KYC Compliance: How Ready Are Indian FinTech Startups
The proliferation of fintech companies has emerged in the last decade, attempting to disrupt (or complement) traditional financial institutions. Out of 100+ Unicorns in India, almost 15 per cent are in the FinTech space, highlighting the momentum this space has gained in the recent past. From banking and savings to payments, transfers, investing, and insurance, these companies offer users a plethora of services.
As diverse as the offerings are, there is a binding factor in the form of KYC (Know Your Customer), that unites the players in this space. KYC typically entails establishing and authenticating customer identity, comprehending the nature of customers' activities, and the source of their finances, and assessing potential risks such as money laundering and terrorism financing. As a result, one of the most important aspects of developing an effective fintech solution is ensuring compliance with ever-increasing KYC standards and financial regulations.
The Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority (IRDAI), and the Securities and Exchange Board of India (SEBI) have stepped up to streamline and expedite KYC processes for efficient, simple, time and cost-effective KYC solutions for financial institutions and their customers, the majority of whom are digital natives of today.
The regulatory authorities have enabled the Banking, Financial Services, and Insurance sectors to develop scalable onboarding solutions by allowing for digital verification modes in addition to physical or in-person verification. A scalable KYC is necessary for a nation like India, where there are large populations from multiple demographics and varying levels of access to financial institutions. The common resolution is to drive financial inclusion, risk management, profitability, and compliance, across sectors such as
Lending
Lenders for easy onboarding and verification of the borrowers
In digital lending, the customer data set is crucial as it forms the basis of generating the credit scores, which in turn weigh heavily on all the credit decisions. It is common for banks and credit unions to partner with online lenders. While this can be an excellent way to provide customers with innovative digital lending products, lenders must ensure that the lender's technology adheres to fair lending laws and other consumer protection
The need of the hour is for nimble and agile fintech solutions such as JumboTail and MoneyTap that offer seamless credit while achieving a balance of identifying and verifying your customer’s identity as well as minimising risk in order to offer your customer base access to services without compromising on a great customer experience.
Banks
Banks for enabling fully digital and modern forms of full KYC
With KYC, banks have the right to verify the legal status of that entity which also includes cross-checking customers’ operating addresses and verifying the identities of their beneficial owners and authorised signatories. While traditionally, in-person KYC or Adhaar-based KYC had been the route taken, today, a frictionless user experience is critical and equally essential for compliance.
Digital KYC solutions ensure optimal security while delivering the best user experience. They enable financial organizations to improve speed and operational performance, minimize operational risks and boost efficiency by consolidating and centralizing functions.
PPIs
PPI issuers for enabling fully digital and modern forms of full KYC
RBI allows PPIs to be issued with minimum hassles called a Small PPI. PPIs are an instrument similar to credit cards that facilitate payments to businesses, consumers, etc., except they come pre-funded, at least in some cases. Small PPIs are designed for minimal usage and require the customer to provide basic information, like a mobile number and a KYC ID number.
With players like Transcorp, leading the pack as disruptive business enablers PPIs are now mainstream with numerous Fintech powering a variety of use cases spanning Buy-Now-Pay-Later and Credit Line products backed by a lender routed through a PPI-based wallet. With a detailed KYC like biometric or Video KYC, a wallet is converted into a Full KYC PPI which unlocks the true power of a wallet.
SME
Fintechs for verification of their consumers & SME users
All businesses, from major multinationals to SMEs, should feel compelled by ethical and moral principles to invest in rigorous KYB and KYC compliance to protect the sector and avoid fines for non-compliance. The major priorities continue to be KYC compliance, process automation, and the use of alternative data to enable complete automation, underwrite transactions, and gain a significant competitive advantage.
Simple to integrate and flexible; emerging fintech businesses such as Fampay have a level playing field to manage and onboard customer authentication due to digital KYC solutions. By eliminating the requirement for in-house investment in process engineering, maintenance expenditures, and technological infrastructure, these solutions assist small-scale businesses in saving costs. Further, these solutions also assist small-scale fintech businesses in focusing on client-friendly onboarding journeys. They help eliminate friction and increase stickiness through a greater focus on strategic and qualitative experiences and a decreased emphasis on manual-intensive tasks that affect efficiency.
Bottomline
FinTechs have changed how consumers utilise financial services and have the potential to reach a larger part of the world's unbanked and underserved population. The weight of financial accessibility lies with these fintech solutions. However, the success of the solution can only be guaranteed via a robust risk and compliance framework. The need for KYC is apparent, however, the demand weighs heavily on small bootstrapped fintech companies, therefore, fintech alliances can prove beneficial in this situation.
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