The first time around, payments banks—the country’s central bank’s biggest experiment in creating a half-bank half-payment entity—bombed. In the short two-year history of payments banks, everything that could possibly go wrong for them did. Crippling rules from the Reserve Bank of India (RBI). Check. Companies backing out. Check. Regulatory flip-flops on know-your-customer (KYC) norms. Check. Frauds. Check. Suspension and fine. Check.
Payments banks run by Airtel, Paytm* and Fino were asked to suspend operations in 2017 and 2018 for serious transgressions—ranging from not taking explicit consent to opening a bank account while doing KYC to not adhering to the Rs 100,000 (~$1,447) deposit limit that the RBI imposed on payments banks. Before 2018 ended though, the suspension was lifted from all three.
And now, when they have a second shot at this, they’re walking on eggshells. The banks hired an army of banking correspondents (BCs) to go out on the streets and get people to open payments bank accounts. But the kind of action they are now seeing is a tell. Agents we spoke to now do two to three account openings a day, as compared to the hundreds they were doing before the RBI stepped in.
In the bylanes of Mira Road, a suburb in Mumbai, The Ken visited at least seven mobile retailers who are banking correspondents. And all of them have resumed doing KYC, though this time they are sticking to the traditional paper-based KYC. Not the Aadhaar-based electronic KYC (or e-KYC), which allowed banks to play fast and loose while taking consent.
The Supreme Court first banned the use of Aadhaar for e-KYC by companies in September 2018, and then, in a total volte-face, the government introduced a bill in the Parliament in January, which would amend the Indian Telegraph Act of 1885 and the Prevention of Money Laundering Act (PMLA) of 2002 to make the use of Aadhaar during KYC voluntary. On 13 February, the ministry of finance released the amendments to the PMLA.
This did bring cheer to payments banks, as the new amendments allowed voluntary e-KYC for banks and telcos.
However, this joy was short-lived. Earlier this month, the Unique Identification Authority of India (UIDAI) announced that private entities will have to pay for the e-KYC and authentication services provided by the Authority.
“We could scale faster with e-KYC as it costs less compared to physical KYC, but to some extent, the UIDAI has nullified it because now they are going to charge for it,” says Shailesh Pandey, head of strategy and marketing at Fino Payments Bank.
Though the Aadhaar ordinance has now been approved, payments banks are not going ahead with voluntary e-KYC as they are waiting for a formal circular from the RBI, Pandey says. The retailers, meanwhile, are also holding back on Aadhaar-based e-KYC as they have not been told by banks yet to resume it.
