28 September 2018 11:50:22 IST

Aadhaar verdict presents a challenge to firms

Opening bank accounts, getting a SIM, investing in mutual funds and getting insurance will take time

The Supreme Court’s verdict on the usage of Aadhaar has thrown up several challenges for firms that had registered customers exclusively through the unique identification number and biometric authentication.

In a majority 4:1 judgement, the apex court ruled that Aadhaar linking is needed only for PAN and filing I-T returns, as also to benefit from government welfare schemes. The court said that it is not necessary to link the unique identity number to bank accounts, mobile numbers, insurance policies and mutual fund investments.

Enrolment may get delayed

All banks insist on the know-your-customer (KYC) process as it is mandated by the Reserve Bank of India and the government. Till a few years ago, the KYC process involved giving identity and address proofs, along with the application forms, when opening a bank account, investing in mutual funds or taking an insurance policy.

Over the last couple years, the process was made electronic and near-paperless, as banks, fund houses and insurance companies enrolled customers by authenticating them through Aadhaar and biometric credentials. The on-boarding was swift — accounts were opened instantly and investments made soon after.

With the Supreme Court order, banks and financial institutions will take much longer to complete the KYC process for new customers. From immediate enrolment of customers, the timeline can now stretch from a few days to a couple of weeks.

The cost of acquiring new customers will also go up. According to some reports, the Aadhaar-based KYC process is 85 per cent cheaper than the regular mode. Firms such as IDFC Bank and Jana Small Finance Bank or electronic wallets such as Paytm or PhonePe could see delays in customer registration and increase in costs. Even the large, established public and private banks that had increasingly relied on swift customer enrolment will have to devise an alternative to the eKYC.

Challenging path ahead

Mutual funds, too, will find getting new customers a tad tedious. Right now, an investor can put in any amount in funds by completing the eKYC and biometric authentication. Using the old KYC method means an investor will have to wait for a few days, until the fund house conducts a physical verification, before buying units in schemes.

Telecom companies — especially Reliance Jio, which enrolled subscribers through Aadhaar from the time of commencement of operations a couple of years ago — will also find the customer acquisition process delayed.

Since the old mode of conducting the KYC process involved the company physically verifying the person’s residence, enrolment of customers and activation of SIM cards can also take a few days at least. The added cost of physical verification applies to telecom firms too.

Finally, insurance firms will find the task of settling claims challenging. As there is scope for fraud in claims, companies tend to be very careful in investigating cases and settling dues. Caution is especially needed when a settlement amount has to reach a beneficiary or a nominee. In recent times, Aadhaar mostly ensured that the right beneficiary or nominee got the amount seamlessly. Now the settlement of dues may take longer.

Deleting linkages

The bigger challenge for firms will be if customers ask for their existing Aadhaar linkages with bank accounts, mutual fund schemes, insurance policies and mobile numbers, to be deleted. There is limited clarity on this aspect. While some experts opine that private firms will delete Aadhaar details immediately, others say customers may have to make written requests for this to be done, if needed. But if investors or subscribers ask for deletion of data on a large scale, how will firms handle this? Will they delete the data and ask for alternative documents?

What if some customers are willing to share Aadhaar data so that on-boarding and using certain services are quick and smooth? Will a new law be passed in Parliament that delineates the instances when Aadhaar can be used by private firms? Most firms are waiting for guidelines from regulators, such as the TRAI, SEBI and RBI, on how to go forward on these aspects.