Indian government considers opening Aadhaar biometric KYC authentication to fintechs

Digital financial services companies in India may soon be able to authenticate customers with biometrics using Aadhaar, as The Economic Times reports a memo circulated by the finance ministry’s department of revenue shows the central government is considering allowing them to use Aadhaar for e-KYC checks.

According to the note, if non-bank financial service companies follow the privacy and security standards of Aadhaar they could be given access to the database. Fintech firms are bound by the Prevention of Money Laundering Act of 2002.

“Any reporting entity which desires to carry out authentication of the client’s Aadhaar number using eKYC authentication facility needs to be notified under these provisions,” the note says, according to ET, which reviewed a copy. The note has been sent to the Governor of the Reserve Bank of India (RBI), the chairman of India’s Securities and Exchange Board, and other financial regulators.

“Reporting entities” would have to undergo a three-step process to satisfy regulators and the UIDAI (Unique Identification Authority of India). The companies would need to first obtain permission from the body that regulates them, such as the RBI for payment and lending companies, and Sebi for stock brokers, and separately from the UIDAI, and then from the finance ministry.

Biometric KYC authentication would still need to be performed in-person, with OTP verification available as a temporary Aadhaar-based alternative.

“While it requires a three-step process at least now (we) will get access to the Aadhaar database (and) will be able to do KYC remotely,” online Indian credit marketplace Bankbazaar CEO Adhil Shetty told ET.

Digital financial companies have been placed in a difficult position after new rules for banks and telecoms to comply with the Supreme Court’s decision last year to strike down parts of the Aadhaar Act relating to its use by private companies were set down without including fintechs, according to the report.

Industry body the Payments Council of India said opening Aadhaar for eKYC checks by fintech firms will create opportunities for financial innovation and inclusion.

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