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Photo: iStock
Photo: iStock

Three policy changes that can unleash the potential of video KYC facility

It’s necessary to learn from the data and overcome the current challenges

The fundamental aspects of banking may have changed permanently in the wake of the covid-19 pandemic. For people stuck at home, it’s been possible to safely transact through debit cards, credit cards, netbanking and UPI. But the challenge lay in how to open accounts—especially loan and credit card accounts. This is, typically, an offline process involving meetings with the banks and handing over of forms and documents.

Thankfully, before we headed into the lockdown, the Reserve Bank of India (RBI) had solved this problem to a great degree. In January 2020, RBI approved the use of video KYC (know your customer) or VKYC.

The KYC process allows banks to authenticate you before you open an account. It helps banks establish beyond doubt your identity and address, and is a regulatory requirement. Over the last few years, regulatory progressions have allowed much of this process to be conducted digitally. But with the pandemic, digitization was the only way forward.

HOW VIDEO KYC IS CHANGING THE GAME

VKYC allows banks to authenticate customers through a live video interface that can be accessed via a smartphone. The interface requires the presence of a bank officer at the bank’s end.

Various banks have now started relying on this technology for business continuity. It is also helping people avail financial products such as loans and credit cards, from the safety of their homes.

VKYC has not just digitized the process, but also accelerated it. In some cases, the total time taken from the application stage to the disbursal of the financial product takes only a few hours—a speed not seen in offline processing.

This new development must be seen against the backdrop of progressions such as the use of e-signed documents, DigiLocker and e-KYC, as well as noteworthy amendments to the PMLA, and to the KYC Master Direction (KYC-MD). Together, these have accelerated the next phase of digital financial inclusion in India.

NOW, SOME TWEAKS ARE NEEDED

As with any new technology, improvements are needed on the basis of the field results in the first 60 days during the lockdown.

The industry now seeks to smoothen out frictions in the VKYC process. First, the existing regulation requires a bank official to be present on the video on a real-time basis. This requirement is proving difficult to scale. As a solution, the industry suggests to the regulator the customer be required to read out a one-time code flashed on the VKYC screen on a real-time basis, confirming that the VKYC is live, and the bank official can review and approve the video files on a batch basis instead of real-time basis. This will also help provide 24x7 VKYC facility to consumers and significantly increase application throughput.

Second, the VKYC process requires non-banks and non-banking financial institutions to complete high-friction verification of the customer’s Aadhaar via the offline XML upload method. To simplify this, the industry suggests that customers be allowed to, as an alternative choice, upload their masked, e-Aadhaar PDF containing UIDAI’s digital signature. While both e-Aadhaar PDF and Aadhaar offline XML are equivalent documents, consumers are able to upload their Aadhaar PDF but struggle when dealing with the XML document. In the digital space, convenience is everything. So the removal of a minor friction can scale VKYC transactions exponentially in these tough times.

The third request to the regulator is to allow PAN to be verified from DigiLocker to reduce customer friction and create higher efficiency in the VKYC process. This can also reduce fraud. The current VKYC regulation allows for e-PAN but the same issue exists as above: DigiLocker awareness among consumers is high and digital submission process frictionless, while e-PAN is not familiar or frictionless for consumers.

Consumers need multiple secure options to choose how they want their contactless access to credit.

SECURITY IN VKYC

The VKYC process is secure and requires bank officials to validate each video file, including a “liveness" check, to prevent re-use of the recording. The process is completed on the bank’s site with a clear audit trail available for subsequent review of compliance quality, unlike the offline version of the KYC process where you sign and hand over your documents to an agent who handles this paperwork. The safety of the digital process is inherent in that it is directly between the bank and the consumer, and it’s completely paperless and contactless.

The introduction of VKYC by RBI was a timely shot in the arm for banking. Now, it’s necessary to learn from the data and progress at a greater pace to overcome current challenges. The steps mentioned above will help to scale a new contactless model and restart credit flow to consumers safely in these tough times.

Adhil Shetty is CEO, BankBazaar.com

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