RBI governor Shaktikanta Das signed off his policy announcements on Friday by saying, “Stay clean, stay safe and go digital”. However, there exists today some barriers to digital finance and, considering the pandemic, it’s become even more important to remove those barriers. These barriers pertain to the all-important Know Your Customer (KYC) process, through which a financial institution validates and onboards its customers. Unless those barriers are lifted, India cannot go truly digital, and the benefits of digitised banking will be limited to the urban centres.
This month, the world came to standstill. The risk of infection has ended face-to-face interactions. Urban populations have seamlessly shifted online for their daily needs, be it attending classes or buying groceries. But one thing that hasn’t changed is how you open a bank account or sign up for a loan or credit card.
For these, you still need to have a face-to-face interaction with the bank, sign a form, and submit photocopies of your documents. With the pandemic, this method no longer works. The self-employed, and even the salaried, have an urgent need for credit to deal with their ongoing problems. They need greater digitisation. So the barriers to digitisation need to go — not just to reduce ongoing risks but also to create a new personal finance landscape in the post-Covid-19 world. Here’s how we can do it.
The situation today
An Amazonification of services has happened in the last few years. Thanks to deepening internet penetration and availability of smartphones, you can do a lot from the comfort of your home.
So it’s only fair to expect the banking industry to move in the direction of instant, paperless, and presence-less customer service where the customer can get the product he needs quickly. If you have a KYC-compliant bank account, you can buy mutual funds or insurance online. But to open a bank account, take a loan, or start a credit card relationship with your bank, you must go through a time-consuming offline process.
This process, apart from being slow, also puts costly regulatory burdens on banks. So here’s what needs to change to enable 100 per cent contactless account opening.
Loan caps need to rise
Today, you can take a loan up to Rs 60,000 through an account opened via e-KYC done through OTP-based authentication. However, you need to complete a full, offline KYC with your lender in the prescribed timeframe.
Also, you cannot obtain a credit card this way. This needs to change. We’ve seen that the average loan size taken through digital modes is Rs 2.61 lakh in metros and Rs 2.84 lakh in non-metros. Therefore, the cap should be raised ten-fold to Rs 6 lakh, and credit cards should be made available through OTP-based authentication.
This can be done through amendments to a document called the RBI KYC Master Direction, which governs the country’s KYC norms. This would help the common man and MSMEs to borrow instantly and paperlessly. It would also help manage the ongoing liquidity problems in the economy.
Wider use of C-KYC
The central KYC registry stores information of customers from across the financial sector. Its objective is to provide inter-usability of KYC records, which will help reduce the need to produce KYC documents for each new account opening.
So, let’s say you opened an account with Bank A, which then uploaded your KYC information to this registry, and this information will be available to Bank B when you approach it to buy a new financial product.
This system of KYC inter-usability speeds up your application process and reduces compliance costs to the bank. Today, we need the RBI to step in and say that a computerised check of your KYC records can be considered a full KYC check. This, too, would speed up digital account openings.
Recently, the RBI allowed banks to use video KYC. Through this mechanism, customers can use their smartphone cameras to give their bank a proof that they are alive and not indulging in a fraudulent account opening.
However, only RBI-regulated entities such as banks are allowed to conduct this video customer identification process. Banks may or may not have this technology at their disposal. Non-regulated entities such as NBFCs and fintechs may have it. Therefore, the scope of video KYC should be expanded to allow those with technology to work in collaboration with banks and regulated entities to allow more people to open accounts through video KYC. This would help those Indians trying to access banking from deep geographies not serviced by branches.
Use of Aadhaar, GST data
Only banks can use Aadhaar to validate your application. Aadhaar isn’t just a printed card but a rich database of information that helps validate customers instantly. Insurance providers, asset management companies, NBFCs, investment advisors and PFRDA intermediaries and regulated fintechs should also be provided a framework through which they can allow customers to validate themselves in a consent-based manner.
This would be another way to reduce costs and turnaround time, allowing more Indians to use their Aadhaar to get the financial services they need without delay. Moreover, to minimise the MSME sector’s reliance on unregulated creditors, loan service provider licences, licensed access to account aggregators, and GSTN access should be made available to qualifying fintechs. This would speed up loan disbursals.
The pandemic is a warning bell to remove the barriers to digital finance. As governor Das suggested, there’s been no better time to go digital.
The writer is CEO, `BankBazaar.com`