Fintech startups need to rework their Aadhaar

BENGALURU: Financial technology startups that have built business models around Aadhaar now have to include additional documents for customer verification following the Supreme Court’s ruling on Aadhaar, which will force a jump in operational costs.

CV Madhukar, global digital identity initiative lead at Omidyar Network, said companies using Aadhaar-based authentication are likely to see an increase in costs and will require more time to enrol customers.

The impact investment firm has injected nearly $10 million across initiatives such as the Bharat Inclusive Technology Fund that backs businesses leveraging the Aadhaar-linked India Stack platform for e-verification.


Some experts said fintech startups, specifically digital lending platforms that use Aadhaar to decide on the creditworthiness of borrowers, will be affected by the Supreme Court restricting storage of Aadhaar data to six months, from five years earlier. “With the stringent data privacy norms coming in, further with limitations on storing Aadhaar data, the entire fintech sector could be staring at uncertain times,” said Bhavik Hathi, MD at consultancy firm Alvarez and Marsal.

Even so, fintech firms are hopeful that while the court has said private companies cannot insist on Aadhaar for their services, they will be able to conduct e-know-your-customer authentication with customer consent. “What this judgement does is offer the customer the choice. Now, financial services companies will have to start offering other identification documents as options for authentication, but e-KYC as one of the options will continue,” said Naveen Kukreja, cofounder of lending marketplace Paisabazaar.

Vivek Belgavi, fintech partner at consultancy firm PwC, said that as per his “preliminary reading of the judgement, I do not see anything prohibiting regulated entities from leveraging the UIDAI (or Aadhaar) database and onboarding customers through e-KYC. For other means of KYC, there would be a jump in operational costs and that could be passed on to customers in the future.”

A top government official who spoke to ET said that private players cannot offer Aadhaar-based authentication services unless regulations are changed.

Digital payment gateway company Razorpay founder Harshil Mathur said that Aadhaar-based eKYC was helping make customer onboarding much cheaper, may be around Rs 15 per customer, but now if the need is to do paper KYC then cost will go up for merchants to atleast Rs 100.

Mobile wallet companies mandated to do KYC by the Reserve Bank of India (RBI) are waiting for further clarification from the regulator to see if they can still use e-KYC as a method of customer authentication.

PhonePe cofounder Sameer Nigam said that while he expects the Prevention of Money Laundering Act’s KYC section to be updated post the judgement, till further clarifications arrive from RBI or the government, it is not clear as to how regulated entities will be affected by the Aadhaar ruling.

“Even if platforms can take Aadhaar numbers from customers, this judgement could restrict them from extracting all the personal details from the UIDAI database, therefore defeating the purpose,” said Hathi of Alvarez and Marsal.