Digital KYC makes DigiLocker a verified document, yet self on-boarding remains a dream

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Updated: August 27, 2019 4:55 PM

The document and its steps primarily cater to the agent on-boarding model of KYC. There is a vacuum around self on-boarding, which needs to be addressed.

DigiLocker, KYC, digital KYC, online Aadhaar, offline Aadhaar, know your customerDigiLocker is now considered a verified document, which is also a huge step ahead for the industry.

Becoming a customer or purchasing any product or investment scheme from any institution, especially financial institutions, requires one to undergo certain documentation formalities before completing the transaction. The institution makes the individual comply with the rules of know-your-customer (KYC) in order to establish the identity of the person before on-boarding them.

The Prevention of Money-laundering (Maintenance of Records) Rules, 2005, have been recently notified on August 19th. The notification is a step forward placing DigiLocker at par with other existing offline, online KYC methods. DigiLocker is a government initiative that allows documents to be stored digitally and accessible to the user and other entities after proper verification and authentication. It basically helps in removing the need for paper documents for any KYC related activity or otherwise.

“We are happy with the fact that digital KYC has been mentioned for the first time in any of the circulars from the Department of Revenue, i.e. the PMLA 2005. This is certainly a welcome move. DigiLocker is now considered a verified document, which is also a huge step ahead for the industry,” says Saru Tumuluri, CEO of Khosla Labs.

There are provisions in case one is not able to complete the offline Aadhaar verification. “In that case, a live photo is needed which embeds details such as timestamp and geolocation, again an indication that a face to face meetings is indeed needed to complete KYC,” informs Shankar Palaniandy, Founder & CEO, FRS Labs.

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However, the new process may appear complicated and time-consuming as well. Presumably, there will be several rounds of communication and involvement of more entities. Is not the existing XML based verification a better route to digital KYC? “No. The XML KYC is a part of digital KYC system that has been laid out by the Department of Revenue. Offline KYC has a limitation because it can only happen when the consumers’ mobile number is fed within the Aadhaar record. And, with the sharing of Aadhaar number being optional/non-mandatory, this digital KYC circular covers all the other government ids as well,” informs Tumuluri.

Also, it remains to be seen how simple and faster will the digital process be in time to come. “While any clarification is welcome, on balance, I think the Digital KYC is not as simple as it seems. And capturing the photographs by Agents rather than a selfie (taken by oneself) could be seen as intrusive by some – as the user doesn’t get to see the image captured. The offline Aadhaar and Encrypted QR is simpler and safer as nothing further is needed such as wet signatures or photographs, however, lack of awareness on these methods by consumers could be a dampener,” says Palaniandy.

Self on-boarding

All the various KYC methods are agent onboarding in nature and are does not have any provision for self on-boarding. “The document and its steps primarily cater to the agent onboarding model. There is a vacuum around self on-boarding, which needs to be addressed,” says Tumuluri.

Palaniandy adds, “A profound setback has been the lack of non-face to face digital KYC process that the industry as a whole has been anticipating for a while now. Unless anything changes immediately, for the moment, the regulators will toe the line in making KYC, digital or otherwise, a face to face affair.”

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