Should you, as a consumer, care about paperless financial services? Should the Government of India and the regulators enable the use of electronic know-your-customer (eKYC) and e-sign? Should the banking and financial industry care?
The short answer to all the three questions is yes. There are compelling reasons for both consumers and the industry to enable paperless financial products.
We will talk about those compelling reasons, and why having to manually sign, submit, transport and process paper documents is a great impediment to the democratisation of finances in India.
Let’s start with costs.
First, paperless products cut costs. Since the processing is being done by a technology platform that can simultaneously process millions of transactions, financial institutions can reduce their operating costs on processing paperwork.
The entire process happens between a consumer logged on to the internet using a mobile phone and the platform.
The reduction in costs can be 2-3% in banking products, and as high as 20-30% for insurance products. Now, this is a significant reduction. Ultimately, consumers stand to gain from reduced costs.
Second, what better way to weed out fraudsters? In a paperless processing engine, an applicant’s eKYC data can be accessed, with customer’s consent, and analysed instantly.
Not only does this allow processing of applications within minutes (instead of days in the offline world), it also ensures that digital checkpoints such as Aadhaar-based one-time password (OTP) are employed to reduce the incidence of identity theft, fudged signatures, and fake documents.
So not only do consumers spend less on these financial products, the financial industry also reduces non-performing assets and cuts costs.
Third, and this is the most important bit in furthering the mission of helping consumers access the right financial product, technology-driven selling gets rid of the scourge of misselling. Digital platforms allow a consumer to control the levers of their product search. They can find products best suited to them in terms of parameters like costs, riders, interest rates and returns.
For example, an average consumer may not know how many riders exist on life insurance products and what they cost. She may also not know how one insurance product compares to another. But by going online, she can get all this information and can short-list the best products, compare them feature-to-feature, and make up her own mind about what she should buy. So not only is the consumer finding the right product, she can also instantly get it in a paperless ecosystem.
The Government of India and the regulators have been very supportive of Digital India, Startup India and paperless technology. However, there are still some impediments to the paperless distribution of financial products.
Addressing this will require a holistic approach on the part of the financial regulators and institutions in creating room for e-signing of agreements and OTP-based eKYC authentication expressly, which are critical enablers for completely digital and paperless financial transactions. In lay terms, these processes enable consumers to digitally sign their agreements as opposed to having to visit the bank or having the bank send them many papers to sign.
Also, the eKYC can be done via OTP on the mobile phone, which again reduces the need to manually collect and process copies of your identity and address proofs. eKYC via OTP also removes the need for purchase of hand-held biometric devices by banks, and the need to meet consumers face to face for biometrics—which consumes time and money—thereby reducing the benefits of going instant and paperless.
In India, as a welcome change, the Indian Evidence Act and the Information Technology Act have both been amended and updated by the legislators to allow the use of e-signatures.
Further, Aadhaar, unlike other identities, is already biometrically de-duplicated and provides a higher level of assurance when using Aadhaar-based OTP.
Yet, most intuitions still continue to collect wet signatures on all documents as a general practice.
Several of our forward -looking financial regulators, via integration with the Aadhaar servers, have already allowed the use of OTP for application verification for certain customer segments. However, many of us still collect only physical or biometric data.
To enable a paperless India, banks, insurers, mutual fund institutions, and their recognised intermediaries must be allowed to accept OTP-based verification, based on the risk level and category of transaction or with a monetary cap for transactions as the first step.
With more than a billion people with Aadhaar and people choosing to fulfil their day-to-day needs via cellphones connected to the internet, paperless financial transactions should not remain far behind.
The underlying reason to move in that direction is the need to connect people with the financial products best suited to them. We must fulfil that need, we must leverage 100% paperless technology.
Adhil Shetty is chief executive officer of BankBazaar.com.