November 21, 2018
Aadhaar, the biometric digital identity infrastructure in India, has been making waves in the international community for years now. Through governmental push, the Aadhaar number has progressed to become the unique identifier of an individual’s identity in India. This, when tied up with a plethora of use cases in business, financial inclusion, and governmental benefits space, presented a strong case for Aadhaar to be the primary enabler of disruption in the Indian business as well as the social landscape.
With the biometric database, the traditional business ecosystem suddenly found a new way to onboard customers through eKYC. Select banks, telcos, etc., used Aadhaar for instant onboarding. In fact, there have been many new startups, mostly in FinTech space, which have designed their unique value proposition around instant onboarding. The instant onboarding using just the Aadhaar number as an identifier had immense potential in not just reducing the operational costs of these businesses, but also presented a case for an enhanced customer experience in the Indian market.
However, in the rush of leveraging Aadhaar for onboarding, the businesses skipped the more foundational and necessary caveat – the importance of building digitized processes. Sure, Aadhaar had fast-tracked the process and given businesses an opportunity to leverage a ready-made identity network; but it also resulted in businesses getting distracted from their original, basic approach of digital transformation which required them to fine-tune their existing business processes and digitize them with the use of modern-day technologies such as AI/ML, blockchain, RPA, etc. And this was exposed when the Supreme Court of India announced their recent verdict last week in which they struck down Section 57 of the Aadhaar Act, meaning that the private companies and individuals could not avail Aadhaar data to provide consumer services. The verdict essentially means that telecom companies, e-commerce firms, and private banks cannot mandate consumers to provide their biometric and other data to avail services.
The verdict has sent waves in the Indian FinTech community, as many of the FinTech players who positioned their offerings around instant KYC, now need to go back to their drawing boards to chalk out a strategy of conducting onboarding without Aadhaar.
The underlying problem in the current state of onboarding and authentication is the abundance of physical and paper-based processes for most of the traditional businesses, especially in the FinServ industry. Be it the repetitive, rule-based back-end processes of data entry and data matching, or manual verification of documents and forms – the process today has a lot of gap areas which can be effectively plugged by the effective use of technologies such as APIs, AI/ML, RPA, etc.
Not only is the physical KYC costlier and poses significant onboarding costs, but it also increases the time it takes to onboard a customer – not to forget the prospect of human error resulting in severe process inefficiencies. The need for a comprehensively digital, automated process of onboarding and KYC is dire, and Aadhaar is not the only way to achieve this goal.
The humongous task at hand for regulators and governing bodies is to ensure that the data available with private companies is duly erased and is not misused. The audit of this task will be a major challenge.
Another major challenge is the fact that the customers who have already provided their Aadhaar data to these providers as a proof of identity for onboarding purpose, now may need to do the due diligence from scratch and go through another KYC process to delink their Aadhaar.
The FinTech, e-commerce, and other private companies – who will resort to physical KYC in the shorter term due to the delinking of their Aadhaar database – will incur overhead operational costs which will then be passed down to their customers, thus resulting in increased prices for services. However, this wouldn’t have happened if the businesses, while leveraging Aadhaar, would have prepared for a plan B with the digitization of existing processes.