A business needs to verify that customer is what he claims to be and hence KYC or Know your customer is needed. In recent years, Government madeAadhaar almost compulsory. Aadhaar also made it easy to do KYC online and offline easily. But in Sep 2018 Supreme Court disallowed private business to use Aadhaar based KYC or update kyc online. Let’s discuss. Why did Government disallow Aadhaar? Did eKYC help business? What is the future of eKYC?

What is KYC?

KYC stands for Know your Customer. It refers to due diligence that financial institutions(Banks and Brokers) and other regulated companies(Mobile, LPG, telephone) must perform to ascertain relevant information of their clients for the purpose of doing business with them.

The objective of the KYC guidelines is to prevent money laundering, financial fraud, identity theft and terrorist financing.

What is eKYC?

eKYC stands for electronic Know Your Customer or electronically verifying the customer details .e-KYC eliminates paperwork and in-person verification reducing the time for business to provide service to the customer. The KYC and the eKYC process have the same function to verify Identity and Address details of the customer. They differ in how identity and address of the customer are authenticated.

Aadhaar based eKYC made it possible for a customer to share his Aadhaar, personal information and photograph with businesses which were UIDAI partner organisation. Typical process was

1. Customer goes online or to the store or office and provides the service provider with his Aadhaar number.
2. Verification is done through either a biometric scanner (fingerprint scan) and/or OTP over the individual’s Aadhaar-enabled mobile number.
3. The OTP confirms that the customer requires service, and has granted the online access to personal information and bio-data.
4. The fingerprint scan is matched with the Aadhaar database to confirm the individual’s identity.
5. Once your identity has been confirmed (usually takes few minutes), a customer may start using such services.

So you go to store and get what you need within a matter of minutes just with your Aadhaar card.  For example, reliancesmartmoney.com enables you to do your KYC online in just 6 easy steps:

• Registration
• Profile Analysis
• Other Information (Personal/Financial)
• Product Selection
• Bank Details
• Documents Upload

Difference between KYC and eKYC

As per the industry estimates, to get a customer on board,

• Enrolment via Aadhaar takes about 30 minutes to whereas it takes about 5-6 days to verify customers’ addresses and details for a physical KYC.
• Physical KYC is also expensive. Physical KYC costs about Rs 100 per person compared to Rs 15 per person for Aadhaar linked KYC.

The difference between eKYC and the regular KYC process is shown below:

Category	eKYC	KYC
Authentication	Minutes	Days to weeks
Paperwork	Not Required	Required
Cost	Low	High
Security	Secure	Less Secure
Eco-Friendly	Yes	No

Aadhaar Identity crisis

Aadhaar is constitutionally valid, Supreme Court rules in a landmark decision on 26 Sep 2018.

The government made Aadhaar compulsory for most of it schemes. From taking new mobile connections, getting LPG subsidy, EPF withdrawal, filing the income tax return, to school admissions and marriage certificates Aadhaar became the default identifier. The image below shows how Aadhaar was linked with various schemes.

Finance Minister, Arun Jaitley said that the use of Aadhaar has helped the government save Rs 90,000 crore in a year by targeting of beneficiaries and plugging leakages as shown in the image below.

But doubts emerged that collection of biometric details could infringe on a citizen’s privacy rights and the Aadhaar Identity had an Identity crisis. Timeline for Aadhaar is shown in the image below

Supreme Court and Aadhaar

On 26 Sep 2018, the Supreme Court of India upheld the Aadhaar Act, the use of the money bill route (which meant it didn’t need to be approved by the Upper House) and the use of Aadhaar-based identification for government welfare schemes. Private use of Aadhaar was struck down (Section 57).

The verdict was pronounced on pleas challenging the constitutional validity of Aadhaar scheme and its enabling 2016 law on May 10, 2018, the bench headed by Chief Justice Dipak Misra had reserved the verdict on the matter after a marathon hearing of 38 days over four and a half months.  It was a 567-page 4-1 judgment by the constitution bench

The verdict struck down section 57 of the Aadhaar Act which allows the Government or any business or person to use Aadhaar number for establishing the identity of an individual for any purpose. The following image show where the Aadhaar Card is Mandatory and non-Mandatory after the Verdict.

Future of eKYC, Aadhaar

Aadhaar-issuing authority, Unique Identification Authority of India (UIDAI), has come up with alternate modes like QR (Quick Response) codes, e-Aadhaar and offline methods.

Telecom industry proposed alternate digital KYC process for issuing new mobile connection. It embeds the customer acquisition form with a live photograph of subscriber along with proof of identification (PoI) and proof of address (PoA) document. The entire process is digitised and completely paperless.

The government amended the Telegraph Act and the Prevention of Money Laundering Act (cleared by Union Cabinet) in order to allow private businesses such as banks and telecom service providers to use Aadhaar as one of the “know your customer” (KYC) methods.

The cabinet approved 10-year jail term (earlier was 3 years) for those found guilty of data breach; use of quick response (QR) codes for Aadhaar authentication; and parental consent for use of children’s biometric identification.

The new Aadhaar based authentication avatar used to enroll customers for telecom and financial companies to enroll customers will be watched for privacy violations.

The return of Aadhaar e-KYC is what the industry wants, let’s see how Government, business and customers respond.

Related Articles:

• Important documents for your child
• How to find where your Aadhaar card was used for Authentication
• Central KYC or cKYC, One KYC for your Banks, Mutual Funds, Insurance