While the government’s move to bring in an ordinance to allow voluntary use of Aadhaar for KYC (know your customer) has come as a relief to the banking and telecom sectors, fintech companies are unsure if the step will benefit them.
Even after multiple representations, non-banking payment companies appear to have been excluded from the ordinance for Aadhaar-based customer authentication, industry executives told ET.
“Section 25 of the ordinance makes it clear that authentication under Aadhaar or eKYC is only allowed for banking companies,” said Sunil Kulkarni, joint managing director of Oxigen Services India. “The good news for fintech companies is that through the ordinance, addition of offline Aadhaar verification use has been incorporated and is broad-based to include financial services and not just subsidies and benefit payments.”
This stems from the reading that the ordinance allows only banking companies to get access for verification under the Aadhaar Act. Offline verification will be available for ‘reporting entities.’
Industry executives said payment companies might reach out to the Reserve Bank of India to understand the next step in the KYC process.
“The PMLA (Prevention of Money-Laundering Act), which was just passed alongside the Aadhaar amendment, allowed only banks to authenticate using Aadhaar. For other financial sub-sectors to avail of Aadhaar, the PMLA must be updated and passed either as an ordinance or by parliament,” said Ashok Hariharan, chief executive of IDfy.
Permission to use offline Aadhaar could emerge as a ray of hope for fintech companies, many of which are burdened with paper-based documentation process for customer authentication.
Kulkarni of Oxigen said that in order to implement paperless KYC for non-banks, offline Aadhaar verification as a valid KYC would need to be incorporated in the RBI’s master direction. As of now, the RBI has not approved the alternative offline authentication methods.
The industry is now looking towards the regulator and the Central government to clarify the extent to which Aadhaar can be used by non-banking financial service companies.
“The industry believes that the government, UIDAI (Unique Identification Authority of India) and regulators would now initiate the process to allow eKYC and biometric authentication for payment companies, NBFCs, mutual funds, insurance and the rest of the fintech world covered under PMLA as envisaged in the ordinance,” said Naveen Surya, chairman of Fintech Convergence Council.
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