Making a Case for AI-driven Video KYC Using Aadhaar Though the process has benefits such as cost reduction, it can't be considered completely unforgeable like Aadhaar-based biometric verification
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Aadhaar has become a must-have identification document in India. That's because unlike other identification documents such as driving license and ration card, Aadhaar infrastructure is completely foolproof and uses unforgeable biometric information to authenticate the identity of a person. The infrastructure also has multi-layered security parameters and is virtually impenetrable. So, this Aadhaar infrastructure comes across as the most viable and credible authentication solution for all stakeholders, including businesses.
According to PMLA regulations, any business that involves customer onboarding has to get physical know-your-customer (KYC) done for its customer. This is over and above offline KYC required to further authenticate the customer on-boarding process. However, this process adds to both time and cost and for new businesses, it may not come across as a viable option. To address these issues, video KYC turns out to be an effective solution. The process involves minimal turnaround time in authentication and incurs significantly less cost compared with the physical process.
What is Video KYC
Video KYC involves a live video session with a user that establishes their presence during the KYC transaction. It confirms their identity (as per the government identification card) and records it for the purpose of audit and compliance. It is, however, a remote process. This makes it imperative to prevent chances of fraud during the KYC process.
Video KYC is widely accepted by regulators across the world. In India, the regulatory is contemplating on the mechanism and is yet to issue a directive for its usage. Let us briefly discuss the mechanism as well as its advantages and disadvantages.
The onboarding procedure
The process of video KYC is extremely easy as it doesn't require a designated person to travel to the client's location for the verification process. It can be remotely conducted without the need for any extra additional hardware such as biometric machine. A document can be captured via the user's smartphone and with artificial intelligence (AI)-driven solutions, the application form gets filled up automatically.
Validation of the identity is done by leveraging the holographic and forgery detection software in real time. Some companies may also follow instructions-based videos for facial recognition. Once face liveliness is certified, the same is matched with the identification document captured by the user. The records are held to be valid if both of them match. Following this, the customer records are submitted.
In certain cases, human eye verification is also conducted at the back-end. Nevertheless, this step may soon be done away following recent advancements in video analytics.
Video KYC eliminates the need for sending a brand representative to physically verify the documents. Similarly, there are no additional spends on hardware system procurement and integration. Also, the verification process is quick, which decreases attrition rate in the customer onboarding process; thereby, further minimizing the tangible costs.
Pros and cons of Video KYC
There are certain advantages and disadvantages of using the video KYC-based approach. They are as follows:
- No Aadhaar license required by a business. Hence, it is cost-effective
- It's a swift alternative to physical KYC
- No additional hardware required. Hence, it is easy and quick since it can be accomplished using the end-user's smartphone
- No business associate or agent required to perform the verification. The process is conducted in real time using the digital infrastructure
- Given that this is a digital process, there are certain risks involved in the process such as video tampering
- It can't be considered completely unforgeable like Aadhaar-based biometric verification.
For whom is digital or video KYC useful?
Primarily, for fintech start-ups. This is because they cannot bear the expenses and time involved with Aadhaar-based KYC.
For NBFCs that have a small client base.
For those who may not obtain the Aadhaar AUA/KU license. Aadhaar license is granted by UIDAI on certain criteria (such as subsidy schemes or services).
Basically, everyone who is starting fresh in the burgeoning digital market with lower volume, digital KYC comes across as a viable option. It can also be considered an ideal alternative for services targeted at rural geographies as no hardware is required to perform KYC authentication. However, this is an intensely sensitive domain as it contains biometric information of a person and prudential steps such as Aadhaar masking is imperative to avoid negative repercussions. Following the Supreme Court judgment and Unique Identification Authority of India's directive that disallows storing Aadhaar numbers in any database in any form by an entity, it becomes important to mask the first eight digits. This is to ensure that any stored Aadhaar details with any entity are secure.
As we dive deeper into the digital world, Aadhaar is gradually becoming the only authentication document that a person needs or might need in the near future. Perhaps, staying true to its tagline of Aam Aadmi ka Adhikaar (the right of every citizen).