India in need of simplifying user verification process to bolster digital payments

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While India has witnessed a surge in digital payments, the country’s Know-your-customer (KYC) procedure continues to be cumbersome, especially for the elderly, the poor, or migrants, limiting the adoption of digital payments.

KYC is a Reserve Bank of India-mandated document verification process that financial institutions use when clients avail themselves of their services. To prevent money laundering, availing financial services requires proof of identity and address. However, the rigidity with which this law is followed is up to individual financial institutions, and it may lead to harassment for citizens and high costs for the financial sector.

“KYC is a problem crying to be fixed as of yesterday. In a world where we have Aadhar and some of the best digital public infra in the world, it also seems very doable,” Radhika Gupta, chief executive of Edelweiss Mutual Fund, one of India’s biggest asset management companies, reportedly said in April.

India’s digital public infrastructure (DPI) includes a Unified Payments Interface (UPI) public platform and Aadhaar, touted as the world’s largest biometric identification system. In digital payments, UPI facilitates 13 billion transactions per month and serves about 350 million individuals and 50 million merchants.

According to a survey by consulting firm Kearney, in association with Amazon Pay (NASDAQ: AMZN), the user experience, from onboarding to regular usage and servicing, plays a crucial role in adopting digital payment systems. However, primary research indicated that about 40% of merchant respondents find digital payment applications too complicated to navigate.

The research was conducted with over 6,000 consumers through an online survey and with over 1,000 merchants through offline and online methods across 120 cities, representing various regions, income groups, city categories, age brackets, and genders.

The survey suggested creating user-friendly consumer journeys by streamlining documentation and know-your-customer processes, optimizing user interfaces, and establishing responsive customer complaint resolution mechanisms.

“By integrating with existing databases and digital infrastructure such as India Stack, CERSAI, UIDAI, NSDL, the credit bureau, EPFO, GST Portal, and account aggregators to ease the process of onboarding, the journey can be made more efficient and less cumbersome for users, (both consumers and merchants). This reduces barriers to entry, making it easier for new users to adopt digital payments,” the survey said.

An intuitive interface that minimizes the number of steps and clicks required to complete transactions can significantly enhance the user experience. Designing interfaces that are responsive to common usage patterns and user needs can make digital payments more appealing and accessible to a broader audience.

Establishing a robust mechanism for quickly and effectively resolving customer complaints and issues is crucial. This not only improves the user experience but also builds trust in digital payment systems, encouraging their continued use, the survey added.

Why the rigid KYC?

The RBI has been tightening oversight over KYC compliance after major irregularities were noticed in Paytm Payments Bank’s compliance with KYC norms, thereby exposing customers, depositors, and wallet holders to serious risk. The bank was also found to be involved in facilitating very high-value transactions with minimal KYC requirements, raising money laundering concerns. As a result, on January 31, the RBI directed Paytm Payments Bank to cease all new business transactions by February 29 and settle all pipeline transactions by March 15.

KYC norms for digital asset exchanges have also been tightened after a series of “cryptocurrency” scams were discovered by Indian regulators. These included fraudsters luring thousands of individuals into multi-level marketing scam, manipulating investors to exchange cryptocurrencies at promised high returns.

A record surge in India’s digital payments has also led to a jump in digital payment frauds, pushing RBI to explore establishing a Digital Payments Intelligence Platform for network-level intelligence and real-time data sharing across the digital payments ecosystem.

“Although safety and security measures continue to be in place and enhanced, consistent consumer education about new methods of fraud, such as social engineering, and ways to avoid them is paramount. Campaigns, mass media, OTT, and word of mouth should continue to address these issues to both avoid frauds and gain consumers’ confidence,” the Kearney-Amazon Pay survey added.

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