Indian payment facilitator Paytm will be onboarding customers for its payments bank with eKYC enabled by India’s voluntary national identification program, Aadhaar.

As of Sep. 5, 2016, 87 percent of India’s 1.2 billion people had registered for the unique 12-digit number. To register, residents have to bring three forms of identification (proof of identity, proof of address, proof of birthdate) to an enrollment center, where their fingerprints and irises will be scanned.

eKYC is non-documentary, using Aadhaar’s biometric tools, fingerprints and iris scans, and brings up the question: could countries without a national ID system use biometrics or similar methods to more quickly onboard not just banking consumers but merchants for payment facilitators?

The recent Treasury rule nicknamed the ‘beneficial ownership rule’ will require banks and probably those designated by banks, like PFs, to KYC not only one merchant owner but all owners with 25 percent ownership when they are not sole proprietors, and anyone who manages the business in the owners’ stead.

The extra KYC, if necessary based on how many owners and managers and whether the merchant is mom and pop (sole proprietor) or corporation, sure could use methods that are quicker, like as many paperless processes as possible.
There are caveats. We have seen in the past in other countries that when a national ID system is not mandatory it is not as useful as we might hope, as those in remote regions, or those who mistrust the government, will not use it.  We have also seen corruption in Southeast Asia in mandatory chip identification.

“Aadhaar is an innovative system that can be helpful in many different regions,” says Deana Rich, president of Rich Consulting. “I have seen voluntary national ID systems fail in other regions, so while I hope this will work, I am not sure it can.”

Richard Hartung, managing director for Singapore-based payments consultancy Transcarta, says the use of national IDs for KYC is case by case.

“Using a national ID for identification for customer onboarding is definitely possible in other markets,” he says. “The key is what the regulators allow. In some markets, the regulator does allow onboarding with the digital ID. In other markets, such as Thailand, the regulator requires the customer to come in to the bank to open an account.”

Hartung suggests innovations in identification and credit scoring can change the KYC game. One example is Lenddo, which uses patented technology and learning techniques to build predictive algorithms. Started as a micro-loan service, in January 2015, the firm opened its technologies globally for third parties, like banks, lending institutions, utilities companies and credit cards to cut risk, boost portfolio size, improve customer service, and verify applicants. It lets customers use data on Facebook, LinkedIn, Google, Yahoo and Twitter to identify themselves and prove their creditworthiness through their connections.

“Developments at some of the fintechs should make the process more secure,” Hartung says. “Companies such as Lenddo are using social media for customer verification, which reduces the risk.”