e-KYC: Will it Solve Digital Identity issues?

KYC or Know Your Customer is an important procedure that businesses, financial institutions, and government agencies carry out for customer authentication. The introduction of e-KYC has come as a welcome change that has not only reduced the time and cost but has also reduced the chances of fraud and helped in information protection. The e-KYC Authentication facility was introduced under section 11A of the Prevention of Money Laundering Act, 2002. This has turned out to be an important milestone for the financial industry.

The government’s primary aim behind the introduction of the e-KYC provision was to prevent money laundering using encrypted data storage. So far, this provision has been regulated by SEBI, RBI, and IRDA. While e-KYC is functional for banks, insurance agencies, and some other financial institutions in India, it is not yet permissible for NBFCs.

• As of January 9, 2020, RBI allowed video KYC (or V-CIP) for customers of financial institutions making India the first country in the world to do so.
• It also allowed for customer’s video call screenshots or live photo as identification proof to complete the KYC process.
• According to the RBI, the live V-CIP would be conducted by a Reporting Entity (RE) official to launch an account-based relationship with an individual customer.
• This also allows for geotagging (capturing of the live location) of the customer (Geotagging) to ensure the customer’s physical presence in India.
• The AV interaction required for a live V-CIP must be initiated by the RE only and not by any third party.
• Along with the activity log and credentials, REs also have to preserve the video recording along with a date and time stamp.
• Business correspondents (BCs) have been allowed by the RBI to facilitate a V-CIP process but at the customer end only. Meanwhile, at the other end, it has to be a bank official.

Benefits of e-KYC, V-CIP, and the Resulting Financial Dynamics

This change is monumental in many ways as it has opened up many doors for financial institutions across the country. Ever since their inception, e-KYC and V-CIP have witnessed quick adoption by the industry due to:

• Reduced Costs: e-KYC is far more cost-effective as compared to a regular, conventional full KYC procedure. Aadhaar-enabled e-KYC could save more than Rs 10,000 crore in the next 5 years for banks and telecom operators alone.
• Increased Convenience: With the elimination of any physical movement, e-KYC and V-CIP have made the authentication process far more convenient using a zero-knowledge system.
• Effective Fraud Protection: Digitization has indeed added the safety element by protecting documents used in authentication, especially for financial institutions. The financial frauds in India dropped by 32%; from Rs 9,886 crore in FY 2017-18 to Rs 6,735 crore in FY 2019-20.
• Speed and Ease: The speed itself is one of the biggest assets of e-KYC that is changing the way authentication works for most financial institutions.
• Paperless, Digital Approach: By making authentication a paperless process, e-KYC is pushing forward a new era of finance where the costs and time incurred in paperwork would be reduced significantly. Also, the digital approach is more secure and resistant to damage with the help of encrypted data storage.

Currently, the documents required for e-KYC and/or V-CIP are only the Aadhaar and the PAN card. The presence of PAN is especially critical for the opening of a DEMAT account.

Role of Certifying Authorities (CA) like NSDL or CDSL, and basic authentication workflow

In India, NSDL and CDSL are the two main depositories that hold securities such as shares, bonds, and Mutual Fund units in electronic form (a.k.a. dematerialization of shares or DEMAT account). They are responsible for securing people’s securities along with the record of all the trades. Their role comes into play from the time an investor makes a decision on investing.

Basic Authentication Workflow

CDSL’s internet-based facility Easiest (Electronic Access to Securities Information and Execution of Secured Transactions), facilitates the BOs (Beneficial Owners) for submissions and early pay-in instructions from anywhere.

• The BO must first register via www.cdslindia.com.
• The registration form is supposed to be submitted to the Depository Participant (DP) for authentication but before that, it must contain signs from all the joint holders.
• Also, this submission must take place within 90 days of the registration.
• The DP begins authentication with the Easiest registration.
• The BO, then, receives the password through the registered email ID.

KUAs, AUAs, and KSAs

For the smooth implementation of e-KYC, it takes more than one mode to assist. KUAs, AUAs, and KSAs are vital players of the e-KYC dynamics that ensure flawless execution on both ends.

1. Authentication User Agency (AUA): An AUA is an agency that uses Aadhaar authentication to enable its services and connects to the UIDAI’s Central Identities Data Repository (CIDR) through an ASA.
2. KYC User Agency (KUA): A KUA is a residential service agency. They access the e-KYC service through KSA. Every KUA is also an AUA.
3. KYC Service Agency (KSA): The KSA provides connectivity to the UIDAIs CIDR. Every KSA is also an ASA.

Growing Use Digital Identity Verification in Non-Financial Sector

While the financial sector is thriving on the prospect of freedom coming with e-KYC, the non-financial sectors are also opening up to the concept. Digital Identity authentication is something that extends well beyond the boundaries of finance.

• E-KYC need not stay limited to Fintech, banking, and insurance.
• Use cases like car and home rentals, mobile number registration, professional licensing, and even academic certification can use e-KYC for authentication while protecting documents.
• The ease and security of e-KYC and V-CIP can facilitate many more innovative uses.

Cove Identity, your private Digi locker, aids you in Information Protection using its zero-knowledge system for verification using Aadhaar enabled e-KYC, video-KYC, bank account verification, PAN verifications, email verification, phone verification etc. Integrating customer information with banks & depositories for instant online verification and biometric authentication are some of the key functions of Cove Identity.

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