Reserve Bank of India's latest norms bring significant relief to financial institutions. We are now fast moving towards paperless, video Know Your Customer or KYC that will make the whole process remote as well as cost effective.
Here's a quick lowdown on what it means to general public and the financial industry.
What it entails
RBI specifies that the video KYC should be consent-based. This means, banks can go ahead and implement it only with prior consent from customers. An Aadhaar-based Video Customer Identification Process (V-CIP) was introduced by the RBI to enable remote KYC of customers in addition to the already existing e-KYC facility. The guidelines under the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 have accordingly been amended.
Here's what the RBI says in its guidelines.
“Further, with a view to leveraging the digital channels for Customer Identification Process (CIP) by Regulated Entities (REs), the Reserve Bank has decided to permit Video based Customer Identification Process (V-CIP) as a consent based alternate method of establishing the customer’s identity, for customer on-boarding.”
It goes on to redefine it too. As mentioned in the guidelines, ““Digital KYC” has been defined in Section 3 as capturing live photo of the customer and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorised officer of the Reporting Entity (RE) as per the provisions contained in the Act.”
The process
The process will be a combination of capturing a live photo of the customer and his Officially Valid Document (OVD) along with his geo-location coordinates that confirm that the customer is indeed physically present in India. Essentially an encrypted audio-visual encounter, the video KYC process can be carried out via a bank-issued smartphone application. PAN card must be provided by all and other relevant business/financial documents should also be produced as required.
Reduced costs
The immediate benefit is that of reduced costs. Aadhaar based eKYC had already lowered the cost of physical KYC bringing it down from Rs. 150-200 per KYC to Rs. 20 per KYC. Video KYC takes comfort and convenience to the next level since digital KYC still required some kind of touchpoint. So a visit to the customer's doorstep still became necessary to complete the process under digital KYC. Also, wet signatures are also being eliminated as per the new procedure. Needless to say, this ensures greater scale and brings about speed and efficiency to roll out new fintech initiatives. This cost-effective method for financial inclusion is just what we need to attain compliance across geographical locations, no matter how difficult they are to reach.
New-age digital identity & authentication technologies on the block
Fintech companies are quick to adopt this new practice and are all set to leverage data and usher in innovation. Artificial intelligence, blockchain, cloud-based API technology are all being employed considering RBI's mandate of using face matching technology and AI in the process. This also means addition of use uses. While video KYC is already being used to open mutual fund accounts, it will also be leveraged at bank branches, ATMs and payments at Point of Sale terminals.
Data security concerns
Data security remains a big concern with Video KYC and something companies are working on aggressively to make the process safe and secure. After all, the process involves a lot of sensitive information. While digital KYC also had similar concerns, video KYC draws attention to these issues even more since there's the addition of facial data too for biometric authentication. The use of robotics to process the large volumes of data is being considered, though the need for stringent data protection laws in lieu of the current scenario cannot be undermined.
Human intervention is still needed
The process is not entirely automated as it requires a representative of the Regulated Entity (RE) to call and authenticate the customer after asking a few questions, using the necessary facial recognition technology for authentication and for verifying relevant documents. After the procedure is completed, the representative further needs to log all the details including the video, the photograph, and the identity proof along with their own credentials. As such, there is a need for making digital KYC remote too and free both the processes from human involvement thereby bringing in complete automation.
KYC at enterprise level needs relief too
Although equivalent e-documents are allowed across all categories including businesses, KYC at business level still entails in-person verification and signatures. This is quite cumbersome, and repeated KYC compliance is often required by different financial regulators and entities. For instance, KYC compliance is required for merchant on-boarding despite the fact that they would have already completed the same while opening a bank account. This kind of repetition puts a drain on both time as well as efforts. A consent-based KYC sharing process will address the concern of duplicate KYC.
Recommendations outlined by the Steering Committee on Fintech Issues and the Nilekani Committee on Digital Payments are worth considering to bring about the much-needed relief and tide over challenges.
Irrespective of the challenges and limitations, the fact cannot be denied that new norms favour progress and indicate major strides in a positive direction. Hopefully, more promising times await us in the near future. Let’s wait and watch and see what the future holds.