KYC: Take KYC seriously: RBI’s clear message to fintechs

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The Reserve Bank of India wants fintech startups to strictly follow the customer verification guidelines while onboarding new clients. Central bank officials conveyed this message to industry representatives during multiple meetings over the last couple of months.

RBI officials have made it clear that there will be no climb down from the stringent KYC (know your customer) requirements for companies operating in this space, said people who have been part of such meetings.

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“The RBI wants video KYC to be used as a primary mode of digital customer onboarding, with all other document collection processes like offline Aadhaar validation, centralised KYC, documents issued via Digilocker to be used as ancillary checks,” said the founder of a fintech startup.

KYC normsETtech

One of the latest meetings took place last week where top executives of digital lending startups sought some relaxations around KYC requirements, but the RBI remained steadfast in its position.

Also read | RBI’s stricter KYC rules may slow merchant onboarding 90%: experts

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“The regulator has been engaging positively with the industry over a bunch of issues, but KYC is something that seems to be non-negotiable,” said a top executive who was present at the meeting.

RBI on P2P lending

Peer-to-peer lending was discussed in the meeting and the RBI was open to understanding the challenges faced by the industry. But it wanted the sector to strictly abide by regulatory restrictions, said another person who was also present at the meeting.

The RBI did not respond to ET’s request for comment.

P2P startups have been facing regulatory action over the last few months which forced them to shut down some of their products.

The RBI could relook into the First Loss Default Guarantee (FLDG) guidelines which are currently operational for co-lending, this person said. The central bank has mandated a 5% FLDG on disbursals, but the sector asked for FLDG calculations to be made on the assets under management (AUM).

Also read | No default loss cover diktat by RBI to hit peer-to-peer lending startups

“In case of short-duration loans, the AUM goes down, but disbursals climb up exponentially. The industry had requested the RBI to look into the matter, to which the regulator said that given the norms have just come out, they would want it to get stabilised first,” the person said.

Pulling up payment startups

The RBI has taken a strong stance with regards to KYC for payment startups too. In April, the central bank suggested imposing bank-grade KYC for payment aggregators like Pine Labs, CCAvenue and Razorpay.

“The industry representatives had met the RBI a few weeks back to present the challenges for fast-growing payments companies in the case of full KYC implementation, but we have not heard back from the regulator,” the chief executive at a payments firm said on the condition of anonymity.

Overall, the banking regulator has hardened its stance on verification of customers. Be it consumers or merchants, the RBI wants full KYC to be undertaken by fintech startups. The move will help clean up the sector, but also cause cost of operations to go up for fintechs, say industry insiders.

“We will face a major slowdown in new client onboarding, also will suffer a major cost surge but what we understand is that this is the cost of doing business in the financial services space,” said the fintech founder cited earlier in the story.



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