Economic Survey: DPI brings down KYC costs to Rs 6 from about Rs 1,000

Mumbai, July 22, 2024

The disclosure on KYC costs comes as the RBI has been cautious about KYC risks and has emphasised well-defined norms for market players

Digital Public Infrastructure (DPI) blocks such as Aadhaar have drastically reduced operational costs for processes like electronic Know Your Customer (e-KYC) from Rs 1,000 to less than Rs 6, data from the Economic Survey shows.

The steep reduction in price comes with the expansion of components of India Stack such as the identity layer, payment layer, and the data governance layer, with Aadhaar improving authentication processes in the country.

“Regarding the identity layer, Aadhaar has been instrumental in transforming India's authentication ecosystem. It has facilitated the KYC process, reducing the cost of conducting e-KYC from $12 to 6 cents, extending banking to millions of Indians and improving financial inclusion,” the survey said.

The disclosure on KYC costs comes as the Reserve Bank of India (RBI) has been cautious about KYC risks and has emphasised well-defined norms for market players.

In April, in a draft regulation for payment aggregators (PAs), the banking regulator outlined KYC procedures for small and medium-sized merchants.

It said a PA will need to undertake Contact Point Verification (CPV) and duly verify the bank account in which the funds of small merchants are settled.

Fintech players had said that some merchants might be “too small” to go through the full KYC process, which requires physical verification of such customers. This, in turn, may increase their costs, fintech participants had cautioned.

Meanwhile, the Economic Survey ’24 pointed out that the vision for the country would evolve as a fintech nation moving forward with a large number of such firms operating in India, and a high adoption rate of newer technologies in the financial services space supported by digital public infrastructure (DPI) rails.

[The Business Standard]