Video KYC: Is it in for a long run?

Ashish M. Shaji

13 Oct, 2020

Until the beginning of this year, the process of KYC (Know Your Customer) mandated in-person visits as per the regulations of RBI. However, this trend saw a change when the Reserve Bank issued its Amendment to Master Direction on KYC dated 9^th January, which approved for another way of conducting KYC process- Video KYC. 

Meaning of Video KYC (V-KYC)

It is a quick and convenient process where all the traditional verification methods are replaced by the video verification by a KYC expert. It is considered a secure method that allows banking industry and especially the Fintech business to attain a clean customer base. The customer verification can be completed from the comfort of one’s house without actually being physically present.

How does it work?

V-KYC enables banks to verify their customer’s documents and record digital signatures through a video call thereby eliminating the need for any physical interaction or branch visitations. As per RBIs guidelines on 9^th January on V-KYC, an officer of the financial institution may remotely vet the identity of customer through PAN or Aadhaar card and a series of questions.

The agent should ensure that the customer is present physically within the country by capturing their geo-coordinates. Banks are required to provide agents with a smartphone or tablet with an application that does the video verification process.

The Reserve Bank also mandates that the origin of the video call should be from the domain of the concerned bank and not from any third party source like Google Duo or WhatsApp video call. The detailed process of the video verification shall include a random series of questions in order to prevent spoofing, live check on the applicant to make sure that there are no dummies. The entire process shall be encrypted to prevent fraudulent attacks.

Video KYC and the Indian Regulatory Framework

The Indian regulatory structure has changed the customer identification process for banks and other financial institutions. The latest change allows the replacement of paper based processes with the video call verification method according to the recent amendments in the KYC guidelines in India.

According to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005^[1], Know Your Customer (KYC) is a crucial parts to onboard the customers. The regulations provide that video verification is crucial for the digitization and automation of the current KYC norms.

Some of the amendments are listed below:

• In order to have an account based relation with customers, a Video based customer identification process is to be done by the official of the Reporting entity.
• A clear picture of PAN card will be taken that would be displayed by the customer during the course of verification.
• The live location of the customer must be taken in order to ensure customers’ physical presence in India during the process of verification.
• All the activity logs which contain the official credentials while performing the Video based customer identification process should be protected.
• The reporting entities are encouraged to use the latest technology available which includes AI and facial recognition in order to ensure honest verification. 

What are the benefits of Video KYC?

There are a number of benefits with this form of KYC. Some of them are as follows:

• Customer Onboarding in 3 minutes

One of the benefits with the V-KYC is that it has reduced the time considerably to complete the KYC formalities. Earlier the whole process took anywhere from 3 to 4 days and sometimes even a week’s time. Now it is just a matter of two to three minutes. This time reduction has impressed the customers and also allows banking official to onboard customers is less time. 

• No requirement of Handover of documents

To carry original documents can be unnerving for many due to the fear of losing their documents or misplacing. KYC verification over video call relieves customers about that. The customer can from the comfort of their homes complete the OVD verification remotely.

• Cost effective method

The conventional method required an in person visit for KYC verification. However, with the pandemic it is not safe anymore. This method is also cost effective and that is why banks and financial institutions like this method. The fact that they no more require sending verification officer in the field and conduct door to door verification proves to be beneficial to them. Travel cost is saved along with time saving which adds to other operational cost benefit.

• KYC scheduling at the convenience of customers

The customers can schedule their Video KYC from the comforts of their homes. A customer can schedule their KYC appointment easily on the bank website and can reschedule it if required. It provides a great convenience to customers to complete the KYC process with ease. All one requires is a laptop or a smartphone with an internet connection.

Are there any challenges or risks with Video KYC?

While it could be a boon for banks in times such as these but getting the information technology infrastructure in place at a time when most of the staff is working from home could be a challenge.

While IT (Information Technology) infrastructure is one of the challenges, risk pertaining to the protection of the sensitive information collected over video is another challenge that haunts its success.

Ankit Ratan, CEO of Bangalore based fintech startup Signzy stated that the bigger challenges are on the side of operations. There should be a guy at the back end to process the V-KYC. It is the operational aspect banks need to rethink. Secondly, he said that the risk aspect which banks should be vary of. Thirdly he said that whatever technology stack banks have right now they should bring a video based tech to it.

Bank authorities claim that V-KYC encryption ensures data privacy and security but conducting KYC processes over video call do involve data privacy risks as sensitive information and documents are shared.  Although banks are proactive in tackling these issues but customer awareness is equally critical. 

Future of Video KYC

It is here to stay and don’t be surprised if you see it become the de-facto choice of customer identification. We find many tech investments taking place to make the system more robust and ensure that the integrity of the video KYC process is maintained.

Some of these include:

• AI based face recognition;
• Good quality of video on low networks;
• Video compression to reduce space of storage while ensuring integrity;
• Prevention of fraud and spoofing attack;
• Sharing of screen for Aadhaar offline KYC;
• Automated omnichannel reminders

The acceleration towards digital adoption in the banking sector is set to rise with the initiation of video based KYC process.

Conclusion

Read our article:Central KYC Registry: A Concept Study