RBI’s eKYC Move To Boost Digitisation In Finance

By BankBazaar | December 16, 2016

We’ve always been in favour of digitisation. It’s a tool that has the capacity to give the banking industry a facelift – make it more efficient and agile. So, on 8th December 2016, when the Reserve Bank of India (RBI) announced that bank deposit and borrower accounts could be opened via OTP-based eKYC, we were more than thrilled.

This news is a big deal! The decision spells growth for banks and fintech industries like us on one hand and financial inclusion for the aam aadmi on the other hand.

Large swathes of our country’s population, particularly those from remote areas and marginalised sections of society, cannot even boast of a tryst with a Savings Account. Let alone pursuing services like loans and investments.

This has largely been due to the unavailability of banking services in many locations coupled with the tedious nature of undertaking all the paperwork. OTP-based eKYC is set to change this, thanks to cell phone penetration even in the remotest of locations, a feat the banking industry must emulate.

Traditionally, opening a bank account required collecting physical documents from the customer and spending time and energy to process and validate them. The OTP-based eKYC procedure sits at the other end of the spectrum. It allows customers to open bank accounts instantly, in real time. Cherry on the cake – the process is completely paperless and can be done from the comfort of your home. Absolutely no need to visit the bank. Sounds like a plot out of a sci-fi movie, doesn’t it?

The machinery behind this process is simple. OTP-based eKYC is linked to your Aadhaar Card, which works as a source to validate your credentials. Though the Aadhaar-based authentication system is not new to us, it being used to open bank accounts is definitely an ingenious and strategic move. The service is a godsend to all those who have been hit hard by the demonetisation drive.

So, How Does It Work?

Of course, the Government is not going full throttle on this right from the start. There are some conditions that one must adhere to when using OPT-based eKYC. They are as follows:

1)      New accounts can hold an aggregate of up to Rs. 1 lakh at a time.

2)      The limit on the total credit in an account has been set at Rs. 2 lakh for a financial year.

3)      These accounts (opened through e-KYC) can have term loans sanctioned through them. The aggregate amount cannot exceed Rs. 60,000 in a financial year.

4)      Accounts opened through e-KYC (both deposit and borrower accounts) will have to be converted into regular accounts within one year. Due diligence needs to be done for these customers by the bank within this period and the formal KYC process must be completed, failing which the accounts will be closed with immediate effect. No further debits will be allowed to the borrowers’ account.

5)      Not more than one such account can be held at a time with the same bank or any other bank. It should be clearly indicated in the KYC information uploaded by the banks on the Central KYC Records that the account that has been opened through eKYC. The implication is that other banks should avoid opening any account using the same procedure.

Long-term Benefits To Be Seen

Mint columnist professor Vivek Dehejia recently wrote, “The movement of some or many of the unbanked into the formal financial sector and the movement of firms from the informal to the formal economy (or, equivalently, the process of “creative destruction” whereby new formal sector firms replace defunct informal sector firms) has a permanent and positive impact on the economy, even though the gains from taxing black money via the currency swap is putatively one time only.”

To put it simply – demonetisation and the general move towards a cashless economy is indeed a bumpy ride, but the long-term benefits will soon outshine all the trouble. As more people gravitate away from informal banking institutions to formal banking institutions, boosting the number of banking transactions, the economy will eventually register massive growth.

A major step to bring more and more people under the ambit of banking was taken by the implementation of the Pradhan Mantri Jan Dhan Yojana in 2014. The scheme was the first step towards financial inclusion of all under Prime Minister Narendra Modi. According to statistics provided by former RBI governor Raghuram Rajan, 21 percent of the world’s unbanked population hailed from India in 2015. The total number of Indians who held bank accounts numbered about 400 million in 2014.  Post Jan Dhan Yojana, this number grew by 257 million. Quite a feat!

Can it get better? Yes, of course!

It’s been established that the presence of mobile is a lot more widespread than banking. So, if we compare the two statistics, assuming that about 700 million people partake in some form of formal banking, we still have 300 million to reach. The total number of mobile users in the country this year stands over a billion strong. Then there are minors and many others who don’t own a mobile phone – roughly 250 million people. OTP-based eKYC is designed to bring all these people under the umbrella of formal banking.

Here’s How This Benefits You

The scheme has immediate benefits for the consumer and spells growth for the economy too in the long run. Here are some of the advantages:

Time Efficient: All you need to open a bank account is your mobile phone. Hence opening a bank account takes much less time than the traditional paper process.

Security First: Paperwork comes with its own set of challenges – loss of documents, identity theft, etc. Aadhaar-based eKYC secures the entire validation procedure. Your data can be accessed only after you permit the third party to do so. Moreover, biometric approval associated with Aadhaar offers strong security against identity theft. No more worries about someone forging your signature or escaping with your documents.

Paperless: Opening a bank account means wrestling heaps of paper, testing your patience in bank queues, and possibly having to answer many complicated questions posed by the customer care representative at the bank. Also, the criteria for opening a bank account involves analysing the salary and credit history of the customer. eKYC looks at a person’s social/financial standing and location. No address proof required.

Cost-efficient: Working with paper and validating each customer’s information is not only time consuming, it raises operating costs too. OPT-based eKYC allows banks to process multiple applications at a time, thus reducing the cost of operation to 2-3 percent for banking products and a whopping 20-30 per cent in case of insurance products. While this allows banks to cut a bigger profit, the customers too stand to gain from a drop in operational costs.

With so many benefits associated with OTP-based eKYC, a billion people using Aadhaar, and people generally warming up to cashless modes of payments; the banking industry is all set to morph into something better. And, we at BankBazaar are staying in step with our one-click application and instant approval services to help people connect with financial products for all their needs.

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