India has witnessed a phenomenal rise in digital banking adoption in recent years. This growth hinges on seamless and secure account opening processes. One such innovation, Video KYC (Know Your Customer), promised a revolution in online onboarding. However, despite its potential, Video KYC adoption for bank accounts remains sluggish. This sluggishness can be attributed, in part, to unrealistic demands placed on customers by some banks. This article explores the reasons why Video KYC isn’t gaining traction and the negative consequences for both customers and banks.
Video KYC: A Promising Leap Forward
Video KYC leverages video conferencing technology to verify a customer’s identity electronically. During a video call, a bank representative interacts with the applicant, verifying their documents and facial features in real-time. This eliminates the need for physical branch visits, streamlining the account opening process and enhancing accessibility, especially for those in remote locations or with limited mobility.
The Friction of Unrealistic Demands
While Video KYC offers undeniable advantages, its implementation in India faces roadblocks due to stringent requirements imposed by some banks. A key hurdle is the insistence on physical documents like plastic PAN cards (Permanent Account Number) and Aadhaar cards (unique identification number). While these documents hold value, their physical requirement creates unnecessary friction in the online onboarding process.
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Limited Issuance of Physical Documents: Many Indians, especially those residing in rural areas or belonging to economically weaker sections, may not possess a plastic PAN card or a physical copy of their Aadhaar card. The issuance of these documents can be a bureaucratic hassle, often involving long wait times and complex procedures. Insisting on physical documents creates an unnecessary barrier for these potential customers.
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Risk of Damage and Loss: Physical documents are susceptible to damage, loss, or theft. Demanding them for Video KYC adds an extra layer of risk for both the customer and the bank. A lost or damaged document can significantly delay or derail the account opening process.
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Focus on Digitization: The Indian government itself is pushing for a digital-first approach. Insisting on physical documents contradicts this national initiative and creates a disconnect for customers accustomed to using digital versions of these documents in other aspects of their lives.
Consequences for Customers and Banks
These unrealistic demands for physical documents have a ripple effect, impacting both customers and banks negatively.
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Customer Frustration and Drop-off: The requirement for physical documents creates frustration for potential customers, leading to account opening abandonment. Imagine a customer excited about opening an online account, only to be thwarted by the lack of a plastic PAN card. This frustration can damage the bank’s brand image and lead to customer churn.
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Exclusion of Unbanked Population: India has a significant unbanked population, particularly in rural areas. Insisting on physical documents further marginalizes this segment, hindering financial inclusion efforts. By eliminating the need for physical documents, Video KYC has the potential to bring more people into the formal banking system.
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Loss of Business Opportunities: Banks with overly stringent Video KYC requirements miss out on potential customers who may prefer the convenience of online onboarding. In a competitive market, this can lead to a loss of market share and business opportunities.
The Path Forward: A More Pragmatic Approach
To unlock the true potential of Video KYC, banks need to adopt a more pragmatic approach. Here are some key steps:
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Leveraging Digital Alternatives: Banks should accept digitally verified copies of PAN cards and Aadhaar cards issued by the government. These digital versions hold the same legal validity as physical documents and eliminate the need for physical possession.
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Risk-Based Assessments: Instead of a one-size-fits-all approach, banks can implement risk-based assessments. For low-risk accounts, digital verification of documents may suffice. For higher-risk profiles, additional verification steps can be implemented.
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Investing in Technology: Banks should invest in robust video conferencing technology with advanced facial recognition capabilities. This can enhance security and mitigate the risks associated with not requiring physical documents.
Conclusion: A Collaborative Effort
The success of Video KYC hinges on collaboration between banks, regulatory bodies, and technology providers. By working together, they can create a secure and streamlined online onboarding process that benefits both customers and banks. Striking a balance between security and convenience is crucial. As India strives for greater financial inclusion and a robust digital banking ecosystem, a more pragmatic approach to Video KYC will be instrumental in ensuring its success.
