Uniform KYC is a process where digital customer records will be shared among various financial institutions seamlessly- It can reduce the burden of repeated
KYC processes for the customer or the organisations - The new proposal is aimed towards removing the silos in KYC done by various
financial services players in the country
But, what is uniform KYC and how does it work? To understand this, we must decipher the challenges with the current system.
Issues with the present KYC process
The current KYC practices are not up to the mark in terms of being user-friendly or secure. The process is mandatory for many financial actions, including opening a bank account, investing in the stock market, or buying a life insurance policy. Yet the process is not smooth, to say the least.
“KYC in India has always been complex. Financial institutions need to know who they are doing business with, and fraudsters are always trying to break the system,” says Paritosh Desai, Chief Product Officer, IDfy, a digital onboarding platform.
There are currently three major issues with the current KYC regime.
First, it’s expensive. Lenders have to constantly update their systems and processes to comply with the KYC guidelines and it is expensive to make these large-scale changes all the time.
Second, it’s obtrusive. “No customer likes paperwork and strict KYC norms dictate that each borrower must submit the same 5 documents to multiple lenders if they are, for instance, applying for a loan across lenders to get the best offer,” says Deshpande.
Third, the current process is inflexible. There is no scope for banks or any institution to alter the process depending on the risk profile or vintage of the customer. Hence, it leads to suboptimal user experience that leads to drop-offs and lower Net Promoter Score (NPS) or the likelihood of recommending a given platform.
How can uniform KYC benefit you
The freedom and ease of choice for consumers for financial services have been a key focus for regulatory bodies recently. “The honourable finance minister is taking progressive measures to help battle fraud while reducing friction,” says Paritosh.
The process of uniform KYC will allow financial institutions to verify customers through a relatively simpler means with access to inter-usable, digital KYC records across the financial sector. This can eliminate the need to undergo the same KYC process multiple times for users like us.
“The new proposal is aimed towards removing the silos in KYC done by various financial services players in the country,” says Rajat Deshpande, CEO & Co-founder of FinBox, a credit infrastructure company.
Currently, a similar process called the Central KYC Records Registry (CKYCR) has been available in the capital markets since 2016, wherein the investors need not go through multiple KYC processes for investing in various types of financial assets.
“Through the uniform KYC customers don’t need to verify their documents repeatedly and it will lead to a time-saving benefit for them,” says Arpit Ratan, Co-founder & CBO, Signzy, a fintech company.
Uniform KYC will not just benefit customers but will be a win-win situation across the board.
“The initiative enables interoperability of KYC records, facilitating customers to utilise verified information across multiple financial services. This in turn reduces the turnaround time for financial institutions and ensures consumer protection in the utmost manner,” says Rohit Taneja, Founder & CEO, Decentro, an API banking platform.
Therefore, the days of hassle getting your KYC verified at multiple financial institutions may finally be over if the proposal goes through.