates to onboard clients and/or vendors. This enables contracts, messages or agreements to be executed digitally, remotely and immediately by a verified person. A digital signature serves the same purpose as e-KYC because it verifies the sender’s identity and the contents sent digitally.
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Immediate service delivery
A startup can provide services immediately to a business, private entity or customer upon e-KYC authentication and verification. This means real-time business solutions for tech services and SaaS businesses and startups.
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Authentic records and customer information
Customer records will be authenticated, thus verifying the identity of an individual. A customer’s past transactions and associations will be recorded in case any discrepancy arises. Any police or court cases can be proved with startups maintaining authentic records of customer information.
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Financial Startups
Financial-based and Fintech startups need to be compliant with the RBI issued mandate that stipulates all financial-based startups need to collect eKYC customer information from their customers.
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Streamline Processes
Banks, financial startups and companies can use eKYC to streamline the entire loan or credit application and approval process online. In December 2016, the Government issued a notification permitting customers to open a bank account using Aadhaar-based eKYC online. Startups can avail or issue credit online, such as Paytm, instamojo, etc.
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Consent based
Customer data is shared, stored and used by a startup as is stated in the terms and conditions, privacy policy. eKYC ensures the accuracy of information which can be used for predictive analysis, consumer trends, product development, consumer behaviour and service efficiency.
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Paperless and eco-friendly
There will be no need for startups to maintain physical records of customer or client information. The Aadhaar database is available and accessible online.
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Background checks for employees
Background checks through eKYC can help with the financial (credit) and transportation industry with specific reference to online taxi aggregators such as ola, uber, lyft, etc. With a rise in the number of cases against drivers and commuters, the drivers need to authenticate their identity using Aadhaar based eKYC (and this should become mandatory) with efficient background checks.
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Synergy
Shared Aadhaar databases for synergy and partnerships. Startups generally lack resources in terms of investment, customers and so on. Aadhaar based eKYC will enable partner companies to exchange customer information over Aadhaar databases that will be in compliance with the stated privacy policy of each of the partner companies.
What Is IndiaStack?
IndiaStack is a set of API’s that enables startups to utilize a unique digital infrastructure to achieve our country’s main objective of a cashless, paperless and presence less service delivery. Apart from startups, Government entities and departments, private and public businesses, developers, etc. can utilize IndiaStack through an open API.
News On eKYC
- On Feb, 2017 the UIDAI shut down 12 Apps on Google Playstore and 12 websites for offering Aadhaar related services illegally. These websites were unauthorized to provide Aadhaar services and were also charging exorbitant rates for said services.
- On March, 2017 the Government has made it mandatory for all existing mobile service subscribers to provide Aadhaar-based eKYC verification within a year’s time through an official issued notification.
- On March, 2017 the Government also proposed to make Aadhaar eKYC mandatory for obtaining a legally valid driving license (DL).
- Using Aadhaar-based eKYC and biometric verification, the State Government of Karnataka disbursed subsidies to over 1 lakh farmers using Aadhaar Payment Bridge (APB).
The Future Of eKYC
A few gaps still exist in India with respect to businesses and startups. Some of the industry’s problems take the form of lack of inaccessibility of services, lack of medical infrastructure, inefficient records, lack of Insurance, etc. A reasonable recommendation would be to include the birth records and medical history of an individual, accessible via a person’s Aadhaar number/account. Also, any disbursements that need to be made to the Public towards health or medical can be done directly to an individual’s Aadhaar linked bank account, a system employed by most developed countries.
Payment of Taxes and Compliance by individuals and companies alike, through Aadhaar-based systems seems like the next logical step for the Government. The Government is going to make Aadhaar mandatory for the filing of Income Tax returns by linking all bank accounts to an individual’s Unique Identity Number in the near future.
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