Until the Supreme Court struck it down, Aadhaar-based e-KYC (Know Your Customer) was a great enabler that helped last-mile financial service providers, like NBFCs and payment operators, to expand financial inclusion at a fraction of the customer acquisition cost (“CAC”) that a normal KYC process would otherwise entail.
Until the Supreme Court struck it down, Aadhaar-based e-KYC (Know Your Customer) was a great enabler that helped last-mile financial service providers, like NBFCs and payment operators, to expand financial inclusion at a fraction of the customer acquisition cost (“CAC”) that a normal KYC process would otherwise entail. This process received a fillip recently with the Reserve Bank of India issuing guidelines for a video-based customer identification process (V-CIP). Though not as simple as the Aadhaar-based e-KYC process was, the new V-CIP offers substantial benefits to the industry at large and also to its consumers.
Fall in the cost of services: The most important benefit of the new regulation is the considerable cost saving that will accrue from a digital KYC verification process. Service providers will no longer have to shell out hundreds of rupees to verify the KYC of each borrower with a huge dependency on a large feet-on-street (“FoS”) presence. These savings will have a positive impact on CAC - a key measure of the service provider's efficiency. In turn, this is bound to make the services cheaper for end consumers.
Superior customer experience: Consumers can expect a vastly superior experience because of the elimination of a major pain point – the drop-offs that occur at multiple stages of the physical verification process. In the physical verification process, the document pick-up is usually preceded by a call from the service provider to fix an appointment, and as with all tele-calling activities, there is a need to follow-up on calls that are not connected. Once an appointment is fixed, there is the challenge of the field executive adhering to it. This depends on the volume of executives on their beat that particular day as well as other external issues like sickness or traffic. Even when the executives are on time, consumers may often not be available due to last-minute exigencies and some even ask executives to meet them at another address which is a logistical nightmare at scale. Now with V-CIP, this frictional element will be completely eliminated, and the entire process will be much more flexible for the consumer.
Faster turnaround time: With the process simplified and drop-offs eliminated, the consumer can also look forward to faster turnaround times for loan disbursal, with improved visibility into the entire flow. Besides, the earlier limit of Rs. 60,000 that was applicable to e-KYC also stands eliminated.
Minimized risk: The other direct benefit that will accrue to the consumers is the elimination of third-party risk. When a service provider ties up with a third-party to deploy their FoS for collection of documents, there are multiple challenges that all the three entities involved (the consumer, service provider and the third-party) face: training of FoS; ability of the FoS to complete the process in one attempt; third-party’s ability to tailor the pick-up process according to the needs of different clients; various risks associated with the document being handled by the third-party’s FoS; confusion in the minds of consumers as to who they are actually dealing with; and more importantly, consumers’ worry over documents or images being shared with a third-party. With V-CIP, the service provider is in full control of the end-to-end process and can offer immense peace of mind to the consumer that their information is in safe hands. In fact, the geo-tagging of consumer’s location, as well as the “live photo” feature, combine to make the process seamless and risk-proof for both the consumer and the service provider.
While V-CIP is a big first step with multiple benefits for all stakeholders in the industry, we believe that ironing out a few minor irritants (such as the complex route to verify Aadhaar) will go a long way in transforming the compliance landscape further
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house