The Union Budget 2023–24 address by Finance Minister Nirmala Sitharaman on February 1 included a proposal to streamline the Know Your Consumer (KYC) procedure. Opening bank accounts, updating personal information, investing in insurance and mutual funds, and other financial transactions all need completing KYC beforehand.
Using the government-provided digital locker infrastructure, which could hold important papers such as the PAN and AADHAR, a risk-based procedure and KYC requirement would be implemented.
In addition, the finance minister suggested creating a one-stop shop for updating identifying documents for the government-based digital lockers.
How did Union Budget 2023 address Financial Services in India?
Finance Minister Nirmala Sitharaman advocated for the simplification of Know Your Customer (KYC) processes for financial services in a Budget speech that placed a broad emphasis on technology and tech-driven solutions. She also argued for increasing the utility of the DigiLocker platform for both individuals and businesses and giving Fintech Platforms more flexibility to access India’s digital infrastructure.
“The Union Budget emphasises knowledge- and technology-driven, all-encompassing growth. According to Jaideep Ghosh, COO of the law firm Shardul Amarchand Mangaldas & Co, “Digital public infrastructure such as the well-established UPI to the newly announced National Digital Library will continue to be a crucial facilitator for India’s economic progress.
How can simplified KYC help Fintech Platforms in India?
To verify customers for access to financial services, fintech platforms in India will soon be able to use documents stored in the DigiLocker for people. This is hardly the first piece of infrastructure that fintech companies will have access to. By 2025, the fintech sector in India is predicted to reach $1.3 trillion, according to the most recent data from the research company EY.
Sitharaman stated in the Budget address that “Fintech services in India have been supported by our digital public infrastructure like Aadhaar, PM Jan Dhan Yojana, Video KYC, India Stack, and UPI.” The Reserve Bank of India (RBI) has announced that credit cards would be able to be linked with the Unified Payments Interface (UPI) to facilitate payments. Up to 2023, progress on such is anticipated.
Consumers in India’s fintech market may be broadly categorised into five categories: payments (including bill payment, aggregator services, and QR payments), lending (buy now, pay later and loan platforms), digital banking platforms, insurance platforms, and wealth management platforms (investment platforms and AI-based advisory services, for instance).
Anirban Mukherjee, CEO of PayU India, a digital payments company, said: “This Budget is a tremendous start towards sustaining the long-term development potential of India’s fintech ecosystem against mounting global challenges.”
How does the newly prepared KYC process work?
The KYC, or Know Your Customer, check, is something you would have faced if you have a bank account, credit card, postpaid cellphone connection, or have asked for a loan. That involves employing a range of instruments, like the PAN and Aadhaar card Verification using APIs, to verify identities, addresses, and financial information.
The government wants the KYC procedure to be dynamic and “risk-based” rather than taking a one-size-fits-all approach. Financial sector regulators will also be urged to develop a KYC system that can completely accommodate Digital India’s requirements, according to Sitharaman.
The Aadhaar and PAN card data, which connect a holder’s financial history from credit bureaus, are likely to be included in the risk assessment. Banks provide these credit bureaus with information on credit history, including loans and repayments as well as credit card usage.
The Budget also calls for a “one-stop solution” for personal information kept by numerous governmental departments, agencies, and organisations that are subject to regulation. Aadhaar and the DigiLocker service will serve as the system’s cornerstone. According to Abhishant Pant, creator of the Fintech Meetup and general partner of YAN Angel Fund, “simplifying KYC by adopting a risk-based strategy would allow faster-streamlined digital onboarding of customers and extend the journey of Digital India efforts.”
Currently, users may use DigiLocker to produce digital copies of papers issued by the federal government, state governments, banks, insurance companies, health care providers, and transportation providers (such as driving licences). The range of documents that can be added to a person’s DigiLocker, according to the government, will be widened.
According to Sugandh Saxena, CEO of the Fintech Association for Consumer Empowerment, “initiatives around risk-based KYC and a consistent method for updating it for customers and companies would facilitate their access to credit, facilitating the rise of the fintech lending industry.”
On computers and smartphones, the DigiLocker may be accessed through a web browser, in addition to applications for Apple iPhones and Android phones. The Aadhaar Verification API from IDcentral, which provides contactless entrance, check-in, and safe signup on online platforms, is one instance of how the Aadhaar is utilised to offer KYC verification.
DigiLocker’s expansion into the fintech industry will help people, banks, and other financial organisations store and exchange data online in a faster and more secure way, according to partner Anish Shah, partner – M&A Tax and Regulatory, BDO India, an accounting, tax, and advisory firm.
How do other industries benefit from the new KYC system?
It affects more than just people. Medium and small companies (MSMEs), big businesses, and charitable trusts will all be allowed to use the DigiLocker. Consider this to be the website that will hold electronic copies of papers published by authorities, banks, and other companies.
According to Prabhu Ram, head of CyberMedia Research’s Industry Intelligence Group, “by expanding the DigiLocker to now accommodate MSME and big firms for storing and exchanging documents, digital and smart governance would get a substantial turbocharge through simplified document verification.”
The creator and CEO of the online credit product aggregator IndiaLends, Gaurav Chopra, is proceeding cautiously with the announcements. “Announcements on the consolidation of financial data and the growth of digital storage were made, and they are viewed as helpful measures toward the digitisation of financial services. Before evaluating the real impact, it is still necessary to analyse the specifics, he added.
Widespread effects might result from the KYC process‘s acceleration and simplicity. Consumer experiences will be frictionless because of the KYC system’s simplification, according to Baazi Games’ chief financial officer Gaurav Kapoor.
“Across the whole fintech ecosystem, using PAN as a common identity and streamlining the KYC process is a winning idea. According to specialists in the field of online fraud prevention and digital onboarding, this standardisation will hasten the process of clients’ digital onboarding.
How rapidly the basic elements of the streamlined KYC procedure for clients can be developed and then implemented across a number of internet platforms is still an open question, but AI enabled solutions in Customer onboarding & KYC Verification from IDcentral already integrate many of these features through API based workflows. IDcentral’s KYX solution uses a system that enabled variable thresholds of KYC verification based on your customers and platform, which can be adjusted to achieve true balance between frictionless and secure digital onboarding.
Try IDcentral’s Aadhaar KYC Verification Solution designed for streamlined Digital Customer Onboarding
Sumanth Kumar is a Marketing Associate at IDcentral (A Subex Company). With hands-on experience with all of IDcentral’s KYC and Onboarding Technology, he loves to create indispensable digital content about the trends in User Onboarding across multiple industries.