RBI's resounding message to fintechs: Quick and easy but with KYC
Paytm Payments Bank to stop offering basic banking services from February 29, mainly due to onboarding of customers and merchants without adequate KYC (know your customer) processes. Persistent non-compliance of regulations was the reason behind the stringent action by the RBI which had warned Paytm two years ago and had also engaged with it.
In short, it wasn't anything happening out of the blue. The RBI' action has triggered debates over innovation in the fintech sector, the quantum of punishment to Paytm, the style of regulation and, of course, the KYC norms, which is the nub of the Paytm issue.
Paytm is not an isolated issue Since the RBI has punished several other fintech entities for non-compliance, its action on Paytm seems to be a part of its long-drawn efforts to not let innovation run ahead, or afoul, of the regulation. The most important takeaway from the RBI's action against Paytm Payments Bank is not about a particular company persistently not complying with regulations; it is the message to the fintech sector that it must become quick and easy with innovation but not without following the KYC process and other regulations.
In 2020, the RBI told HDFC Bank to temporarily stop all digital launches and sourcing of new credit card customers after the bank suffered its third big outage in the span of just two years. In October last year, the RBI banned Bank of Baroda from onboarding any new customers onto its ‘bob World’ mobile application after reports of the bank linking accounts to unregistered mobile numbers and signing up these numbers to the application.
