RBI Commences Low-KYC for FinTech Customer Retention

The Reserve Bank of India (RBI), on February 5, introduced ‘low-KYC’ to let non-compliant know-your-customer accounts continue paying via mobile wallets. Prior to this, the RBI had recommended payment companies to conform to ‘full-KYC’ by February 29, 2020. As a result, approximately over 200 million mobile wallets were under the risk of getting cancelled by the regulators, owing to the approaching deadline of upgrading the non-compliant accounts to ‘full KYC’ account. Apart from this, RBI has also recommended video-KYC as an alternative to establish customer identity.

Therefore, now, mobile wallet firms such as Paytm, PhonePe, Amazon Pay, etc. and their user-base running into millions would be able to continue their association per the permission from the RBI allowing wallet service providers to continue operating their millions of non-compliant KYC accounts without any transnational limits.

With this new alternative of the RBI, a mechanism will be offered to customers wherein they will be able to convert their ‘minimum KYC’ accounts to the RBI’s ‘low-KYC’ PPI (Prepaid Payment Instrument – a semi-closed retail payment instrument introduced by the RBI in December 2019, having a monthly rechargeable limit of Rs. 10,000 or of Rs. 1, 20,000 in a Financial Year, and which is issued based on the sourcing of essential minimum details from the customer –) accounts.

This comes as a sigh of relief for FinTech firms as they were finding it difficult to onboard fresh customers and retain them following the barring imposed by the Supreme Court on telecom companies and NBFCs concerning the usage by them of Aadhaar-based KYC in 2018. Now onwards, companies will seek customer consent prior to performing ‘low-KYC’ of their accounts. However, it should also be noted that while KYC formalities were already done before, these were rendered null and void following the earlier pronouncement of the restrictions of the Aadhaar KYC method by the Supreme Court.

Following this, in February (2019), the Union Cabinet had considered promulgating an ordinance to permit voluntary use of Aadhaar number as a proof of identity for bank account opening and also for obtaining a new mobile phone connection. While the payment firms had also sought from the regulator an alternative to eKYC for onboarding and verification, the Payments Council of India (PCI) also requested the regulator to postpone the conversion of minimum-KYC accounts to full-KYC accounts deadline till February 28, 2020, owing to Aadhaar restrictions pertaining to eKYC process.

Other proposed formats of KYC in the pipeline include live video customer verification and XML internet format. It has also been reported that Amazon Pay had considered doorstep KYC for its mobile wallet subscribers.