Video KYC, the new normal in post-COVID world?

In January earlier this year, however, Reserve Bank of India (RBI) introduced Aadhaar-based Video Customer Identification Process (V-CIP) to allow banks, NBFCs and other financial institutions to remotely complete the KYC of customers on video.

This has come as a boon for banks, especially in the post-COVID world. Earlier this week, Kotak Mahindra Bank announced it would use Video KYC to open a full-fledged Kotak 811 savings account – a first in Indian banking. 811 is Kotak Mahindra Bank’s full service digital bank.

Shanti Ekambaram, group president – consumer banking, Kotak Mahindra Bank said, "In the new normal world that we must now adapt to in the aftermath of COVID-19...Video KYC can prove to be a game changer where customer verification is completed from the comfort of one’s home or office without the need for a physical interaction."

Video KYC allows banks to verify the customers’ documents and record digital signatures via a video call, eliminating the need for any physical interaction or visit to the branch. RBI’s January 9 guidelines on Video KYC state that an officer of the financial institution may remotely vet a customer’s identity through PAN or Aadhaar cards and a series of questions. The agent will also have to ensure that the customer is physically present within the country by capturing their geo-coordinates. Banks will be required to provide agents with a smartphone or a tablet with an application which will carry out the video verification process.

Also read: Use tech tools to facilitate online KYC: Sebi to registered intermediaries

RBI also mandates that the origin of the video call must be from the domain of the concerned bank and not from a third-party source such as Google Duo or WhatsApp video call.

The detailed process of video-verification will include a random set of questions to prevent spoofing, live checks on the applicant to ensure there are no dummies. The process will be encrypted to prevent fraudulent attacks.

While this may be a boon for banks in the current times, getting the information technology (IT) infrastructure in place when most of the staff is working from home may be a challenge.

Ankit Ratan, chief executive officer of Bengaluru-based fintech startup Signzy, told CNBC-TV18, "As soon as the RBI guidelines came out, banks had already started to engage and figure out how they go live (with video KYC). While it may seem like a COVID-related measure, I think it is a great co-incidence. Even pre-COVID, a lot of banks we know wanted to go live quickly, but now with much of the support staff not available, it has become a little harder."

Also read: How to open a mutual fund SIP online? Here's the step-by-step guide

While IT infrastructure is one of the challenges, risks related to protection of sensitive information collected over video is another.

"The bigger challenges are on the side of operations, how do you align your operations and re-orient it. There needs to be a guy at the back end to process the Video KYC - so this is the operational aspect banks need to rethink. Second is the risk aspect - that there may be different scenarios with video onboarding that the bank needs to be wary of. And the third is currently whatever technology stack banks have, they need to bring a video based tech to it. These are three aspects banks need to take care of," Ratan said in a chat with CNBC-TV18.

Customer onboarding is one of the most critical tasks for any financial institution to help them expand their franchise and build a solid deposit base. This retail deposit base is also the cheapest source of funds for lenders, and therefore of importance now more than ever for Indian banks . Kotak Mahindra Bank may be the first to use this route to expand its customer base, but it certainly wont be the only one.