Customer on-boarding costs to shoot up for fintech players

The Supreme Court’s verdict on validity of Aadhaar might lead to short-term difficulty for companies in the financial technology (fintech) sector. According to several players BusinessLine spoke to, the cost of customer on-boarding might go up substantially from almost ₹1 to a few hundred rupees.

The Supreme Court verdict mandates customers to link their PAN with Aadhaar, but private companies, including banks, cannot force customers to provide Aadhaar details for customer verification.

Ever since Aadhaar came into force in March 2016, several banks and fintech players across segments — online lenders, mobile wallets, financial service providers and aggregators — had begun building solutions based on Aadhaar for customer acquisition and on-boarding. The solutions were cheaper, easy and convenient as verifications would be over in minutes and customers could soon begin to use their services. However, fintech firms may now have to return to the lengthy KYC (know your customer) verification process. This would require them to collect several physical documents such as Voter’s ID, driving licence, ration card, PAN and the like.

“Aadhaar is crucial to driving financial inclusion at the bottom of the pyramid. Paper-based customer verification makes financial inclusion hard as the costs are very high. However, about 60 per cent of our customers are willing to give out Aadhaar details to authenticate their documents online. But whether this will scale up after the judgment is yet to be seen,” said Adhil Shetty, CEO of BankBazaar.

Harshil Mathur, CEO of Razorpay said fintech companies might now restrain themselves from targeting rural customers, or those from the lower strata of the society. However, Mathur, added: “About 80 per cent of the new customers were willing to give Aadhaar details and that they really did not care about data privacy or security.”

Bhavin Patel, Co-Founder and CEO, LenDenClub, a P2P lending firm, said “...This may affect fintech as well as other financial companies which use only Aadhaar as their identity verification mechanism. Though the verdict does not affect us, we believe this will be a regressive move for fintech companies as they will eventually move to the traditional mode of verifying individuals and thereby the turnaround time for processing the loan will increase considerably.”

Vinay Kalantri, founder of TMW (The Mobile Wallet), said that besides increasing cost of doing business for fintech companies, the verdict also takes away the two unique advantages that firms in the sector enjoy: quick loan approvals and timely delivery of credit.

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