Every time you buy a financial product, here’s how the process typically goes. Let’s say you want a loan. So, you contact a bank or an NBFC. You meet them at their branch or are visited by their agent. You fi ll out several application forms, often in a hurry and without properly reading the terms and conditions of the product, you’re buying. Then, you hand over several sets of papers—your ID and address proofs, income statements, and tax filings among others. And you wait. Sometimes, you wait several days, sometimes weeks, before you finally get your loan.
All this is about to change. Be prepared for the Amazonification of financial products where you can order your loans, insurance, mutual funds and cards in a hassle- free manner. You may be able to buy a financial product instantly, without submitting a single sheet of paper as evidence, and even be able to sign your documents without lifting a pen. And all this may be possible with the power of your smartphone and your Aadhaar number.
2018 – The Year of Paperless Finance
Just as 2017 was the year of cashless and digitized payments, 2018 could be the year Indians make a large-scale shift to buying financial products in a paperless manner. In the buying of any financial product, your KYC and signature are vital for your application to be processed. But in a paperless setting, these things can be managed electronically—often, via just a smartphone.
In coming years, mobilese will become the epicenter of digital banking, as technology improves (4G, LTE) and smartphones become even more widespread. More than half of mobile devices sold today are smartphones, which will be more than 80 percent by 2020. Mobile banking is going to be the cornerstone of the digital strategy moving forward. As smart phones become most customers’ first touch point, banks need to digitize entire process, from customer-facing, to customer on-boarding, loan approval, underwriting and loan closing processes to meet customer expectations and resolve manual processing issues.
Customer on boarding is one of the most arduous and time-consuming functions burdening banks. On an average, banks still need one to two weeks, and in some cases months depending on the complexity, to bring a new customer on board—which compared to digitized process appears to be a mammoth task. Online document submission may seem like simple technology these days; however, it’s surprising that many nationalized and private sector banks do not have this facility or do not accept the same due to their interpretation of the regulations and/or internal policies, which can be frustrating for the customers.
There are key components to making online, paperless buying of financial products a reality. Let’s take a look at them.
The Benefits of E-KYC
In the offline world, you complete your KYC process by submitting photocopies of such documents as your ID, address proof, bank statements, and tax records among others. The printing, sharing and examination of papers are a time-consuming and cost-intensive exercise. But today, India has the digital technology to complete e-KYC electronically and instantly via Aadhaar.
As of today, you can open limited functionality savings and loan accounts with caps of Rs 100,000 and Rs 60,000 respectively. Since your Aadhaar contains such details as address, date of birth and cell number, you may mention your Aadhaar number in your application. The service provider will initiate an OTP which you can share to instantly complete your KYC process. Once the industry and the RBI decide to adopt e-KYC at a larger scale, more people will be able to open accounts instantly.
The Benefits of E-SIGN
When you buy a financial product, you need to sign your application form, thus consenting to various terms and conditions imposed by the service provider. Without the signature, this process remains stuck. In the off line world, to physically collect a ‘wet’ signature— the traditional sign made by an ink pen—also entails time and collection costs. But now, there is the availability of e-Sign, which can replace wet signatures. Several Indian laws – the Negotiable Instruments Act, the Information Technology Act, and the Indian Evidence Act – have been amended to accord legal status to e-Sign or the electronic signature. The use of e-Sign is on the rise and it may replace wet signatures at a large scale in the future. This, too, would allow the instant opening of accounts. E-KYC and e-Sign, together, would overcome geographical barriers, cut industry costs, and allow more people to open accounts, buy insurance, take loans, and invest in mutual funds using the power of the internet and their Aadhaar—instantly, and paperlessly.
Sharing of Documents via Digilocker
Imagine going to a bank to open a new account, being told that you’re missing a document, and then going back home to get it. Such problems would become a thing of the past with DigiLocker. A Government of India service, DigiLocker today enables a secure customer consent-based sharing of documents from issuer to bank. Push is required from Ministry of Electronics and Information Technology (MEITY) for addition of more issuers on the DigiLocker enabling users to share documents like income tax returns, TDS records, indirect tax challans, and banking transactions. Addition of more issuers on DigiLocker will create a trusted paperless ecosystem enabling individuals and small businesses to share their data paperless for availing credit from the formal financial system.
Seamless Payments via E-NACH
E-mandate is a feature through which a customer can automate their payment between two bank accounts electronically. The e-mandate service will be beneficial to the customers in making payment to the utility companies for monthly subscriptions, bill payments, insurance companies for premium payment by policy holders, NBFCs and other finance companies for EMI payments, education institutions for school fee payment etc.
The money receiving entity will collect the NACH mandate form from the customers and the customer using a digital signature system, can authenticate this mandate process with a one-time password (OTP), which will be sent to the mobile number linked to his/her Aadhaar number. With the mandate form, the customer gives the corporate the authority to debit his account for a certain period and at a certain frequency. The corporate verifies the details provided by the customer in the mandate form. After verification of details, the entity forwards the NACH mandate to its bank. The entity’s bank then shares the NACH mandate with the NPCI. Once the information is validated, the NPCI forwards the mandate to the customer’s bank for approval. Only fully validated transactions are forwarded to the customer’s bank for debiting. Once approved by the customer’s bank, the entity is authorised to collect funds from the customer’s account.
All financial institutions should be integrated with e-NACH via one national paperless system. But, currently, only a limited number of banks are live with e-NACH. Having more banks on the platform would further pave the path for paperless finance.