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December 30, 2020
KYC in financial services requirements have been prevailing in the Indian financial markets since the year 2002. Owing its birth to the efforts involved in curbing of fraudulent financial transactions, it now goes much further than just suppressing money laundering and financial terrorism. KYC has now become a window through which institutions gain an immaculate insight into their customers, so that they not only ensure compliance with the RBI norms, but form an effective alliance based on trust with the customer.
As the Indian financial markets have evolved so have the KYC requirements. Not only have the KYC in financial services norms become more stringent but we too have seen an immense change in the way we go about our day to day operations. Without even realising it, we moved on from making physical cash payments to being heavily dependent on digital platforms. From presenting gift-cards to undertaking loans, we have all adapted to the Fintech arena, through just a click of a button.
Fintech, being the industrial sector that makes use of technology to deliver financial services, has established a very powerful presence in India since the year 2016. As per a report by Research and Markets the fintech market in India was valued at INR 1,920.16 Bn in 2019 and is expected to reach INR 6,207.41 Bn by 2025. However, this sector too went through its share of setbacks. When the Supreme Court in 2018, announced that Fintech Companies cannot use the Aadhaar as a means of KYC, because it is an exploitation of private data and thereby unconstitutional, all companies that relied on Aadhaar for e-verification hit a definite roadblock. Industry leaders like Amazon, Phonepe, Paytm, Reliance Jio amongst others onboarded their customers based on the aadhaar based e-kyc and this judgement stood like a barrier in their passageway of growth. The cost of conducting the physical verification coupled with the time and the customer’s effort involved, considerably reduced the number of people who were subscribing to these platforms. Nonetheless, it wasn’t long after that the RBI eased the KYC requirements in August 2019 and also went a step further by releasing a regulatory sandbox specifically for Fintech innovation. This meant that Fintech companies could actually test their products within a defined environment before releasing it to the general public.
This much needed move was brought about when it was realised that innovation needs to be encouraged and this cannot be brought about by restricting Fintech companies; the regulations should be based on the business models and not the other way around. Further, the digital KYC was introduced, which meant-
All of this together, recreated excitement in this sector and gave it the imperative boost.
And then came the Covid-19 wave. Disrupting our everyday lives and almost crashing the economy, the Fintech sector was hardly left untouched. While social distancing and sanitisation were the buzz words that we swore to live by, this was something the Fintech sector was already doing! By limiting all interactions to the digitized world, this sector guaranteed the safety of the customers and the banking officials simultaneously. Further, RBI stepped up and introduced the video KYC option, through which bank accounts could be opened with just the possession of a –
This, although a lot more stringent from the regulatory perspective, because of the authentication through facial recognition, the capturing of the exact location of the customer and other pointers that helped fraud checks, was a very welcome movement. This is because it also helped increase the conversion rate, customer satisfaction and reduced operational costs.
While this ongoing Covid crisis does not look like its bringing about a negative implication in the Fintech sector, whether or not the sector will achieve the growth predicted by Research and Markets remains a question that only time can answer.
If you have any questions regarding compliances related to financial services such KYC, AML, SEBI, RBI, or others, feel free to reach out to us at email@example.com. To know more about our services and products visit :https://quantlegaltech.com/