Fintech Tracker: Can e-KYC Service Providers Like Finahub Ride The Aadhaar Wave?
Finahub Technology Solutions, a Kerala-based software technology solutions company, is riding a building wave in financial services–the increasing use of Aadhaar-enabled e-KYC (know your customer) by banks and non-banking financial services (NBFC).
The collection of KYC information is a mandatory condition for opening of accounts with banks and other financial services companies. This involves customers giving a bulk of documents to prove identity, date of birth and proof of address. But as a number of digital financial services models started to emerge, a need was felt for a paper-less contact-less way of identifying and knowing a customer.
While e-KYC has been considered valid since 2013, it has been slowly gathering steam. Last year, the Reserve Bank of India (RBI) allowed the opening of accounts through an e-KYC process using a one-time password (OTP), which could be used by those who held a unique identity number or Aadhaar card. Since then the government has intensified its push for digital payments, making the e-KYC process ever more relevant.
For companies like Finahub, who provide software support for e-KYC, this provides a business opportunity, albeit one which threatens to get commoditised soon.
“Aadhaar, as an identity provider, has huge potential. We saw that there was a need for software that uses Aadhaar-enabled technology. So we are providing that,” said Rajesh Sukumaran, co-founder and chief executive officer at Finahub.
What we do, is that we provide the technology that is needed to do the e-KYC and the e-sign. The rest of the application would be the bank’s own application. Our services would be plugged into those applications.Rajesh Sukumaran, Co-Founder & Chief Executive Officer, Finahub
How Does e-KYC Work?
Let’s first list out the different players in the process. The most important player, of course, is the Unique Identification Authority of India (UIDAI), that facilitates the authentication of Aadhaar information. On the other end of the spectrum is the user of the financial service, the applicant, and the sales representative of the bank, who initiates the process.
The bank or the financial institution is a KYC User Agency, and must first register with the UIDAI. The intermediary, called a KYC Service Agency, transfers the confidential Aadhaar information in an encoded form from the user to the UIDAI, and then back to the bank’s server.
The software solutions provider, in this case Finahub, provides software that connects all the points in the chain.
To initiate an e-KYC account opening, the bank representative, using a mobile application fills out an application form on behalf of the customer, who then records his or her fingerprint on a biometric scanner, said Sukumaran.
Once the user has provided his or her consent to the UIDAI to share their Aadhaar information with the bank, a request is sent to the agency. The request is transmitted to the UIDAI by the KYC Service Agency, and once it is vetted, this information in a secure form is sent to the bank server. This entire authentication, Sukumaran said, takes a few seconds.
Once this is done, the user’s photo, Aadhaar number, and address are recorded on the bank’s server, and the KYC is considered to be completed. Additional information can be collected by the representative, and finally a PDF document with all the relevant information is created.
How Does Finahub Make Money?
Finahub earns its revenues through licencing fees and annual maintenance contracts, said Sukumaran. This licence involves the entire process starting from the registration of the bank or NBFC as a KYC User Agency, he said.
The company also offers an Aadhaar e-sign facility as an add-on service. If this option is chosen, once the e-KYC process is complete, the bank’s representative asks the customer to scan his fingerprint a second time.
“With this, the PDF with all the customer’s details will be uploaded to the server. This information is then passed on to the e-sign service provider, the certifying authority,” said Sukumaran, explaining the process of creating an Aadhaar e-sign. “The certifying authority then does another e-KYC check, and then digitally signs the PDF on behalf of the customer.”
This signature is unique to that one instance, but the process can be used for multiple transactions as an alternative to a wet signature, he said.
Of Finahub’s 22 customers, Ujjivan Small Finance Bank is one that uses both Finahub’s Aadhaar e-KYC, and e-sign solutions.
A Crowded Space
Sukumaran admits that his company is trying to find its own spot in a marketplace that is already extremely crowded. Large information technology companies, like Tata Consultancy Services, and Wipro currently dominate the market for e-KYC, said Sukumaran.
If you look at the Aadhaar space, the obvious thing would be that there is this opportunity, and every one sees it. A huge number of people have spotted it and have jumped in.Rajesh Sukumaran, Co-Founder & Chief Executive Officer, Finahub
Also security concerns continue to dodge the use of Aadhaar based processes including the e-KYC process.
A private sector banker who requested anonymity pointed out that security concerns have meant that the e-KYC process cannot be fully automated. A representative of the bank must still be sent to meet the customer and ascertain his or her authenticity.
While banks can now introduce applications that allow for completely digital account opening, like in the case of Kotak Mahindra’s 811 mobile application, such accounts are bound by restrictions, including a cap on deposits and loan sanctions.
The banker said that while the entire banking sector is focused on going digital, there is a limit to the extent to which software and technology can take over banking processes.