KYC Compliance How Ready Are Indian FinTech Startups -Rohit Taneja

The proliferation of fintech companies has emerged over the past decade, seeking to disrupt (or complement) traditional financial institutions. Out of over 100 unicorns in India, nearly 15 percent are in the FinTech space, highlighting the momentum this space has gained in recent times. From banking and savings to payments, transfers, investments and insurance, these companies offer users a multitude of services.

As diverse as the offers are, there is a binding factor in the form of KYC (Know Your Customer), which unites the players in this space. KYC typically involves establishing and authenticating customer identity, understanding the nature of customers’ activities and the source of their finances, and assessing potential risks such as money laundering and terrorist financing. As a result, one of the most important aspects of developing an effective fintech solution is ensuring compliance with ever-increasing KYC standards and financial regulations.

Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDAI) and Securities and Exchange Board of India (SEBI) have stepped up to streamline and expedite KYC processes for efficient, simple, timely and cost-effective KYC solutions for financial institutions and their customers, most of whom are digital natives today.

Regulators have enabled the banking, finance and insurance sectors to develop scalable onboarding solutions by allowing digital verification modes in addition to physical or in-person verification. A scalable KYC is necessary for a nation like India, where there are large populations from multiple demographic groups and varying levels of access to financial institutions. The common resolution is to drive financial inclusion, risk management, profitability and compliance, across sectors such as

Lending

Lenders for easy onboarding and verification of borrowers

In digital lending, the customer data set is crucial as it forms the basis for generating the credit scores, which in turn weigh heavily on all credit decisions. It is common for banks and credit unions to cooperate with online lenders. While this can be an excellent way to provide customers with innovative digital lending products, lenders must ensure that lenders’ technology complies with fair lending laws and other consumer protections

The need of the hour is nimble and flexible fintech solutions such as JumboTail and MoneyTap that offer seamless credit while achieving a balance between identifying and verifying the customer’s identity as well as minimizing risk to offer the customer base access to services without compromising on a great customer experience.

Banks

Banks to enable completely digital and modern forms of full KYC

With KYC, banks have the right to verify the legal status of that entity, which also includes cross-checking customers’ business addresses and verifying the identity of their beneficial owners and authorized signatories. Traditionally, in-person KYC or Adhaar-based KYC had been the route, today a frictionless user experience is critical and equally important for compliance.

Digital KYC solutions ensure optimal security while delivering the best user experience. They enable financial organizations to improve speed and operational performance, minimize operational risks and increase efficiency by consolidating and centralizing functions.

PPIs

PPI issuers to enable fully digital and modern forms of full KYC

RBI allows PPIs to be issued with minimal issues called a small PPI. PPIs are an instrument similar to credit cards that facilitate payments to businesses, consumers, etc., except that they are pre-funded, at least in some cases. Small PPIs are designed for minimal use and require the customer to provide basic information, such as a mobile number and a KYC ID number.

With players such as Transcorp leading the pack as disruptive business enablers PPIs are now mainstream with a number of Fintechs driving a range of applications spanning Buy-Now-Pay-Later and Line of Credit products backed by a lender routed through a PPI based wallet. With a detailed KYC like Biometric or Video KYC, a wallet is converted into a Full KYC PPI unlocking the true power of a wallet.

SMEs

Fintechs for verification of their consumers and SME users

All businesses, from large multinationals to SMEs, should feel compelled by ethical and moral principles to invest in strict compliance with KYB and KYC to protect the sector and avoid fines for non-compliance. The main priorities remain KYC compliance, process automation and the use of alternative data to enable complete automation, guarantee transactions and gain a significant competitive advantage.

Easy to integrate and flexible; emerging fintech companies like Fampay have a level playing field to manage and integrate customer authentication due to digital KYC solutions. By eliminating the need for in-house investments in process engineering, maintenance expenses and technological infrastructure, these solutions help small-scale businesses save costs. Furthermore, these solutions also help small-scale fintech companies focus on customer-friendly onboarding journeys. They help eliminate friction and increase stickiness through a greater focus on strategic and qualitative experiences and a reduced emphasis on manual-intensive tasks that affect efficiency.

The bottom line

FinTechs have changed how consumers use financial services and have the potential to reach a larger portion of the world’s unbanked and underserved population. The emphasis on financial accessibility lies in these fintech solutions. However, the success of the solution can only be guaranteed via a robust risk and compliance framework. The need for KYC is obvious, but the demand weighs heavily on bootstrapped small fintech companies, therefore fintech alliances can prove beneficial in this situation.