Video KYC: Private banks hit the ground the running, while PSBs lag

Contactless identification could be a gamechanger in the post-Covid world

One year after the Reserve Bank of India (RBI) allowed banks to verify customer identity and onboarding through video-based customer identification process, close to 20 private sector banks have started the facility. Public sector banks have been laggards in offering this new technology to their customers with only one public sector bank offering the facility.

In January last year, with a view to leveraging the digital channels for Customer Identification Process (CIP) by banks, the regulator permitted video-based Customer Identification Process (V-CIP) as a consent based alternate method of establishing the customer’s identity, for customer onboarding.

Leading private lenders like ICICI Bank, Axis Bank, HDFC Bank, among others have started offering the facility to their customers. Kolkata-based UCO Bank is the only public sector bank offering this facility, launched in September last year.

“We have started the video-based KYC for customer on-boarding and authentication a few months back. This has been a useful tool during the pandemic as customers need not go to the branch for account opening,” AK Goel, MD & CEO, UCO Bank, told Business Standard.

UCO Bank has extended the facility of video-calling based KYC verification for Life Certificate submission of pensioners also. The bank said both the initiatives are being accepted by non-customers and pensioners during the pandemic situation. “The systems have given a huge opportunity to our bank for making things easier for our customers,” UCO Bank said.

State Bank of India – the country’s largest lender – is testing this new initiative which is likely to be launched by April 1, CS Setty, managing director of the bank, said.

Banking industry sources said one of the reasons for the slow progress made by public sector banks is that in these banks accounts are opened in branches unlike many private and foreign banks where the process is centralised. “To train staff in each and every branch for a particular process is challenging,” said a senior banker.

The other issue is that public sector banks have to follow the due process for the selection of vendors, who will provide the solution for the process. Selection of vendors in government entities takes far more time than in private banks, bankers said.

With video KYC, the customer can complete account opening digitally – sitting at home or office or any other place in the country through Aadhaar OTP based E-KYC and connect on a video call with a bank official for verification. The customer has to sign the form in the presence of the bank officials, which then needs to be uploaded. The bank will have to capture the customers' geographic location – to ensure that the customer is physically present in India. The banks also ask the customer to do certain things like turning left or right, say good morning to ascertain that the process is live and not a recording, and to confirm that they are talking to human being and not a robot. RBI has recommended the use of artificial intelligence for facial recognition.

Bankers said the thinking in the central bank is that going ahead physical paper-based KYC will be done away with since physical documents can be fabricated. “Even if the bank official is accomplished, he or she can be fooled,” a bank official said.

Private lenders which have already started the process of video-based customer authentication and

on-boarding are already seeing traction as 10-15 per cent of the customer on-boarding is happening through this channel and they want to scale up the process going forward.

Fino Payments Bank which launched video KYC two and half months agio for merchant acquisition said they are already seeing traction with 15 per cent of the total merchants on-boarded every month through this facility.

“People will look for convenience. And this is a very convenient way for reaching to people… In the next two-three months, we will launch video-based on boarding of customers also. This is going to be the new normal,” said Ashish Ahuja, chief operating officer, Fino Payments Bank, which acquires 14,000 merchants every month and who then act as business correspondents for the payments bank. “This is a big opportunity from both risk and scale perspective,” he said.

Since Fino largely deals with rural centres, call drop is an issue and the bank is working on reducing the call time. “As we typically deal with rural India, connectivity became an issue at times. The call lasts for 8-10 minutes. We find about 30-35 per cent call drops. We are taking steps to make the call shorter,” Ahuja said.

Fino Payments Bank currently has a network of around 300,000 merchant points spread across 700 districts of the country. With video KYC’s faster turnaround, the bank expects to have around 350,000-400,000 points by end of March 2021.

While private banks are in the forefront in adopting this new technology, the response from their public sector counterparts has been lacklustre. Public sector banks have been losing their market share rapidly to private banks.

Between 2015 and 2020, public sector banks’ loan market share dipped from 74.28 per cent to 59.8 per cent. Their deposit market share saw a decline from 76.26 per cent to 64.75 per cent during the same period.

There has been a commensurate increase in the market share of private sector banks during the period. Private sector banks’ market share in loans surged from 21.26 per cent in 2015 to 36.04 per cent in 2020 while for deposits, it went up from 19.44 per cent to 30.35 per cent between 2015 and 2020.

Public sector banks could lose out more on market share if they are not quick to adopt technology as the digital economy is expected to grow rapidly in the coming years. A report from ICICI Securities said India’s digital economy is expected to get augmented further due to various factors including strong capital flows, affordability and ramping up of digital infrastructure including telecom networks, data centres, manufacturing of digital devices and scaling up of digitally skilled talent pool. A conducive policy environment - digital India programme outlay more than doubled to Rs 6800 crore in this year’s Budget – will also help in to boost the digital drive.