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Several Indian payment firms and aggregators seem to lag behind banks in meeting know-your-customer (KYC) norms, despite the recent focus on the fintech industry following the central bank’s ban on Paytm Payments Bank. Large payment companies view KYC more as a security checklist, potentially driven by cost considerations, rather than a mandated practice by the Reserve Bank of India (RBI), according to industry insiders.
Banks have embraced video KYC for business owners, documented storefronts through pictures, and tracked websites. In contrast, non-banks take a lighter approach, citing the high cost of physical KYC, which can go up to Rs 1,000 per person, compared to video or digital methods costing Rs 300-400. Payment aggregators, with thin profit margins, face disruption from increased operational costs.
Fintechs holding payment aggregator licenses are now awakening to stricter KYC requirements following regulatory actions against Paytm Payments Bank. Razorpay has initiated video KYC for cross-border merchants, adhering to RBI guidelines, while Cashfree emphasizes compliance during merchant onboarding.
Offline players continue relying on physical document collection as the primary KYC method. Mswipe Technologies’ CEO, Ketan Patel, highlights the importance of physical checks and document collection before allowing transactions.
Identity verification startup IDfy’s co-founder, Wriju Ray, observes that banks and traditional lenders implement more stringent KYC checks compared to fintechs, which are still on a learning curve.
Regulatory guidelines emphasize payment aggregators as gatekeepers, requiring them to conduct thorough background checks on merchants to prevent the sale of counterfeit and contraband items. While large payment aggregators historically face law enforcement scrutiny, some argue for enhanced due diligence on merchants despite the current preference for convenience over strict compliance.