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eSigns latest victim of SC’s aadhaar verdict, fintech firms may take a hit


BENGALURU: The Supreme Court’s judgement on Aadhaar has got another victim. Electronic signatures, used by consumers to sign legal documents digitally, could stop soon, causing massive disruption in the financial services space, said industry executives.

After electronic Know Your Customer (e-KYC) and electronic NACH (National Automated Clearing House) mandates for customer verification, electronic signatures (eSigns) validated through Aadhaar have now emerged a contentious topic post the judgement barring private enterprises from accessing the biometric database.

Currently, fintech companies use eSign as a service that consumers can use to digitally sign documents needed for availing of financial services. This lets the companies avoid paper documentation and bring operational efficiency. But the court order raises questions over the legal validity of the service, since the entities that issue eSign certification capture Aadhaar numbers for customer verification.

UIDAI, which manages the Aadhaar database, has asked the certifying authorities (CAs) to give a declaration by December 14 stating that issuing eSigns were not against the spirit of the top court’s judgement. The CAs have in turn asked all service providers to issue the declarations as well.

Industry executives, who fear that this could kill a process that is central to their operations, said authorities should look at ways to overcome this situation, including by amending the law if necessary. “When the judgement says that the provisions of usage of Aadhaar, when backed by law, is allowed, why is the UIDAI developing cold feet and stopping the process,” asked Sanket Nayak, founder of Digio, a startup which offers eSign verification to banks and stock brokers. He said the government should seek the legal opinion of the attorney general on this. “We fear that after December 14, these services can get stopped and the entire industry will be in trouble,” said Nayak, who as a service provider has already submitted the declaration after legal considerations. “I hope all the major banks and financial institutions submit the declaration as well.”

For service providers, eSign is a convenient and quick customer authentication process. “Taking this away would definitely see a significant drop, especially in the consumer segment between the 20- and 40-year olds who are used to starting instantly on all service offerings,” said Nithin Kamath, CEO of Zerodha, a stock broker. Large banks either have developed eSign service providing capacities in house or use services from other tech companies. While legacy institutions will move to offline channels like in the past, fintech firms without a retail presence will be directly affected.

“Post the Supreme Court order, our onboarding of stock broker firms has seen a dip of around 40-50%, which is a clear reflection of the current market sentiment. Several brokerages that were earlier planning to shift to Aadhar e-KYC and e-Signing have deferred its implementation,” said Sapan Parekh, cofounder of Leegality-.com, an eSign and eStamp provider.

ET has learnt that traditional broking houses like Motilal Oswal and Angel broking could also be affected by the move. Both companies did not want to comment on the matter.





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