Fintechs find KYC tough in small cities

THE KNOW-YOUR-customer or KYC guidelines have come under focus in the last few months after the Reserve Bank of India (RBI) passed strictures against both banks and fintechs, who have failed to do follow them.

- AJAY RAMANATHAN

Paytm Payments Bank is the latest example where non-adherence to KYC guidelines, among other compliance issues, have put it in the dock.

However, the process itself remains a challenge, especially for players who want to expand their businesses in tier-3 cities and beyond. Fintechs say that higher costs and a weak technology infrastructure has made the know-your-customer (KYC) process very difficult.

In April 2023, the central bank brought in an important amendment in KYC norms that has left lenders with no choice but to conduct a video customer identification process (V-CIP) or adopt an offline process, which has led to a rise in costs.

"The business model of fintech lenders is digital with minimum physical footprint, thus any physical due diligence in non-face to face customer onboarding increases the turnaround time and affects uptake of financial services," says Digital Lenders Association of India chief executive officer Jatinder Handoo.