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Why Biometric Identification Is Required For KYC In Digital India

Biometrics for KYC is a win-win situation for all the stakeholders - banks and financial institutions, customers, and the government. It will not be too much to believe that it holds the key to unlock the bright future of financial sector in India

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In the last decade or so, the government has been working towards bringing transparency and accountability to the financial transaction process. Know Your Customers (KYC) is an important regulatory process in this quest. The mandatory regulatory process refers to collection of complete and authenticated information by financial institutions before initiating any business activity with a customer. By implementing the process, financial institutions verify the identity of their customers, safeguard them against financial frauds arising due to identify theft, preventing money laundering, tax evasion, and any other kind of illegal financial transactions.

However, the traditional paper based documents still leave loopholes in the KYC process, defeating the entire purpose. Most illegal financial transactions in the world take place due to the lack of a robust KYC mechanism. For example, a loan raised on fake paper based identity proof could be used for terror financing or for creating dummy corporations. Moreover, in times when financial institutions save digital copies of customer identity proof, the opportunity for cyber intruders to steal and misuse this information is very high. Hence, there is pressing need to implementing an impenetrable way to collect customer identification data.

Biometric information such as fingerprint, finger vein patterns, iris scan, and facial & voice recognition helps in capturing unique identification details pertaining to an individual. Given that, no two individuals in the world have the same biometric details; it is an error free way to Know-Your-Customers. Once the biometric information of an individual is captured through a digital identification system such as AADHAR, it is easy and efficient way to share it safely across financial institutions and verify it in a discreet manner. As all the banks and financial institutions in the country are required to collect and store confidential personal details of their customers, it is their responsibility to safeguard this critical piece of information. Any misuse of this information not only makes the business liable for regulatory penalties but also makes a big dent on the reputation of the brand. Therefore, merely one such unwanted incident may be extremely harmful for the business as well as the customers. By the nature, the biometric details are impossible to copy or replicate. The added encryption layer makes it further impossible for intruders to make any illegal use of this data. The use of biometric identification management for precise identity verification has proven to deliver safety, efficiency, and convenience for organizations and has enabled them to comply with government regulations aimed towards protecting the personal information and hard-earned money of individuals.

Using biometric information, the financial institutions and regulators can trace the entire trail of transactions pertaining to an individual in an error free manner. By capturing biometric details, the institutions can make sure that the customer does not present any false information at the start of a financial relationship. Therefore, things like multiple accounts of an individual with different fake identity proofs, front running for someone else, and tax evasion by transaction through multiple accounts will be a thing of past. Biometric information is the way towards safe, transparent, compliant, and error free financial transactions. Given the credibility of biometric KYC, financial institutions will be able to better evaluate the financial profile and credit worthiness of an individual. They will be more open to lending to those individuals who complete the due process. Therefore, the lending business will see more liquidity and lesser anxiety.

Given the above benefits, biometrics for KYC is a win-win situation for all the stakeholders- banks and financial institutions, customers, and the government. It will not be too much to believe that it holds the key to unlock the bright future of financial sector in India.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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biometric scan kyc norms digital india


Rajesh Gupta

The author is founder, Cash Suvidha

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