NSDL reverses electronic signature service a day of discontinuing it; Fintech players still want clarity on Aadhaar based eKYC

The moves comes as a relief but the fintech industry says clarity needed on Aadhaar-based eKYC

The National Securities Depository Limited (NSDL) restarted its electronic signature service from the night of 14 December, a day after it sent letters to client companies saying the facility had been discontinued.

The reversal of the decision was announced in a one-line email by the Mumbai-based depository for stocks and shares for Indian investors whose clients include digital lending companies and stockbrokers.

“As advised by UIDAI, we have resumed eSign services,” said the mail, a copy of which has been seen by Tech2, referring to the Unique Identification Authority of India (UIDAI). NSDL’s eSign allows Aadhaar holders to electronically sign a document.

Tech2 was the first to write about NSDL’s decision to discontinue the service that digitally authenticates and collect signatures of customers at the time of onboarding. The renewing of the service was greeted with relief by the fintech industry as well but the sudden ‘U-turn’ has raised questions too.

“This brings uncertainty in the business, it will be much better if they put out whether eSign services using Aadhaar-based eKYC are legal or not. We can set up our internal systems accordingly,” a top executive with a fintech startup said on condition of anonymity.

Representational image. PTI

Representational image. PTI

Entrepreneurs also see it as an indication that eventually Aadhaar-based eSign will be discontinued and by resuming the service, authorities could be giving time to businesses to move to offline Aadhaar or other means of capturing customers’ signatures electronically.

We spoke to multiple players and found that companies are already looking beyond Aadhaar’s biometric-based mode, which has security implications and also runs afoul of the Supreme Court’s privacy judgment.

eMudhra is working on offering offline Aadhaar XML-based flow and Permanent Account Number (PAN) to authenticate and validate signatures. It is working with around 60 companies for eSign services. Customers can use their PAN number, issued by the income tax department, followed by a video verification of the picture on the card.

“For an offline Aadhaar, the customer needs to generate the Aadhaar XML. For PAN-card based flow, they need the PAN number, address proof and a video of themselves with the card,” said Kaushik Srinivasan, senior vice-president, eMudhra, which offers paperless documentation for large companies.

Signzy and DigiO are among several players offering services to startups and companies that have either switched or in the process of moving away from Aadhaar’s biometric database.

“Signzy’s digital contracting protocol does not need Aadhaar and is therefore fully compliant with the Supreme Court’s judgment on the right to privacy. The protocol is already being used in live environments by several banks and other financial services providers in India,” chief executive officer Ankit Ratan said.

While large corporate entities do not have a problem with non-biometric electronic signatures, fintech entrepreneurs pointed to “last-mile” issues.

“Consumers in villages and small towns are usually not that savvy and the XML-based flow requires multiple steps to be undertaken through the UIDAI website, if the flows were simpler, the adoption would have been faster,” said the fintech executive quoted above.

Sources said many fintech lending startups are offering small consumer loans by opting for a click-based undertaking. A paper-based signature collection system was far more expensive than the profits they would make out of small loans.

“There is no debate around the issue of privacy, but post the (Supreme Court) judgment, there have been multiple issues of policy uncertainty which is harmful to the business,” said the founder of a digital identification startup who didn’t wish to be identified.

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