With electronic know your customer, or eKYC, coming to an end, distributors, especially, online investment platforms are reworking their customer onboarding process for first-time mutual fund investors.
At a time when the popularity and demand for mutual funds is rising, this rule has come a major setback for the industry, as the Supreme Court’s diktat has forced many distributors to go back to enrolling customers physically. This means, a new mutual fund investor investing physically has to now wait for at least a couple of days to become KYC compliant.
The onboarding time for robo advisory firms has also gone up. “We have now gone back to the earlier method of doing KYC. The customer fills in the data on our site and we generate a pre-filled form which the investor has to download, sign and upload it on our system. Subsequently, our customer service executive schedules a video call through Skype or WhatsApp to complete the IPV. As soon as IPV is done, we send the details to KYC Registration Agency. The customer can then open a zero-balance folio as the KYC is still under process. Normally, it can take a few hours or a day for the KRA to complete the KYC,” explains Sharad Singh, CEO, Co-founder, Valuefy.
Physical KYCs are more time consuming. The distributor has to submit the documents to KRAs. The KRA nodal agencies have to manually fill in the data in their systems from the applications. If the handwriting is illegible, there can be errors in capturing the KYC data, which slows the process further.
“The industry will figure out alternative ways to complete the KYC procedure but it won’t be as fast as eKYC. After going three steps forward, it’s like going ten steps backwards,” said the founder of a Mumbai based robo advisory firm wishing anonymity.
After the introduction of Aadhar based eKYC in 2015, KYC was done instantaneously as it did away with the requirement of filling physical forms.
Aadhar based ekyc had come as a breather for mutual fund distributors. The transition to digital investing helped onboard customers faster at a lower cost. Many distributors had started using portable biometric devices which were attachable to their smartphones. Distributors used to carry this device with them to onboard a new client.
In-person verification of the client was not required if distributors had onboarded investors through Aadhar based eKYC using biometric authentication and through OTP based KYC. The OTP based KYC allowed customers to invest Rs 50,000 per year per AMC while biometric based facilitated complete KYC. All this has been rolled back now.
Fund officials say that eKYC helped the industry onboard investors faster and increase volumes. For instance, NSE MFII has seen a steady growth in number of transactions. Currently, it gets 10-11 lakh transactions every month.
Chennai based online investment firm FundsIndia, which manages Rs 6,000 crore AUA, was onboarding 20-25% of its new investors through eKYC. “It has increased the client acquisition cost. Earlier, we were able to onboard a customer swiftly through eKYC. If someone is keen to invest, he/she will provide the documents faster. The time taken to complete the process depends on the customer,” says C.R. Chandrasekar, CEO and Co-Founder, FundsIndia.com.
The way ahead
Fund officials say that Unique Identification Authority of India, or UIDAI, is working on enabling Quick Response, or QR, code-based e-onboarding on a voluntary basis. QR code is printed on e-Aadhaar or Aadhaar card. This should help distributors onboard new clients faster. This can be read through approved devices. However, this process has to be tested and approved by the regulators.
Meanwhile, distributors have to complete the IPV procedure either physically or through a video. However, even video chat takes a few days as the distributor and the investor have to be online at a specified time. Introduced by SEBI in 2012, IPV can be done by distributor and the fund house. This procedure is done to ensure that the investor has signed the documents in the presence of a distributor.
While the industry is still awaiting clarity on whether the KYCs done through Aadhar will be still valid, online investment platforms are rejigging their processes to comply with the new rules.
Since the industry has stopped accepting eKYC very recently it is too early to ascertain its impact. Meanwhile, distributors are keenly awaiting to hear from regulators to find alternative method to onboard new clients digitally.
