Consider the processes you must typically endure when you want to open a bank account. You walk into a bank branch with several printed documents, your application form, and a cheque. The person behind the desk collects these papers. The bank processes them. And you wait, perhaps for hours, perhaps for days, before your account becomes operational.
Imagine, on the other hand, a scenario where opening an account is like shopping on an e-commerce website. You sign up without any sheets of paper, make an initial deposit by paying instantly with netbanking facility or a card, and receive the ‘product’ in a day.
This could well be the future of banking in India: paperless, presence-less, and instant. Let’s understand how customers stand to gain from paperless banking.
The connectors
India today has over one billion people with either an Aadhaar number or a cellphone, or both. These two powerful connectors reach where most government services and businesses cannot. The two can be used to expand the reach of banking for the benefit of the common man. Additionally, there’s the growing penetration of broadband. By 2020, India is expected to have around 700 million internet users, double the number of users in 2016. With the growing reach of the internet, smartphones, and Aadhaar, hundreds of millions of Indians will be able to open bank accounts instantly without having to jump through bureaucratic hoops. This is already a reality today: limited-functionality savings and loan accounts can be opened without paperwork and instantly via your cellphone.
e-KYC and e-Sign
For most account-opening processes, collecting documents and your consent via your ‘wet’ signature is the key. However, these processes can now be completed digitally. With Aadhaar, you can complete your e-KYC process as well as digitally affix your signature to your application.
Here’s how it works: at the time of opening of a paperless account, the Aadhaar servers are pinged to authenticate you. Aadhaar responds with an SMS OTP that you must use to authenticate yourself, thus completing your KYC and signature collection within seconds. This is much faster than queuing up at a bank with a set of papers. It is also simpler than Aadhaar-based biometric authentication, which requires the collection and processing of fingerprints or retinal data.
In the recent past, several key laws such as the Indian Evidence Act and the Information Technology Act have been updated to provide legal status to e-signatures. Data shows the Indian consumer is ready for secure digital technology: e-signatures have been successfully utilised 21 million times in the past two years. Through e-KYC, limited-functionality loan accounts of up to ₹60,000 and savings accounts of up to ₹1 lakh can be opened.
DigiLocker
Furthermore, the Central government has created the DigiLocker, a cloud-based system of receiving, storing, and consent-based sharing of documents. Imagine the number of times you’ve had to run around when you forgot to bring one document or the other while opening an account.
Now, with DigiLocker, which is a free service, you can store your KYC documents such as driver’s licence, birth certificate, and school marksheets, and share them instantly with business and government entities using the platform. This further helps customers, businesses, and governments alike to reduce time and costs in collecting and processing documents.
Ultimately, you as a customer stand to gain: in a paperless ecosystem, costs can come down by 2-3 per cent for banking products, and 20-30 per cent for insurance products. You can open an account today on https://digilocker.gov.in
Presence-less Banking
With a paperless system, naturally, you don’t need to step into a branch with documents. You can access banking services instantly from the comfort of your couch. The industry believes it is a myth that you need to have a face-to-face interaction with a customer to authenticate his or her account. With Aadhaar-based e-KYC, there is little chance of financial fraud. In the age of massive NPAs and frauds, it is good news for banks that their customers are genuine.
Ultimately, paperless banking will be available to Indians in the deepest corners of the country where it would normally be hard for banks to set up branches. Harnessing the power of the internet, Aadhaar, and their smartphones, hundreds of millions of Indians will be able to paperlessly open and operate banking accounts.
The possibilities
This would lead them to expand their access to financial products, such as buying insurance to protect their families against death and disease; opening accounts with regulated lenders instead of loan sharks; and being able to invest in financial assets such as fixed deposits and mutual funds instead of traditional stores of value such as gold and real estate.
What we need from the Reserve Bank of India today is to provide an express clarification on the usage of e-KYC and e-Signatures so that they becomes standard procedures for banks in India. Secondly, the current caps on paperless opening of accounts — ₹60,000 and ₹1 lakh — need to be significantly raised so that more Indians can benefit from the facility. Eventually, this will provide hundreds of millions of Indians digital conveniences. It will also help them avoid events that lead them to, or keep them in, poverty — events such as borrowing from a loan shark to fund a relative’s hospitalisation.
The writer is CEO, BankBazaar.com