In the month of February, only 10 percent e-wallet’s customers had got their KYC done, before the end of the deadline for digital wallet companies to fulfill KYC norms, as per media reports.
This put the digital payments companies to worry. They anticipated that strict government regulations would throw them out of the business. Their concern seemed appropriate.
Paytm, the biggest fintech player has now been able to complete know-your-customer (KYC) process of only 100 million wallet users till now after the end of Feb 28 deadline. The company claims to have over 300 million customers.
How was it achieved?
In October 2017, the RBI had directed prepaid payments instrument (PPIs) or digital wallets to complete full KYC of their users. Wallet users were required to submit Aadhaar, permanent account number, driving licence or any other valid government ID.
After the October announcement Paytm decided to increase the ground workforce and open one lakh branches across the country to make it easy for its customers to complete their Know Your Customer (KYC) norms.
However, several users also opted for getting minimum KYC done through the Paytm app by submitting Aadhaar number, permanent account number, or driving licence number, among others.
This meant that users can open a wallet account with the basic one-time, password-based KYC, and the maximum amount the user can hold will be limited to Rs 10,000.
With minimum KYC, users can only use their mobile wallets to make commercial transactions like paying for a cab ride or electricity, but cannot make person-to-person payment. Transferring money to the bank is also not permitted by minimum KYC.
How will the fintech companies be affected?
The problem for fintech companies is going to increase as Unique Identification Authority of India (UIDAI) revoked access of some of the fintech companies to e-KYC verification and authentication services in early April.
Fintech startups across the insurance, lending and broking sectors had reported non-access of the abovementioned services. As a result of the latest development, these firms will no longer be able to provide e-KYC upgradation to onboard new customers.
The Supreme Court had raised concerns regarding several unregulated entities accessing the database during the hearing on privacy concerns around Aadhaar. These services are expected to remain suspended till the conclusion of the case in the Supreme Court.
The denial of services would make e-KYC process expensive for fintech firms as the move will see an increase in operational costs for a period unknown to the players.
Online stock brokers, who onboard clients through eKYC and online insurance agents, could also be affected.
While established fintech companies can get authentication registration from UIDAI in the future, early-stage startups might be left out, some fear.
Also Read: Indian Fintech Start-Up Rises High In This Year’s Forbes 30 Under 30!
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