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Fintech firms can use video-based KYC, DigiLocker: Panel

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The Steering Committee on Fintech Related Issues has recommended the usage of video-based KYC and the services of DigiLocker among other options for the KYC (Know Your Customer) registration process by fintech firms.

In its report, submitted to Finance Minister Nirmala Sitharaman, the committee, headed by former Economic Affairs Secretary, Subhash Chandra Garg, observed that the Supreme Court’s judgement last year prohibiting private companies from using Aadhaar data of customers without their consent has impacted the operations of fintech companies.

The Steering Committee’s mandate was to take stock of developments in the fintech space globally and in India, study the regulatory climate in various geographies, identify application areas and use cases in governance and financial services, and suggest institutional regulatory upgrades enabling fintech innovations.

“The Committee recommends that various options, including possibility of video-based KYC, making available validated electronic versions of KYC related documents through DigiLocker, making these available for verification by service providers with prior customer consent, etc, may be considered early,” it said.

DigiLocker is a platform for issuance and verification of documents and certificates in a digital format, thereby eliminating the use of physical documents. Indian citizens who sign up for a DigiLocker account get a dedicated cloud storage space that is linked to their Aadhaar or UIDAI number.

“Fintech firms have been affected by the judgment on account of legal infirmity in the Aadhaar law about online KYC not being permissible on a voluntary basis. The online KYC and authentication using Aadhaar was a sound system with considerable efficiency and convenience.”

It observed that post Supreme Court judgement, there is a need to explore several alternatives such as ‘Original Seen and Verified’ (OSV) to be done by banking correspondents for physical KYC, e-Sign, non-face to face on-boarding, including offline authentication modes prescribed by the UIDAI.

The committee further said that that all ministries have issued interim alternative authentication procedures, while a bill is under consideration of Parliament to amend relevant acts to enable voluntary use of Aadhaar and Aadhaar authentication.

The panel also recommended that the Reserve Bank of India (RBI) may consider development of a cash-flow based financing for micro small and medium enterprises (MSME), development of an open-API MSME stack based on TReDS data validated by GSTN (GST Network) and a standardised and trusted e-invoice infrastructure designed around TReDS-GSTN integration.

It has also recommended that insurance companies and lending agencies to be encouraged to use drone and remote sensing technology for crop area damage and location assessments to support risk reduction in insurance or lending business.

Given the rapid pace at which technology is being adopted primarily by private sector financial services, the committee advised the Department of Financial Services to work with public sector banks to bring in more efficiency to their work and reduce fraud and security risks. Significant opportunities can be explored to increase the levels of automation using artificial intelligence (AI), cognitive analytics and machine learning in their back-end processes.

Further, an Inter-Ministerial Steering Committee will be set up on fintech applications in Department of Economic Affairs in the Ministry of Finance, to continue to carry on the tasks of implementing this report, including exploring and suggesting the potential applications in government financial processes and applications, particularly accounting and asset management, welfare services, taxation, and handling citizen grievances.


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