Fintechs can Now Save Costs by Performing Video-KYC
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In a major relief to financial institutions, the Reserve Bank of India (RBI) has permitted banks, lending startups and non-banking financial institutions to perform video-KYC (Know Your Customer) for customer identification.
The central bank in its notification noted that “with a view to leveraging the digital channels for Customer Identification Process (CIP) by Regulated Entities (REs), the Reserve Bank has decided to permit Video based Customer Identification Process (V-CIP) as a consent based alternate method of establishing the customer’s identity, for customer onboarding.”
Industry experts have welcomed the move. “The RBI has taken a monumental step towards digitizing authentication processes for the Lending ecosystem. I strongly feel that a properly done video KYC will be more effective in reduction of frauds than the erstwhile physical processes,” said Abhishek Kothari, Co-Founder, FlexiLoans.com, a fintech startup that lends to micro, small and medium enterprises (MSMEs).
Niti Aayog CEO Amitabh Kant took to twitter to praise the move.
Great initiative by the RBI ! Circular on Video based customer identification process will make presence-less and paperless banking a reality. The circular is a huge positive step towards prime minister Narendra Modi’s goal of digital financial inclusion.
How Does it Work
An alternative to the existing e-KYC, video-KYC enables banks and lending companies to perform customer on-boarding remotely by taking the customer’s photo and proof of identity over mobile video session.
Explaining the process, the central bank said “Digital KYC has been defined as capturing live photo of the customer and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorised officer of the Reporting Entity (RE).”
The officer can screen the identification of the customer through PAN or Aadhaar card through a video chat initiated from the institute’s domain. The process will also capture live location of the customer, known as geotagging, to ensure that customer is physically present in India.
Further, the statement makes it clear that the institution cannot outsource the work to an external agency but only officials from the entity will have to perform the task. REs will be able to leverage artificial intelligence (AI) and other face matching technology to establish the user’s identity. However, these techs will only assist the authorised officer whereas the real onus of customer identification will be with the official.
How Fintechs Will Benefit
Video-KYC will ease the process of customer on-boarding for fintech startups as no additional hardware to record biometrics will be required. The user’s smartphone will work capture the documents, reducing hardware costs for the startups. Similarly, startups will also save on cost of sending an official to remote locations for customer identification. “This step will greatly help in reducing the KYC costs for a small value loan and also provide a seamless on-boarding experience for borrowers,” said Kothari.
Bala Parthasarathy, CEO & co-founder, MoneyTap thinks that digital infrastructure will also help fight cyber frauds related to identity theft. “Video KYC can prove to be effective in preventing identity theft as customers will not have to submit physical copies of their KYC documents." But, digital KYC also carries the risk of video tampering and document forging in the absence of biometrics.