In a move that could help prepaid payment instrument (PPI) issuers complete the e-KYC process for users before the September 1 deadline, the government has approved promulgation of an ordinance to allow individuals to voluntarily use Aadhaar as KYC document.

The ordinance has the same amendments to the Aadhaar Act as proposed by the Aadhaar and Other Laws (Amendment Bill), 2018, passed in the Lok Sabha last month. However, it later lapsed in the Rajya Sabha.

Verification process

PPIs, including mobile wallets, gift cards and paper vouchers, such as meal vouchers, were not allowed to use Aadhaar as one of the verifying documents for KYC after the Supreme Court, in September last year, upheld Aadhaar’s constitutional validity and barred private companies and banks from using it for identity verification.

The Supreme Court’s decision to not use Aadhaar had put several fintech companies, online lenders and mobile wallets in difficulty, with the cost of operations and acquisitions shooting up by more than 100 times.

Mobile wallets and other fintech companies refused to comment on the ordinance, as they were awaiting more details on the same.

However, many said it was a breather and that it would help the companies meet the September 1 deadline set by the RBI to complete the KYC process, failing which users may not be able to use the wallets.

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 – began building solutions based on Aadhaar for customer acquisition and on-boarding.

The solutions were cheap, easy and convenient, as verifications would be over in minutes and customers could soon begin using it.

In the absence of Aadhaar, they had to rely on paper-based verification, which is a lengthy, expensive, and flawed process.

Companies fear a massive dropout in customers if e-KYC is not completed before the deadline.

RBI deadline

While the RBI has extended the deadline three times, it is unlikely that it will do so again.

“Now we can at least put our foot soldiers back on the field with Aadhaar biometric machines. This is faster and easy and does not require much time,” said a spokesperson with a leading wallet player.

According to sources, a massive lobby from companies such as Reliance Jio, Paytm, and others, forced the government to pass this ordinance before the general elections, which is due before May.

Ramaswamy Venkatachalam, Managing Director – India, FIS, a fintech solutions provider, said: “The use of Aadhaar e-KYC will also reduce the cost of identifying people, provide increased transparency to the government in implementation of its schemes, and be an additional layer of security.”