In India, a large percentage of people are devoid of financial services solely due to the lack of awareness and accessibility.
People with low financial literacy often develop misunderstandings and confusion about formal economic systems and distrust them.
Unless underbanked customers know why financial products exist, can access them, and understand how to use them, they might not leverage them entirely.
Earlier, financial institutions spent a significant chunk of capital doing in-person KYCs for verification purposes. Today with digitization, companies are adopting virtual modes of KYC, such as video KYC solutions.
Digital and mobile technologies, however, present significant opportunities for offering these services. About 1 billion Indians have mobile phone subscriptions, of which more than half live in rural areas.
A new era is beginning, as mobile phones give access to financial products to unbanked and underbanked individuals while driving innovations in financial services.
Now let’s examine how video KYC solutions can help India become more financially inclusive.
Financial Inclusion In India
After consulting with stakeholders, including the Government, the Reserve Bank of India created a composite Financial Inclusion Index (FI-Index) for the FY ending March 2021 that reflects the magnitude of financial inclusion across India.
This index measures how easy and affordable it is for individuals and businesses to access different financial products and services.
A series of digital initiatives have made banking services accessible to millions more Indians. For March 2022, the FI Index measured 56.4 compared to 53.9 on March 2021, and all subindices experienced growth.
Digital identity, blockchain technology, and AI will be analyzed at a Refinitiv summit focused on accelerating financial inclusion in India.
In India, 48% of bank accounts are inactive, according to the World Bank’s 2017 Global Findex Survey. Lending institutions are only licensed to issue 7% of loans.
Micro-businesses and Indians lack the credit history and collateral to qualify for loans. Although 86% of the currency in circulation at the time was removed in 2016, cash is still used widely.
This was an attempt to promote a shift away from a cash-based informal economy and reduce tax evasion.
It is difficult for rural residents to access the same banking benefits, credit options, and wealth management products offered to urban residents.
Cybercrime Strikes Financial Services
In 2020, more than 2.9 lakh cyber security incidents involving digital banking were registered to the Indian Computer Emergency Response Team (CERT-In).
These include network scanning, phishing attacks, website hacking, viruses, and network probes.
Fintech companies produce a large volume of data, so cyber criminals pay attention to them. A notable spike in digital payments has been seen due to the rise of e-commerce and NBFCs.
There is a risk of KYC leaks, frauds, cyber threats, and data privacy breaches in this sector, as sensitive customer data such as Aadhaar, demographics, PAN, and transactional details are stored on the cloud servers. Ransomware attacks or fraud can be committed using such valuable data.
It is also reported that fintech apps disburse fake loans in customers’ names even without their knowledge or permission. Various fintech apps have also disbursed fake loans without customers’ consent or knowledge.
Multiple financial institutions that are not cloud-native still need help to build a secure cloud infrastructure. Credit rating solutions and a secure data infrastructure are needed for vulnerable sectors.
Cybersecurity Through AI-Enabled KYC
Before Know Your Customer (KYC) became automated, customers had to meet agents or employees of financial institutions in person to sign and verify documents.
The digital KYC process has been revolutionized by fintech companies today, providing superior user experiences and triggering a new era of disruption.
The RBI approved it in January 2020 to implement the video KYC solution process. Through a live video interface on tablets, smartphones, or laptops, the simple online process authenticates the customer’s identity.
Before onboarding, a representative from the organization undertakes the first step of due diligence by conducting online interviews with customers. Both parties have gained time and cost savings from the whole process.
KYC process completion and digitized auditable records building can be accomplished 15-20X faster using a V-KYC agent than an in-field agent.
Unlocking The Potential Of Financial Inclusion
Customer verification can be easily accomplished using video KYC in the financial sector. Additionally, video KYC solutions can significantly reduce time and costs for financial institutions and enhance accessibility.
If KYC expenses are reduced, the companies can focus on better problem statements and expand their services and products across the country to quickly serve a wide range of clients.
In India, video KYC solutions (or platforms) are primarily used by financial services to provide rapid and straightforward access to their products and services to the unbanked and underbanked.
By utilizing low bandwidth modes and guided step-by-step approaches, these platforms help connect people with financial services even in the remotest areas of India.
India is moving into the next phase of digital financial inclusion with innovations such as video-based customer identification (VCIP), digital KYC (know your customer) norms, and digitally signed documents.
Due to recent regulatory developments in the fintech space, we have listed some long-standing and new items.
- Enhanced e-KYC with OTP-based borrowing limits
- A mandate from the RBI for Central KYC (CKYC)
- VCIP collaboration between fintech and banks
- Non-bank entities can access Aadhaar authentication online
- Streamlining the loan service provider framework
Prospects for the future
Video KYC is an important step forward to financial inclusion, but it remains merely that.
It is expected that finance will have a seamless experience similar to commerce, networks, and telecommunications soon.
In the era of AI, IoT, and other frontier technologies, things will become more seamless, near-real-time, and demographically inclusive.
In the financial services sector, India introduced the video KYC solution recently. AI-enabled technologies work daily to improve security on fintech platforms and reduce the risk for banks.