Navigating KYC: Fintech's compliance hurdle | Fusion - WeRIndia

Recent months have seen a significant focus on adherence to Know-your-customer (KYC) guidelines.

Particularly after the Reserve Bank of India (RBI) imposed strict regulations on banks and fintech companies for non-compliance, many financial institutes focused on this.

The case of Paytm Payments Bank, which faced issues due to non-adherence to these guidelines, highlights the challenges in the sector.

For fintech firms looking to grow, especially in tier-3 regions, KYC compliance poses both a technological and financial challenge.

The RBI’s amendment in April 2023 mandating video customer identification (V-CIP) or offline KYC processes, has further escalated operational costs.

Digital lending platforms, which thrive on minimal physical interaction, find these requirements burdensome.

Many financial experts pointed out that physical verification slows down the customer onboarding process, impacting the uptake of financial services.

The RBI’s classification of certain digital methods as high-risk means that accounts opened digitally require more rigorous monitoring until verified via video KYC or in person. It raised concerns over data quality and compliance burdens.

The operational costs associated with KYC processes vary significantly, with video KYC costing between ₹15-30 and physical KYC as much as ₹100.

It is a significant amount when compared to the nominal fees for accessing the centralised KYC database (C-KYC) or DigiLocker.

This cost disparity has led to calls within the industry for a more balanced approach, suggesting that risk-based criteria could make compliance both efficient and cost-effective.

For instance, small-ticket loans could utilize C-KYC or DigiLocker, whereas larger transactions might necessitate video or physical KYC.

The push for reintroducing e-KYC, phased out after a Supreme Court ruling, is seen as a potential relief for easing these compliance challenges.

As the industry navigates these regulatory waters, a blend of digital innovation and regulatory flexibility will be crucial for sustaining growth and ensuring robust KYC compliance.

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