The eKYC dilemma and road ahead for IndiaStack | Blog
The Supreme Court’s verdict on Aadhar has put the scope of Aadhar-based eKYC in jeopardy. The ruling meted out by the Supreme Court restricts private firms from using Aadhar services to verify a person’s identity and deemed such acts as unconstitutional.
While the Apex Court’s ruling can be seen as a bid to protect individual privacy, the complete curtailment is a big blow to several service providers that relied on Aadhar-based eKYC to establish an individual’s identity.
In 2012, UIDAI, The Aadhar governing body, launched eKYC, which enabled online verification of Aadhar identity through biometric or OTP. Since its launch, telecom companies, financial enterprises and startups have leveraged eKYC as a part of their customer onboarding process.
Thus, from opening bank accounts to getting a SIM from a telecom service provider, applicant verification was done through eKYC, which was an overnight success. The sale of JIO SIM cards as well as the PayTM accounts is testimony to the scale at which eKYC was successfully operating.
IndiaStack primarily comprises 4 layers:
- The presenceless layer
- The paperless layer
- The cashless layer
- The consent layer.
These layers are a set of APIs that determine the outcome of a request. eKYC was built on the presenceless layer. Through eKYC, easy authentication was simple because it allowed real-time verification and processing of data. Furthermore, self-authentication and consent avoided identity impersonation, thus curbing fake accounts. Data capture through forms made documentation a lengthy, manual error-prone procedure. eKYC abolished manual data entry as well as enabled paperless operations.
The Verdict and the subsequent challenges:
Previously, section 57 of the Aadhar act allowed private companies to leverage biometrics for individual identification. The Supreme court now states that the use of Aadhar by private firms for determining identity of a person is unconstitutional. With this verdict, private firms will now have to source other methods of identification and verification for customer profiling.
|Time taken for customer onboarding||30 mins||5-6 days depending on resource availability|
|Time taken for verification||Less than a minute||24-36 hrs|
|Processing Cost||15 INR||100 INR|
|Resources||Online authentication using APIs||Agents/Officers who will manually verify these details|
Withholding the use of eKYC will also increase the costs involved for documentation and physical resources for service providers.
The following are the possible alternatives to eKYC:
- AI-based eKYC
Fintechs and service providers are looking at AI-based alternatives for customer profiling. This includes facial recognition using by submitting images on an app in real time and tested for liveness – the process of identifying whether an image is a real image or a photograph. This, however, will require establishing AI-based infrastructure and resources for the providers and will only work for digitally-informed customers, which leaves out a huge majority of the population.
- Video KYC
Lenders are also looking at exploring video-based KYC, where potential customers can submit their videos on a web- and mobile-based platform, allowing for live verification of personal information.
- QR code scanning
The Aadhar website allows the download of QR codes, which will be unique for every individual and can be submitted to the service provider, who can then scan these codes and capture the required details. The QR code data comprises photo and demographic details. This entire verification thus can happen online and protects personal privacy, which was the purpose behind the Supreme court Verdict.
- Local eKYC
One can download their Aadhar details from the Aadhar website in an XML file and submit it to the service provider, which can be verified offline using a suitable software. This proof is in a digitally signed format and has all the necessary demographic and personal details to that will help in building customer profile, without compromising their privacy.
While alternatives to eKYC are being sourced and implemented, their success still remains questionable. A YES Bank survey revealed that about 69% of startups were using Aadhaar eKYC. Whether other modes of KYC will achieve this scale is unknown. Only once the implementation occurs on a massive scale, their viability can be tested. As for Indiastack, UPI and Aadhar still hold prominence but the future of Aadhar-based eKYC remains bleak.