Digital PaymentsNews & Analysis

RBI Allows NBFCs to Apply for Aadhaar e-KYC Licence


The Reserve Bank of India has allowed applications for Aadhaar e-KYC Authentication Licence on behalf of NBFCs, payment system providers and payment system participants. Under Section 11A of the PML Act, 2002, entities other than banking firms may be authorized, by Central Government notice, to authenticate a client’s Aadhaar number using the e-KYC facility of Unique Identification Authority of India (UIDAI). “Such notification shall be issued only after consultation with UIDAI and the appropriate regulator,” said RBI.

The apex bank also mentioned in the notification that “A detailed procedure for processing of applications under the aforementioned Section for use of Aadhaar authentication services by entities other than banking companies has been provided by the Department of Revenue, Ministry of Finance via their circular dated May 9, 2019.”

RBI further stated in the statement that “Accordingly, Non-Banking Finance Companies (NBFCs), Payment System Providers and Payment System Participants desirous of obtaining Aadhaar Authentication License – KYC User Agency (KUA) License or sub-KUA License (to perform authentication through a KUA), issued by the UIDAI, may submit their application to this Department for onward submission to UIDAI. The applications can also be forwarded over email.”

CXOToday speaks to some experts from leading banking and paytech companies on RBI’s recent decisions. Here’s what they have to say:

“It is definitely a key development for non-banking entities as it speeds up the process of customer on-boarding and also eliminates frauds. Paper-based documents still have an element of risk as it is very difficult to ensure 100% verification. Now with eKYC, non-banking entities offering financial services can improve compliance and also ensure that the popular mechanism of customer on-boarding for which they had to depend on third party players can be offered directly through a KUA license. This brings in cost saving for non-banking entities in an increasingly competitive market. Another significant development is drastic reduction in frauds. Since eKYC is full-proof and robust in verification of authenticity, non-bank entities can offer a much safer platform to their customers. This will also improve trust levels among customers because only licensed entities will be permitted to conduct eKYC.” – Ankit Bhatnagar, Head of Product, Mswipe

“The latest notification will simplify customer onboarding for NBFCs, NBFC-Micro Finance Institutions (NBFC-MFI), payment system operators and payment system participants. Earlier, NBFCs’ are reliant on offline Aadhaar validation or paper-based authentication mechanisms like PAN verification. Since such methods involved sharing pictures of physical documents such as the PAN and Aadhaar cards, it made the process slightly cumbersome and prone to rejections as the quality of pictures shared may not be up to the mark. Now, by availing Aadhaar Authentication License – KYC User Agency (KUA) license or sub-KUA License these NBFCs can directly leverage an online database in Aadhaar and verify the identity including the photograph seamlessly. Additionally, Aadhaar validation also provides an additional layer of security against fraud. It does so by offering an additional OTP or biometric validation. So, when a financial institution authenticates a customer with Aadhaar the photograph of the person along with their address is returned. This helps in ensuring that an authentic photograph is available for comparison as opposed to PAN where the photo can be possibly tampered with or photo shopped. Further, many NBFCs and MFIs are operating in semi-urban and rural areas. The new directive will enable them to onboard customers who may not have PAN cards or are not be willing to share their PAN card details. As Aadhaar numbers are available with most people and they are relatively more comfortable sharing their Aadhaar details, NBFCs will now be able to scale their customer base. While PAN may be used as a proof of identity (POI), you need an additional document for proof of address (POA). With Aadhaar validation, NBFCs can complete their e-KYC with just the Aadhaar number that serves as both a POI and a POA.” – Manoj Chopra, Head Innovation & Product Development, Infrasoft Technologies Limited

“RBI’s recent decision to allow NBFCs, Payment System Providers and Payment System Participants to use for eKYC for onboarding customers is a welcome move for the Fintech ecosystem. This will promote digitisation, resulting in a forward thinking approach to ensure fast delivery of financial products in the sector and thus improve experience for many customers who had been facing a lot of issues. This is one of the most positives moves for players in the ecosystem, and will help make the onboarding journey less bumpy for customers.” Gurjodhpal Singh, CEO, Tide (India)

“A truly democratic move to power NBFCs, payment system providers and participants to make the digital journey of customers faster, simpler and secure. Over the last two years RBI’s has been working to create a more enabling and compliant digital ecosystem that helps non-bank entities play a more participatory role in digitization of financial services. Apart from payments, customers are increasingly preferring smartphones to access several other financial services like insurance, lending, business banking, payroll, alternate investments and this requires fast tracking of onboarding processes to improve customer experience and increase access. Given that RBI has lately been warning of frauds owing to improper KYC processes, providing a KUA license will definitely stem such activities and increase customers’ trust in non-banking entities which are working hard towards offering affordable and accessible financial services on the go.” – Arpit Ratan, Co-founder and Chief Business Officer, Signzy

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