Unique Identification Authority of India (UIDAI) has revoked the access of several agencies that provide e-KYC verification and authentication services to fintech companies. This means that the agencies will not be able to provide an e-KYC verification to onboard or authenticate financial transactions, affecting various fintech players such as e-wallets, online lenders and NBFCs.
The major impact will be increase in cost incurred and longer timelines. Companies will now have to physically verify the credentials of the customers.
The development was soon after the Supreme Court, currently hearing the case on the validity of Aadhaar, made critical observations around multiple unregulated entities accessing the database.
Typically fintech companies are not Aadhaar Authentication User Agency (AUAs) or KYC User Agency (KUAs) themselves; but sub-KUAs and sub-AUAs. They send their requests through UIDAI's network.
KYC norms having been proving to be a problem for the fintech companies since October. In October last year, the Reserve Bank of India came up with new guidelines for e-wallets and made complete KYC mandatory. A physical KYC verification costs company anywhere between Rs 100 to Rs 150 adding to the companies operating costs. It also defeats the purpose of digital companies-- of reaching the unreachable geographies and serving the underserved.
According to UIDAI, there have been 504 crore eKYC transactions uptill now which were carried out by 254 authentication agencies. Currently, UIDAI's has 255 KUAs, which include State Bank of India, Punjab National Bank, and ICICI Bank. It also has 310 AUAs, which include the likes of Aircel, AIIMS, CDSL, and CIBIL.
Currently Supreme Court is in the final hearing on the validity of Aadhaar. The hearing started on February 13 this year and is currently on Day 26 of hearing. Last week, UIDAI CEO, Ajay Bhushan Pandey gave a technical presentation to the petitioners after which he answered 20 questions put forward by the petitioners.