With the Reserve Bank of India identifying the centralised Know Your Customer Registry (c-KYCR) as a high-risk source for data validation, the emerging fintech industry is pushing for a decentralised, blockchain-powered, database for better quality of data.
Multiple industry insiders ET spoke with said a centralised KYC registry might become difficult to maintain given the legacy players in the Indian financial services industry. Instead, if a blockchain-powered platform could be built, perhaps issues around faulty data, dated information and such could be solved.
Tech companies like Tata Consultancy Services, Wipro and IBM have already built decentralised identification platforms.
Also read: Banks, lenders wary as RBI tags centralised KYC as high risk
“TCS has a solution called Quartz, leveraging blockchain and AI technologies that address financial institutions’ KYC, AML (anti-money laundering) and fraud management needs,” said R Vivekanand, president of BFSI products and platforms at TCS.
Wipro has a solution named DiceID, a decentralised platform for the verification of identity credentials.
“DiceID leverages verifiable credentials protocol which provides a solution to the challenges related to credential sharing…which helps…establish trust and identity in digital transactions using a privacy respecting method,” said Varun Dube, general manager, Wipro Lab45’s DiceID platform.
Verifiable Credentials are digital representations of claims about an individual or an entity that can be cryptographically verified by anyone.
Some of the tech majors have pitched similar solutions to regulators like the Securities and Exchange Board of India and the Reserve Bank of India for adoption. However, not much has moved beyond preliminary discussions.
“While in India we are still at discussion stages, outside the country we are already deploying our solutions for multiple use cases,” said a top executive at a major tech firm which has a similar solution.
TCS, for instance, is deploying such solutions outside India for compliance issues. The RBI is also using TCS’ product as a next-generation surveillance solution, said Vivekanand.
Dube of Wipro added that they are deploying the DiceID platform in Australia, the US and other geographies across banking and other sectors.
Currently, the UAE has a blockchain-based KYC system, while Singapore had run pilots of a similar KYC system sometime back. Thailand is rolling out a blockchain-based digital identity identifier on top of which a decentralised KYC mechanism can be built.
Fintechs in trouble
Now with the RBI saying that customers who were validated through c-KYC were high risk ones, banks are asking their fintech partners to do a video CIP (customer identification process) or a physical KYC, two founders said.
KYC has always been a pain point for customers and new generation tech companies. With video KYC, a large part of the problem was solved. With a decentralised KYC, even repeated video verifications would also not be required, improving customer convenience and safety of data.
“If we do physical verification, costs go up, then the business margin that we operate in does not work. How do we survive,” asked a founder of a fintech lending startup which works with banks and NBFCs to offer personal loans.
Another founder pointed out that currently all the technology innovation that had been fostered by the India Stack and the fintech ecosystem was working well at scale. So, the regulator needs to consult the industry more to help them solve these problems.
ET wrote on Tuesday how the latest RBI diktat has put off banks from adopting c-KYC. They are now moving to V-CIP.
Banks are the biggest repository of data, but they have not done a great job in uploading their customer data to the centralised registry, the founder quoted above told ET. Also, they do not upload data in a timely manner. This has impacted the quality of data in the registry.
Perhaps the need of the hour is to have a body like the National Payments Corporation of India, which pushed the adoption of UPI for products that are being built for public good, according to fintech industry executives.
They are also convinced that a blockchain-based system can solve the problem. Additionally, they feel that with the RBI itself pushing the use of a Central Bank Digital Currency, they can encourage adoption of blockchain-based solutions elsewhere too.
Legacy issues remain
Senior bankers pointed out that moving into a decentralised mode might be conceptually possible but technology-wise challenging. It will have to integrate with the current core banking systems of banks and given the size of the Indian banking system, such a migration will be tough to undertake.
“Blockchain deployment has been in a proof-of-concept stage given the negative labelling around cryptocurrency which is closely linked with this technology,” said Sudin Baraokar, an IT and innovation advisor who was previously chief innovation officer at State Bank of India.
Baraokar was part of the SBI-led BankChain, a consortium of 27 banks which was exploring applications of blockchain in banking.
There were issues around interoperability, how it will work with banks’ core banking solutions and other mission critical systems, he said.
“The applications need to work with the existing systems we have. For eKYC, it needs a regulated and authority backed entity to manage the trust as a service,” he added.
SBI’s core banking processes around 24,000 transactions per second and supports 500 million customers. So the scale of the Indian banking system is big and these pilots need to be full proof before being executed.
Sharat Chandra, cofounder of the India Blockchain Forum, believes that with decentralised KYC platforms, banks can keep their proprietary data safe and share only on a need-to-know basis. Even consumers can keep their data safe with stronger controls.
“The regulator can open up the sandbox to such experiments, at least then we will know if these solutions can work or not,” Chandra said.