India's Supreme Court issues new ruling on Adhaar

Indian Supreme Court Issues new Ruling on Adhaar

The core reminder not long ago that the Supreme Court passed the latest ruling, which had a huge impact on the Indian fintech community.


The road to digital finance is not a straight road. As one of the fintech powerhouses, India stands out with its domestic solutions to major problems. In order to integrate a large portion of the 1.2 billion citizens into the financial system, India has taken a number of demonetization measures.

For example, India uses the Aadhaar program and a series of APIs to provide fintech companies with many digital authentication tools not seen in other countries. But not long ago the Supreme Court passed the latest ruling, which had a huge impact on the Indian fintech community.


What is Aadhaar?

The Indian government operates the world's largest citizen biometric ID system. Aadhaar is a biological database based on 12-digit digital recognition. The data includes biometric data such as iris and fingerprint scans. It functions like a social security number and is tied to a mobile SIM card and bank account. Aadhaar is the backbone of IndiaStack, a set of APIs used by the ecosystem of governments, startups, enterprises and developers, serving 1.2 billion Indians with the goal of achieving a cashless society.


Indian fintech startups use databases to authenticate new users digitally, so a powerful database like Aadhaar is very useful. India ’s fintech investment in the first quarter of this year broke the record, with a total of 39 times, compared with only three times in the same period in 2013. And Aadhaar is one of the reasons behind this growth.

For countries with large populations, diverse demographics and geographical locations, identity verification is the real obstacle to entering the modern technological society.


As a e-KYC platform, Aadhaar is particularly useful in verifying the identity of customers who have no bank accounts and bank accounts that are not displayed in the banking system.


Su[reme Court Ruling on Adhaar

According to statistics, Aadhaar currently covers 99% of Indians with digital identities.


What will happen to Fintech and KYC?

Earlier last week, the Supreme Court of India announced that it would prohibit private companies from obtaining Aadhaar data. This means that fintech companies that rely on Aadhaar for loans, mutual funds or insurance need to find other ways to attract new customers. The cost of startups will increase significantly.

HarshilMathur, CEO and co-founder of Razorpay, an online payment solution provider said, "Currently, e-KYC verification and entry costs are $ 15 per person.

Soon after, using the same verification process, the per capita cost of physical KYC will reach $ 100. "In addition, after the regulations are introduced, the speed of financial services will also be limited.

It is estimated that in India, traditional physical certification takes at least a few days, while Aadhaar only takes a few minutes. This ruling will inevitably make it more difficult for local digital companies to compete with financial institutions.


Where is Indian fintech going?

Expects that the cost and speed of the startup community will be affected. Indian consumers have to accept higher costs and longer processing times. And the impact is likely to be transmitted beyond digital identity authentication, and it will be more difficult for fintech companies to raise funds.



But it is interesting that this ruling has triggered comments on the authenticity of digitalization by Indian fintech companies. In the fintech world around the world, the example of "pretending before realizing" is very common. From this perspective, fintech companies tell investors that they are doing digital authentication, but in fact, operations rely more on manual processes.


An anonymous fintech executive said, "The content of the ruling will affect how companies focus on new customers, which in turn will affect investor confidence."

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