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Video KYC is an essential part of digital banking. The Reserve Bank of India (RBI), on May 10, 2021, published a regulation amending KYC rules that allowed banks and financial institutions to use a video-based customer identification process (VCIP) to help customers onboard the services remotely.
This blog comprises a basic introduction to Video KYC and non-bank financial companies (NBFC), the benefits of video KYC, the RBI amendment explanation that introduced video KYC, Documents required for Video KYC, the general requirements for video KYC, procedural steps for video KYC, the types of NBFCs,the impact of video KYC on NBFC in India by 2030, technological advancements, challenges for NBFCs and conclusion.
KYC is a standard process that ensures smooth verification of identity when opening an account. The Reserve Bank of India introduced KYC rules and guidelines in 2002.
A Video Based Customer Identification Process (Video KYC) is a digital process that allows people to open a savings account to file a loan application. It allows the customers to complete the entire KYC process through a video call.
The significant benefits of video KYC are given below-
1) Paperless is the new normal:
Everything is virtual: The customer doesn’t have to visit the banks or financial institutions for the purpose of identification. It’s completely paperless and customers are free to open an account in the convenience of their homes.
2) Video KYC saves time and energy:
Video KYC saves time because the customer onboarding with full verification is done in a few minutes as opposed to the long hours and lines if done manually. This feature amplifies the customer experience and makes the onboarding process efficiently and quickly for the banks and financial institutions.
3) Safety and security:
Video KYC has advance security features that help reduce the risk of identity theft, money theft, and other financial crimes. This feature provides extra layer of trust in the relationship between the customer and the financial institution.
4) Compliance with regulatory requirements:
The KYC automation ensures bank to comply with the regulatory work without a miss. This reduces fines relating to non-compliance of the process.
5) Real time verification:
The customer identity and related documents are verified in real time through a video call with the bank or financial representatives.
RBI amendment explanation: The Reserve Bank of India on May 10, 2021, amended a regulation to clarify the process of KYC:
Some important points relating to the Video KYC are as follows:
1) That regulated entities may use video KYC to carry out customer due diligence for new customers such as new onboarding of individuals, sole proprietors, authorized beneficial owners.
2) Conversion of existing accounts that were opened manually by the customers.
3) The regulation allows the financial institutions to maintain the internet serves and systems within its own physical premises. That the financial shouldn’t depend on third-party data and cloud serves. The infrastructure must be on the premises of the institute to ensure full security and data protection compliance.
4) The financial institutions must use a secure private server to reduce the risk of security breach and other threats likes identity theft and money theft.
Given below are the types of documents required for video KYC-
Following is a list of documents that are required for video KYC for photo identification proof:
Following is a list of documents that are required for video KYC for address identification proof:
Specific Document requirements for loan applications:
The requirements for NBFCs to implement video KYC are as follows:
1) Photo Identification proof:
the applicant must have a valid governmental issued photo identification such as Unique Identification number (UID) as in Aadhar card, driving license, PAN card, voter ID, and passport.
2) Address proof:
the applicant must have a valid governmental issued address identification such as Unique Identification number (UID) as in Aadhar card, driving license, voter ID, and passport.
3) Smart-phone or Computer with a camera:
the applicant must have a smart-phone or a computer with a front camera to complete the KYC process.
4) Stable internet connection:
The applicant must have a stable internet connection to complete the video KYC process.
5) Active participation:
The applicant must actively participate during the video call with the KYC agent.
The procedural steps for video KYC are as follows:
Step-1) Registration:
This is an important step for the video KYC process. The applicant who intends to use the video KYC must register with the intending financial institution. This step requires the applicant to provide information like full name, address, and identification proof.
Step-2) Arrangement of the video call: The applicant must arrange for a video call after the successful registration. The applicant must use a secure server for the KYC video call.
Step-3) Identification verification: The KYC agent will require the applicant to provide identification proofs. The applicant may have to provide additional information for identification, such as electricity bills or bank statements.
Step-4) Records: The video call is recorded in the background as per the RBI KYC guidelines and quality purposes.
Step-5) Approval: The approval depends upon the application scrutiny after the successful confirmation of the identity of the applicant.
Non-banking financial companies (NBFC) is a company that engages in the government issued loans and advances, acquisition of securities like shares, debentures, bonds, and stocks. They provide services that are similar to a bank, but they don’t have a banking license. Some examples are investment banks, mortgage lenders, insurance companies, hedge funds, and private equity funds.
Current market leaders in the NBFC markets are as follows:
The types of NBFCs are as follows:
It is a type of company that finances physical assets such as automobiles, tractors, generator sets, and other material handling equipment.
It is a type of company that engages in holding, managing, and investing securities. It is also known as assets management company. It generally takes capital from investors and invests it in different securities in the market such as stocks and bonds.
It is a type of company that provides financial assistance through loans and advances.
It is a type of company that lends money to companies that are in the infrastructure industry sector.
It is a type of company that engages in holding of investments for control in the company. The asset size of this company should be at least 100crore as per the RBI.
It is a type of company that collects funds and invests in infrastructure projects.
It is a type of company that supports business development of small and medium enterprises (SMEs).
It is a type of NBFC that engages in factoring. This type of institution acts as an intermediary agent that provides financing to companies in exchange of their account receivables.
It is a type of NBFC that guarantees for the repayment of housing loans. It protects the lenders from a loan default.
It is a type of holding company that holds a sizeable stake in a group of financial service companies.
RBI legal requirements on video KYC for NBFCs-
1) NBFCs must comply with statutory regulation laws such as follows:
2) Customer Consent:
The NBFCs must obtain written consent from the customer before starting the video KYC process.
3) Live location tapping:
The RBI requires the NBFCs to geo-tag the customer’s live photo to confirm their location is within the territorial jurisdiction of India.
4) Prohibition of third-party applications:
The RBI mandates that NBFCs must use their own video KYC applications to conduct the KYC.
5) Designated Office and Secured Domain:
The RBI mandates that the NBFCs initiate the video KYC from their designated office and secured domain.
6) Document verification:
The RBI mandates that the NBFCs guides the customers to present their identification and other relevant documents through the video capture. The NBFCs must explain to the customers to use the governmental Digilocker platform application for verification purposes.
7) Data management:
The RBI mandates that the NBFCs must secure the video KYC data along with the documents.
8) Encryption:
The RBI mandates all the NBFCs to encrypt the entire video KYC data to prevent unauthorized access. It further mandates the NBFCs to do regular surveillance checks to ensure the integrity of the video KYC.
The NBFCS must adopt the video KYC by 2030 because of the following main reasons:
Easy Customer experience:
The use of video KYC can really make things fast and easy for customer experience. The process that usually takes up to several days, from visiting the physical office to standing in long queues, can be tiresome. The video KYC technology by 2030 will be able to finish the entire KYC process in around 10-12 minutes.
Faster Customer Onboarding:
The longer wait time for the approval of loans in this time and age that, which usually takes several days between 7-10 days, can be done in and around 48 hours time window, so the NBFCs that are looking to expand their customer base must adopt the video KYC by 2030 to avoid going out of business in the emerging digital lending business
Cost Reduction:
The use of video KYC can really reduce the cost incurred by the customers as well as the financial institution in the KYC processes, such as manual checks and tedious paperwork.
Increased security and fraud prevention:
The NBFCs can use the video KYC technology to reduce the risk of identity theft and fraud. The video KYC technology has various features, such as facial recognition. Biometrics and live location detection software.
Stricter Regulatory Compliance:
The government will increase the regulatory framework by 2030 with even stricter rules and procedures, which will further help the NBFCs with money laundering, data protection, and client protection issues.
Financial lending services in rural and semi-urban regions:
The 50% of the population in the rural and semi-urban regions of India still lack general access to new aged credit financing systems. The NBFCs can enter this market by adopting the video KYC technology to increase their profit margin in rural areas.
More technological advancement that are coming by 2030 are as follows:
The NBFCs must adopt the video KYC to use the benefits that come along with it such as artificial intelligence (AI), which will be capable of doing more than just the normal facial recognition and fraud detections by 2030.
Another fine example is the use of biometrics that has an in-built voice recognition, eye-scanning, and fingerprint scanning system, which would further enable NBFCs to help protect the entire video KYC process like data protection and early fraud detections.
This is a type of digital ledger that would help the NBFCs to store sensitive information in a secured and decentralized way. This will the NBFCs reduce the risk of data tampering. The blockchain adoption in the lending industry to projected to expand by 60%. The NBFCs must buckle-up to adopt the said technology to stay in the future of the lending business.
Given below are the challenges faced by the NBFCs-
Digital literacy and access Issues:
At least 50% of the rural population doesn’t use a smartphone, which is one of the top most drawback for the NBFCs. The use of smartphones or computers are limited in the rural areas. With only a 55% of the rural population using them creates a challenge for the NBFCs to invest economically low and user-friendly software that will ensure video KYC compliance for all types of customers.
Internet connectivity Issues:
High-quality internet connection is a must for video KYC. Most rural areas in India have unstable internet connectivity, which is again a drawback for the NBFC. The NBFC will have to partner with the rural local internet service providers to ensure round the clock internet connectivity in the rural areas, which would help the customers use the video KYC feature for NBFCs related services.
Data Protection Issues:
Video KYC is a good tool, but everything has an upside to it. With billions and millions of data being processed through the video KYC process, it can be a challenge for the NBFCs to keep a everything running smoothly. The NBFCs need to comply with data protection laws and invest in cybersecurity measures to safeguard sensitive customer information.
Things are always going to change and the NBFCs just have to deal with it, so it’s not too late for them to embrace all the new technological developments that comes along with the video KYC if they want to stay in the lending market, and expand their business into various regions of the country including the rural and semi-rural areas.
Embracing a change, which is related to technological developments is a key to a profitable business. The video KYC has a promising future ahead, so will NBFCs if they completely adopt the former technological development by 2030.
To get expert assistance in NBFC registration and compliance management, visit https://enterslice.com/.
KYC is a standard process that ensures smooth verification of identity when opening a bank account. The reserve bank of India introduced KYC rules and guidelines in 2002.
A Video Based Customer Identification Process (Video KYC) is a digital process that allows people to open a savings account or file a loan application. It allows the customers to complete the entire KYC process through a video call.
The benefits of Video KYC are as follows:· Paperless and virtual.· Saves time· Safety and security.· Compliance with regulatory requirements.· Real-time verification.
A non-bank financial companies (NBFC) is a company that engages in the government issued loans and advantages, acquisition of securities like shares, debentures, bonds, and stocks. They provide services that are similar to a bank, but they don’t have a banking license. Some examples are investment banks, mortgage lenders, insurance companies, hedge funds, and private equity funds.Current market leaders in the NBFC markets are as follows:· Bajaj FinServ.· Power Finance Corporation Limited.· Mahindra and Mahindra Finance Service.· Muthoot Finance Ltd.
Following is a list of documents that required for video KYC for photo identification proof:· Unique Identification Number (UID) as in Aadhar Card.· Passport· Driver’s license.· Voter ID card· Pan card· any other document issued by the state or central government that might be equivalent to the following (unique identification number (UID)- Aadhar card, passport, driver’s license, voter ID, Pan card).Following is a list of documents that are required for video KYC for address identification proof:· Unique Identification Number (UID) as in Aadhar Card.· Passport.· Driver’s license.· Voter ID card.· any other document issued by the state or central government that might be equivalent to the following (unique identification number (UID)- Aadhar card, passport, driver’s license, and voter ID)· Sale agreement of the house.· Electricity or phone bills that are not older than three months.· Any other address proof issued by a bank, public notary, or any other governmental document.Specific Document requirements for loan applications:· Income proof.· Other financial statements like audit reports and tax statements.· Bank Statements of the last six months.
The possible challenges that NBFCs may face in 2030 while implementing video KYC are as follows:· Data literacy and smartphone access restrictions in the rural areas.· Data Protection in the rural areas.· Internet connectivity issues in the rural areas.
The steps are as follows:· The procedural steps are as follows:· Registration of the video KYC.· Arrangement of the video call.· Identification verification.· Records.· Approval.
The types of NBFC companies are as follows:· Asset finance company (IFC).· Investment company (IC).· Loan Company (LC).· Infrastructure finance company (IFC).· Systematic important core company (CIC-ND-SI).· Infrastructure Debt Fund (IDF).· Micro Finance Company (MFC).· Factors· Mortgage Guarantee Companies (MGC).· Non-operative financial holding company (NOFHC).
The legal requirements on video KYC for NBFCs are as follows:· Customer consent· Geographical tapping· Prohibition of third-party applications· Use of Designated office and domain· Document verification· Data management· Encryption
The NBFCs should adopt video KYC by 2030 because of the following reasons:· Easy Customer experience.· Faster Customer onboarding.· Cost Reduction.· Increased Security and fraud prevention.· Strict Regulatory compliance.· Financial lending services in rural and semi-urban markets.
The technological advantages that are coming by 2030 are as follows:· More advance artificial intelligence.· Blockchain for data security
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