September 26th 2018: Supreme Court (SC) passed a landmark judgement on the constitutional validity of Aadhaar Act, which was challenged on the concerns of privacy and mass surveillance.
SC verdict had two major implications on KYC norms —
e-KYC had led to
85% reduction in customer onboarding costs and 50% reduction in customer onboarding time
and discontinuing it will significantly affect profitability of service providers
SC upholding Aadhaar’s constitutional validity makes it the
only government id with more than 1.22 billion subscribers and >90% adult-population coverage
Rising costs and lack of an alternative government ID has driven the regulators (RBI & UIDAI) to come up with Aadhaar based yet digital KYC mechanism.
In this piece, we cover the various alternatives considered by RBI & UIDAI for Aadhaar based Digital KYC and how can the Banks, NBFCs and Digital Lending startups integrate these alternatives in their journey.
What are the alternatives?
UIDAI & RBI are contemplating multiple alternatives to the e-KYC —
Video Based KYC
There are two approaches to it —
Live Video Based
: The customer and the service provider communicate over a live video, where the customer is asked to perform basic activities. Based on the responsiveness of the customer, the representative decides whether the KYC is successful or otherwise
Recorded Video Based
: The customer is asked to perform basic activities in front of a camera.
Artificial Intelligence algorithms in the back-end classify the video as a successful KYC or otherwise
. Edge cases, where the algorithms fail to classify the video can be forwarded for manual classification
Regulator’s stand: According to reports, Video Based KYC is being considered strongly by RBI. RBI also has a clear preference for Live Video KYC over the Recorded Video KYC.
How to integrate: Video based KYC can be performed in web, smartphone and branch journeys. A portal for starting the video must be made available to the user. Live Video Based KYC further requires a back-end team to validate the video.
Aadhaar XML Based KYC
UIDAI’s “Aadhaar Paperless Local e-KYC” allows customers to download their Aadhaar details sans the Aadhaar Number in a share code protected XML file. Customers can choose to share the XML with a service provider along with the password. UIDAI’s digital signature in the XML provides authentication and verification of the digital signature concludes the KYC.
Regulator’s stand: UIDAI proposed the Aadhaar XML and share code combo for KYC by private organizations. RBI is considering to adopt Aadhaar XML as an industry standard because of its simplicity and industry’s readiness to adapt to the solution.
How to integrate: A smooth journey for downloading and sharing the Aadhaar XML must be made available to the customers in the smartphone apps, web and branch onboarding journeys. Capabilities to extract information from the XML & verifying UIDAI’s digital signature need to be developed.
Aadhaar QR Based KYC
UIDAI updated the QR in Aadhaar cards for offline verification. These QR codes are denser and contain demographic data and photograph of the card holder. The QR is also embedded with UIDAI’s digital signature for authentication but the digital signature can only be verified using UIDAI’s QR code reader application.
Regulator’s stand: RBI considered QR initially but have now tilted in favor of Aadhaar XML & Live Video KYC. Unpreparedness of the industry and reliance on UIDAI’s QR code reader (which isn’t available for smartphones/tablets) for authentication are cited as the reasons behind the RBI’s shift in stance towards QR.
How to integrate: Can only be deployed for assisted onboarding since the UIDAI’s QR scanners can’t be deployed on smartphones. Additionally UIDAI’s QR scanners must be made available at all locations providing assisted onboarding service.
Please find the references used for developing the analysis here.
FinBox e-KYC 2.0
FinBox e-KYC2.0 is a fully compliant and a developer friendly product which solves KYC, data extraction and fraud detection for digital lending startups and NBFC’s. It is available for both web & smartphone app based customer onboarding and takes less than 5 minutes to integrate.
FinBox e-KYC 2.0 is a product suite consisting of the following features —
Video Based Solutions
FinBox e-KYC 2.0 is equipped with video based KYC options. The customer is asked to perform basic tasks like blinking, turning, raising hand etc for a specified number of times.
Video is captured and analyzed to authenticate the identity of the customer and mitigate fraud attempts. The results are further authenticated by matching the face of the customer against the image extracted from a government id.
FinBox offers both AI-assisted and Live-Video based solutions.
Aadhaar based KYC
FinBox e-KYC 2.0 consists of various modules for legally fetching the Aadhaar details and validating them.
Aadhaar XML: FinBox allows the user to download the Aadhaar XML via a much simplified journey (1-click process), in the context of the customer onboarding journey and share it with the relevant private party.
XML based verification provides the Name, Father’s Name, Address, Gender, and Date of Birth. XML further provides the registered mobile number and email address as hashed values, which can be used to validate the customer’s details.
User can also choose to download the same on her device followed by uploading the same on the private party’s designated portal.
FinBox eKYC 2.0 authenticates the details from XML by validating the digital signature.
Digilocker: Digilocker is a service offered by Government of India that enables Indian citizens to store certain official documents on the cloud. Aadhaar, PAN, Driving License etc. are available in Digilocker. The documents are authenticated using two digital signatures, one by Digilocker and another by the document issuing authority and are validated for document authentication.
FinBox eKYC 2.0 also allows customers to sign-up for their Digilocker account through a 1-click process.
To power your business with a SC and RBI compliant and completely paperless KYC mechanism, please reach out to email@example.com and avail a free trial.
For any unanswered questions, please feel free to contact me at firstname.lastname@example.org