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OTP-based eKYC has limited validity: Wriju Ray in Economic Times

An Economic Times article dated May 17, 2019 strikes a rather optimistic tone while reporting on the recent Ministry of Finance circular that allows NBFCs (Non Banking Finance Companies) to use Aadhaar-based authentication of customers a.k.a eKYC.

"This will mark a significant gain for those struggling to comply with central bank rules on mandatory customer verification including mobile wallets and digital lending startups," Economic Times on eKYC for NBFCs.

However, it probably isn't as rosy as it appears.

There are a few reasons for this starting with the point Wriju raised in the article.

"Aadhaar-based eKYC using OTP is valid only temporarily, after which a full KYC with physical checks in mandatory', Wriju Ray, co-founder and CBO at IDfy.

Here's a quick list of points that make us doubt that re-allowing eKYC will have the kind of impact people are expecting on the fintech and NBFC industries.

  1. The OTP-based verification is valid only for 6 months. How does this help if it doesn't remove the need for a physical verification with its associated costs and overheads.

  2. Further, we know that majority of Aadhaar holders do not have their telephone numbers linked to it. They cannot, hence, receive the OTP to complete eKYC.  

  3. It's still mandated for all account-based relationships to have a physical KYC done. Which means that in most use cases, a physical verification will still be warranted.

  4. The eKYC will cost companies Rs 20 per transaction. Given the constraints mentioned above, companies will find it hard to justify spending Rs 20 per transaction when they have to follow it up with the lengthy and costly physical KYC.

  5. The eKYC has a 3-step process, which starts with an approval from the regulator. This might end up being a bottleneck and affect adoption.

Time will tell how fast the industry adopts this. But, at the moment, it seems that true eKYC adoption by the industry will require further amendments to regulations and processes.

IDfy provides cutting edge Digital KYC solutions for Fintechs and NBFCs. For enquiries, please write to

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