The Reserve Bank Of India’s (RBI) decision to introduce ‘Low KYC’ (Know Your Customer) PPI (Paid Payments Instruments) accounts has come as a huge relief to the FinTech companies operating in India. The new decision was introduced on the 5th of February 2020 which will allow the customers to continue using their mobile wallets to make payments. The RBI had put restrictions on the limits of transactions earlier. They wanted the FinTech companies like Amazon Pay, Paytm and PhonePe to adhere to the ‘Full KYC’ option by the 29th of February 2020.
Supreme Court Ruling: The Issues Faced By FinTech Companies
- In 2018 the Supreme Court of India had prohibited NBFCs and Telcos from onboarding new customers using Aadhaar ekyc as an authentication tool.
- As a result, it was quite challenging for FinTech companies to onboard and retain customers.
- Using physical KYC for customer onboarding was quite expensive and time-consuming.
- The FinTech companies kept writing to the Reserve Bank of India to seek alternative methods of KYC for customer onboarding.
- This was to make the process simpler and to cut down the excessive costs.
Aadhaar ekyc And Aadhaar Authentication
The Aadhaar ekyc issued by the UIDAI (Unique Identification Authority of India) is currently considered one of the most authentic of all documents to prove the identity of a resident in India.
- This ekyc contains the individual’s personal details, biometric and demographic information along with a 12 digit unique number for identification.
- The identity of the Indian resident can be established through the process of Aadhaar authentication.
- Through Aadhaar authentication the person’s identity gets verified by submitting his/her personal details and biometric information to the UIDAI.
‘Low KYC’ PPI Account
- According to the RBI, the PPI customers can now convert their 'Minimum KYC' PPI accounts to a 'Low KYC' PPI account.
- Now those PPI customers who are not ‘Full KYC’ compliant can continue to operate their accounts.
- The account users can make transactions up to Rs.10,000 every month.
- There are around 200 Million PPI account users who are not fully KYC compliant.
- The ‘Low KYC’ PPI accounts will be a relief to these mobile wallet users.
- The FinTech companies will take the consent of their customers before converting their PPI accounts to ‘Low KYC’.
How Fintech Companies Are Going To Benefit From The New Ruling By The RBI?
- There had been around 40%-45% decline in financial transactions with the RBI’s introduction of norms that required ‘Full KYC’ compliance.
- During the first 12 months, the RBI did permit ekyc.
- However, ‘Full KYC’ was made mandatory after that.
- With the introduction of 'Low KYC,' the FinTech companies are expected to see a major turnover of customers.
- To simplify the regulatory system for the FinTech companies the RBI has taken a step.
- The RBI has made provisions to allow those accounts that are not KYC compliant to make financial transactions through their PPI accounts.
- The mobile wallet users (Paytm, Google Pay, Amazon Pay, PhonePe etc.) with no KYC compliance can now make transactions up to Rs. 10,000 under the ‘Low KYC, norm set by the RBI.
The FinTech companies seem to have accepted this new ruling from the RBI positively. The central bank wants the FinTech companies in India to make use of all the emerging technologies like face recognition, face matching and Artificial Intelligence (AI) to ensure that the KYC process is done with integrity and the details furnished by an individual are authentic.
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