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 —

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.

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.

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 —

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.

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 query@finbox.in and avail a free trial.

For any unanswered questions, please feel free to contact me at harsh@finbox.in