The RBI or Reserve Bank of India has made it mandatory for all financial institutions, banks and other financial organizations in India to verify both identity and address of all clients who are supposed to conduct any kind of financial transaction with them. To achieve this without excessive logistical inefficiencies, RBI introduced the KYC process as the only verification procedure. Therefore, KYC, which stands for “know your customer”, is an effective way to streamline the process of verifying the authenticity of your customer.
All companies and economic agents, especially financial institutions and banks, are undergoing a drastic process of digitization. Digital transformation has been one of the most important changes in organizations in the last ten years, so those who forget this task lose or even disappear opportunities in their industry.
From KYC to EKYC:
The eKYC process, often called as paperless KYC, is the process of electronically verifying a customer’s credentials. eKYC is also referred to as Aadhaar-based eKYC as your identity is electronically verified through Aadhar-based authentication. This means that the details of your Aadhaar such as name, address, gender, date of birth, mobile number and email address is accessed by the service provider from the database of the Unique Identification Authority of India (UIDAI).
At present, banks are the only institutions authorized to perform customer identification and verification. The RBI recently announced that it has invited applications from NBFCs, payment system providers and payment system participants seeking to obtain an Aadhaar eKYC authentication license.
How can NBFCs begin to use EKYC?
According to the RBI notification, NBFCs must apply for an Aadhaar authentication license to use UIDAI’s eKYC services. This license can be a KYC User Agency (KUA) license or a sub KUA license.
These two licenses are issued by UIDAI and entities including NBFCs, payment system providers and payment system participants seeking to obtain these licenses must submit an Aadhaar license request to UIDAI.
This application can be emailed to the relevant supervisor, in this case the RBI. Specifically, the application must be sent to Chief General Manager In-Charge of the Department of Regulation at RBI.
After investigation and subsequent regulatory approval, the request will be forwarded to the UIDAI for further investigation The Central Government will grant the applicant permission to perform the eKYC based on the UIDAI’s recommendations, and the UIDAI will issue the necessary permits to perform the eKYC. These authorizations are subject to payment of the Aadhaar license fees and compliance with the terms of the Aadhaar Act.
Advantages of EKYC:
- Instant Verification:
Customers are verified almost instantly. eKYC decreases the time it takes to validate a customer from 10-20 days to minutes by digitising KYC verification. This resulted in a 90 percent reduction in operational costs for businesses, as well as a considerable boost in efficiency and time savings.
- Secure Process:
Biometric technology for KYC authentication and data security measures for the Central Identity Data Repository (which contains Aadhaar’s information) ensures the safety of customer data and prevent fraud.
- Paperless Process:
EKYC does not require an identification document as all the information needed to verify a customer is available in the Aadhaar database. This reduces reliance on paper documentation and has been shown to improve audit productivity and efficiency.
The convenience of the eKYC channel also encourages customers to go through the authentication process and not stop the process midway, resulting in 60% KYC drops.
- Market penetration and financial inclusion:
India has more than one billion Aadhaar cardholders and all their information is available in the UIDAI database. With eKYC integrated directly into this database, companies no longer need to invest large sums of money to expand their markets.
With eKYC, customers with Aadhaar can be verified instantly with minimal machines to set up on the verifier side. Therefore, companies can use eKYC to profitably expand into new markets and attract more customers in the formal financial sector by giving them the ability to easily open accounts and access credit.
The invitation to non-bank finance companies to come on board is proof of strong demand. Authorized entities will manage the online database and verify customer identities. It will enable better and convenient service by the entities using this system.
On the other hand, the potential misuse of customer data is one of the biggest challenges that this permission will bring as more entities have access to customer data.
Technology is good, and that brings challenges. However, Aadhaar’s data is safe and located in the UIDAI’s central identity repository and has not been compromised. NBFCs and PSOs must ensure that their systems are foolproof so that they can protect customer data and prevent potential system hacking.
Ensure Digital Security With “CryptoBind – EKYC”:
CryptoBind EKYC is a middleware which handles EKYC and E-Authentication activity on behalf of the client application. It is secure and safe method to share confidential information with relevant KUA’s. It is quick and paperless procedure for verification.
JISASoftech provides CryptoBind-EKYC solution that offers secure and completely remote identity verification complying with the guidelines of UIDAI.
The CryptoBind provides an API-based EKYC solution where KYC is done electronically. Aadhaar EKYC is defined as a paperless Know Your Customer (KYC) procedure, wherein the identity and address of the user are verified electronically through Aadhaar authentication. EKYC is a strategy that has been established to control theft of identity, frauds as well as money laundering.
JISASoftech is a young Information Technology company providing various Authentication products and Solutions. We provide Aadhaar related solutions like Aadhaar E-KYC solution, video KYC solution, Aadhaar Data vault, Digital signing solution, etc.
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