Say goodbye to banking

inconvenience, hello to KYC portability

Thought Paper

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Say goodbye to banking inconvenience,

hello to KYC portability
Often, its the little things that are a big nuisance.
Like advising all those who need to know about
a change in address or phone number. Mobile
number portability has enabled customers
switch providers without the fuss of a number
change; similarly, portability of health insurance
contracts ensures that customers dont lose their
no claim bonus, when they change providers.
However, banking is still stuck in an era of
duplicate procedure and documentation; those
whove repeated the tiresome account opening
and KYC (Know Your Customer) processes, at
each of their banks, know how frustrating it can be.

This may become a thing of the past, if the

Reserve Bank of Indias suggestion of introducing
KYC portability ahead of account number
portability becomes reality. That being said, the
regulator stops short of explaining how this
can be achieved.
This paper explores one possible route to KYC
portability the establishment of a central
repository tasked with assigning every bank
account holder a unique identity, which is a
prerequisite for one-time KYC compliance that
can be shared by all banks.

Situation
Current KYC procedure requires bank customers
to furnish proof of identity and address.
Unfortunately, unlike in the case of Mutual Funds,
where KYC has been made portable on the basis
of the PAN card, in banking, there is no
standardization of acceptable documents to
enable something similar. This means that a
particular piece of paper, say a Small Scale
Industry Certificate, which serves as proof of a

corporate customers identity in one bank, is of

no consequence in another. While the Aadhaar
card, issued by the Unique Identification
Authority of India to all Indian citizens will
solve this problem, universal coverage is still
some years away. Does this mean that KYC
portability in banking has no choice but to
wait? Not necessarily.

Solution
There is a possible interim solution in the form
of a unique ID-issuing central repository, which
shares the ID and associated one time KYC
clearance with all banks, thereby exempting
them from subjecting a prospective account
holder, who is already KYC compliant to one
more round of the same procedure. The role of
this central repository would be similar to that
played by CDSL Ventures in Mutual Funds, or
credit scoring agencies in lending.

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Thought Paper

Once the mechanism is in place, banks would

need to gather and upload the following
information in the central repository whenever
a customer applies for a new account:
Name
Date of birth
Document submitted as ID proof, such as
Driving License or PAN Card etc.

 Validity of the above: This is important so

that subsequent banks using the same KYC
dont end up with a document that is past
its due date, and are able to demand fresh
documentation from the customer
Document submitted as address proof, such
as Telephone Bill or Bank Statement etc.
Date of issue of the above: This is necessary
because banks typically insist on a proof of
address document that is no more than a
few months old
Scanned images of ID and address proof,
as well as the customers signature: The last
item enables banks to authenticate a
customer beyond doubt
However, for this to happen, the RBI needs
to standardize the documents that may be
accepted as proof of ID or address by all
banks; it should also allocate a user ID to each
bank, enabling it to view, update or add to
the central repository, ideally through a
secure website.
The following section briefly explores the way
in which the central repository could work.
Every customer entering into a banking
relationship for the first time ever will be allotted
a UCIC (Unique Customer Identification Code).
At the same time, all existing customers will
also be assigned a similar code. Banks need
to do what they can to avoid issuing a second
code to a customer who already has one.

Perhaps they could write to all their customers

to ask if they have already been given one,
and if so, request them for the details. That
being said, the fact remains that banks will
have little or no control over willful duplication
by customers.
The central repository should have the
capacity to capture all the information listed
in the earlier section, namely the nature of
the documents, their validity, and so on.
When a customer applies for a new account,
it should be possible to match the given
information and signature with that provided
for the purpose of securing the unique ID.
Subsequently, it should be possible for other
banks to run a search using the unique ID
and match the signature, before opening
an account for the customer. A new field
indicating whether the aforementioned check
has been carried out or not needs to be created.
When the validity of any of the documents
in the central repository expires, the
responsibility to obtain fresh documentation
and upload the same must be shared by all
banks where the customer has an account.
Similarly, if the address mentioned in
the application form differs from the one
provided to the central repository, it should
be the banks responsibility to obtain the
revised proof of address, and upload that
along with the new details.

Benefits
KYC portability could potentially yield several
benefits. As the RBI rightly observed, it is
certainly in the interest of customer convenience.
With KYC portability, banks would be able to
complete account opening formalities faster,
and with less paperwork. That would lead to
direct savings in the cost of physical document
storage as well as be a step towards paperless
banking. Banks would also gain visibility into
a customers entire portfolio, by looking at a

consolidated picture of all the accounts linked

to his unique ID. Where customers co-operate,
KYC portability could help banks weed out
duplicate identities.
KYC portability would also facilitate compliance
and law enforcement which is really the raison
dtre of KYC regulation. This is because the
availability of a unique ID speeds up information
retrieval, as illustrated by this example: Lets

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say that the Income Tax Authorities are

searching for a particular individual. In most
cases, they have no more to go on than a
name and the details of a single bank account.
The only way that the authorities can locate
all the other accounts belonging to the
individual is by mounting a search from bank
to bank. But if the individual is registered with
the central repository, it becomes much easier

to track down all his accounts with the help of

the unique ID.
The unique ID might also be useful to identify
split transactions, namely those transactions
with a dubious purpose, say money laundering,
which are deliberately broken into smaller pieces
in order to escape regulatory attention.

Challenges
Needless to say, implementing such an ambitious
idea wont be easy.
The entire success of this program hinges on
the unique ID; but, as mentioned at the outset,
both, universal coverage of existing account
holders and de-duplication of identity can be
achieved only with the co-operation of bank
customers. While genuine customers might
lend their support, those with nefarious motives
who would like to escape identification, will
never do so. Here, technology could play a key
role by endowing the website being used by
banks to upload the data, with adequate
intelligence to spot duplicate data entries or
duplicate allocation of IDs.
Another challenge is establishing data ownership.
Currently, every bank follows different norms
and timelines for KYC recertification. When the
KYC is common to all, which banks standards are
to be followed?

a customer has an account should share the

onus of uploading modifications. Say, one bank
updates some data in the central repository;
this must be advised to all the other banks
where that particular customer has an account.
This is one more area that requires direction
from the RBI.
Last but not least is the matter of risk. At
present, risk perception is an area of individual
discretion, and every bank approaches it in
a different way. For instance, a bank might
choose to recertify a politically exposed person
generally graded a high risk customer once in
three years; another might do it every alternate
year. Should the customer, who has opened an
account with the first bank, approach the second
after two years, will the latter ask to recertify him?
While these are key issues crying for resolution,
they must be used to strengthen the case for
KYC portability, not weaken it.

The issue of how to carry modifications forward

also needs to be sorted out. All banks where

Rekha Hansraj Thakkar

Consultant, Infosys

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Thought Paper

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