India introducing more stringent KYC rules for financial industry

India’s financial sector is beefing up its Know Your Customer (KYC) protocols under pressure from regulators.

Financial institutions aim to add more verification layers for identifying accounts and account holders. Multiple accounts opened with a single phone number will receive special attention.

Banks will also require heightened verification from individuals who have multiple accounts opened with different identification documents, The Business Standard reports.

The clean-up comes amid increasing scrutiny of popular payment apps such as Paytm over lax KYC and Anti-Money Laundering (AML) enforcement.

In February, the Indian government established a committee to standardize and enforce KYC rules across the industry. Currently, financial institutions allow for verifying account holders in multiple ways, including passports, Aadhaar, voter cards, NREGA job cards, Permanent Account Number (PAN) cards, or driving licenses. The committee, working under the Ministry of Finance, is aiming to achieve “inter-usability of KYC records across the financial sector.”

Another identity verification factor that could be an option for KYC is iris biometrics, which Indian banks are reportedly considering to secure transactions by senior citizens, according to the Times of India.

In 2016, India introduced the Central KYC Records Registry (CKYCRR) which holds interoperable and unified KYC records. The database, however, is restricted to the securities market and cannot be used for opening bank accounts.

Meanwhile, KYC rules are changing in other domains. India’s central bank has published draft regulations this month outlining KYC procedures for payment aggregators and small and medium-sized merchants.

Payment aggregators, which allow payments between the merchant and consumers, will have to conduct Contact Point Verification (CPV) and verify bank accounts in which the funds of small merchants are settled. For medium-sized merchants, payment aggregators will perform Contact Point Verification (CPV) and obtain and verify one officially valid document of the business owner and the business, according to The Business Standard.

India Stack is reducing the cost of KYC: IT Minister

India has been promoting its vision of Digital Public Infrastructure (DPI), especially during its presidency of the G20 last year. Last week, its achievements were presented at the UN’s first international conference on DPI held under India’s leadership in New York.

During the conference, Minister for Electronics and IT Ashwini Vaishnaw shared how India Stack’s digital tools, including digital identity, digital signature, and digital locker, have enabled the unbanked to access financial services and improved KYC processes.

“The cost of KYC has reduced dramatically from about $7 to just less than four cents. This has enabled engagement of 510 million bank accounts for people who were earlier unbanked,” he says.

India has established a global repository for DPIs collecting 55 projects from 16 countries. The country has pledged US$200 to accelerate DPI adoption, especially in developing countries, adds Vaishnaw, who is also the Minister for Railways and Communications.

Earlier this month, the Ministry of Electronics and Information Technology launched an initiative with the support of the World Bank to measure DPI adoption in individual Indian states. The index will analyze gaps in the digital economy and financial inclusion.

Article Topics

biometrics  |  digital public infrastructure  |  financial inclusion  |  identity verification  |  India  |  India Stack  |  KYC