personal finance

How will the SC verdict on Aadhaar impact online lending companies?


The debate on the world’s largest biometric identification system is finally over. In a landmark judgement, the Supreme Court cleared the air around Aadhaar’s constitutional validity. However, the apex court ruled that private entities cannot force anyone to share Aadhaar data for the purpose of KYC authentication. How will affect online lending companies?

Online lending companies depend heavily on Aadhaar for e-KYC.
ET Online spoke to some of them to know how this move will affect credit evaluation and verification of borrowers.

“Not mandating Aadhaar (for the verification process) has sent the players back to the drawing board to work out strategies for physical verification, which is usually a time-consuming and expensive process. This was a good opportunity for citizens to maintain only one ID to avail variety of services but it seems that the opportunity is being lost,” says Bhavin Patel, Co-Founder & CEO, LenDenClub.

“We will eventually move to a traditional mode of verifying individuals through physical ID proof, which will be extremely cumbersome and time-consuming. It will be 10-15 per cent costlier to consumers and also increase the turnaround time by up to 24 hours,” adds Patel.

Many online lending companies view the striking down of Section 57 of the Aadhaar Act, barring private companies and banks to insist on Aadhaar details to provide services, as a major blow. “By barring all private organizations from using Aadhaar ID for verification, it has dealt a big blow for all digital businesses which leveraged e-KYC to simplify and ease the customer journey. We look forward to some more clarifications on this point,” says Ranjit Punja, Co-founder and CEO, CreditMantri.

However, Faircent holds a different view: “This ruling will have very little impact on us. We do not rely heavily on Aadhaar for any of our processes, whether it is financial transactions or borrower verifications,” says Rajat Gandhi, Founder & CEO, Faircent.

“We use multiple documents and access multiple data points basis the personal and financial information provided by the customers,” adds Gandhi.

CoinTribe, an online lending platform for business loans, believes the verdict will have a mixed impact on the digital lending sector. “Absence of mandatory linking of Aadhaar with various services cripples the stack. The comprehensiveness that the stack promised will start disappearing as the penetration going forward will reduce, making it just another ID proof,” says Amit Sachdev, CEO and Co-Founder, CoinTribe.

LoanTap, another fintech company, believes the verdict will have an adverse impact on loan repayments. “Aadhaar is widely used in fintech ecosystem for contract sign-off, repayment set up and KYC. Loan collection mechanism (repayment set up) will go for major change as Aadhaar linkage to bank would have eliminated need for physical check or electronic clearance form pick up,” says Vikas Kumar, CTO & Co-founder, LoanTap.

Gaurav Gupta, Co-founder and CEO, MyLoanCare.in, weighs in with a realistic view. “Supreme Court has clarified that Aadhaar cannot be made mandatory for services or be demanded by private entities. However, that does not mean that Aadhaar cannot be used as a means for conducting e-KYC provided the same is done with customer consent.”

“Court’s observation that there is no possibility or risk of someone creating a profile of the customer just by being in possession of one’s Aadhaar number will address fears about privacy and may help use of Aadhaar,” adds Gupta.

Amid the concerns around delay in loan disbursements and risk evaluation, most companies are waiting for the RBI to come up with clarifications on KYC guidelines.

“A lot of fintech companies, including P2P lending platforms, digital banks, NBFCs, mobile companies and others, rely heavily on Aadhaar-based eKYC verification and eSign for digital signature of documents. Cognizant of the privacy concerns around Aadhaar number, UIDAI had introduced Aadhaar Virtual ID and UID Token earlier this year. We need to see the bearing of this verdict on these additional security layers of Aadhaar Virtual ID and UID Token,” says Amit More, Founder and CEO, Finzy.

The Supreme Court in its 1400-page judgement held the linking of Aadhaar numbers to bank accounts, as mandated by an amendment to the Prevention of Money Laundering Act of 2002, as unconstitutional.





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