Fintechs say that higher costs and a weak technology infrastructure has made the know-your-customer (KYC) process very difficult.
In recent months, there has been more attention paid to adhering to Know-Your-Customer, or KYC, standards after the Reserve Bank of India imposed penalties on fintech and banks that have not done so. The most recent example of a bank in trouble is Paytm Payments Bank, which is facing other compliance concerns in addition to non-compliance with KYC regulations.
The procedure itself is still difficult, though, particularly for those who wish to grow their companies into tier-3 and other regions of the nation. Fintechs claim that the know-your-customer (KYC) procedure has become very challenging due to increased expenses and a shoddy technological infrastructure.
Instant loan services have been impacted by these stringent KYC requirements, making it more challenging for fintechs to streamline customer onboarding processes and offer quick financial solutions to a broader market.
In April 2023, the Reserve Bank of India’s (RBI) brought in an important amendment in KYC norms that has left lenders with no choice but to conduct a video customer identification process (V-CIP) or adopt an offline process, which has led to a rise in costs.
Due to a significant change in KYC regulations implemented by the Reserve Bank of India (RBI) in April 2023, lenders are now forced to either undertake an offline procedure or conduct a video customer identification process (V-CIP), which has resulted in increased expenses.
According to Digital Lenders Association of India Chief Executive Officer Jatinder Handoo, “the business model of fintech lenders is digital with minimal physical footprint, thus any physical due diligence in non-face-to-face customer onboarding increases the turnaround time and affects uptake of financial services.”
Concerns over the quality of the data in the database prompted RBI to take action. Due to stringent regulatory oversight and compliance mandates, lenders have chosen to employ either video KYC or the more costly physical KYC.
According to Fibe Co-Founder Akshay Mehrotra, “the minute we look at migrating to physical tools for doing KYC, it just drives the opex higher and many of the products may not make sense.”
According to industry estimates, a physical KYC might cost up to Rs 100, while a video KYC can cost anywhere from Rs 15 to Rs 30. However, it charges one rupee to obtain data from the C-KYC register, although looking through the data is free.
“Remember that compliance is of utmost importance. You cannot be non-compliant ever. You may let go of a few customers who cannot provide the right amount of KYC. That is the balancing act that needs to be done,” says Mehrotra.
Apart from the weak digital infrastructure in far-flung areas, experts highlight that some uncooperative customers have made the process more cumbersome.
“Regarding VCIP, challenges have been reported and we have communicated the same to regulator, one being related to weak soft infrastructure in tier 3 cities and below,” Handoo said.
“There is also consumer behaviour related issue If a VCIP session has to be redone due to any reasons, customers tend to lack patience and sometimes may walk away,” he added.
Experts believe that in this case, grading criteria according to ticket size and risk would assist make the process more economical. Fintechs may be permitted to access DigiLocker or C-KYC for small-scale loans in this case. However, for a greater ticket amount, a physical or video KYC may be utilized.
The digital transformation in the financial sector has spurred the growth of personal loan apps in India, yet the imposition of stricter KYC norms has posed significant challenges. The shift towards V-CIP and offline KYC methods has necessitated adjustments in customer onboarding strategies, impacting accessibility and efficiency in lending operations across diverse geographic regions and customer segments.
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