The Know Your Customer (KYC) market in India is also in a revolutionary period once again. The subsequent introduction of requirements to use over-the-counter (OTC) authentication has changed the fintech environment, and the Aadhaar OTP-based KYC is already monitored and controlled in real-time. In order to stay abreast of directives and leave no stone unturned, financial technology firms and non-banking financial companies (NBFCs) as well as other regulated entities, will need to adapt fast enough or face relegation. The questions that arise out of these changes are, what exactly constitutes them, and how can firms keep up with them and still sustain straightforward onboarding procedures? This overview presents the latest events and provides tips on the roadmap offered by KYC Hub, a provider of digital identity.
OTP based-KYC or eKYC requires an individual to identify himself or herself using an OTP sent to an Aadhaar-linked mobile number. This approach has gained particular popularity in the realm of digital onboarding processes, as it is characterized by its combination of efficiency and convenience, being paperless and also being real-time. However, increasing regulatory oversight aims to help reduce the abuse, protect privacy, and strengthen Anti-Money Laundering (AML) requirements.
Adopted in January, the UIDAI Aadhaar (Enrolment and Update) Amendment Regulations, 2024 sets new procedures that curtail duties on control over identity information, authentication, and upkeep, along with condensing enrolment and updates in general. The amendments specifically affect Aadhaar OTP-based eKYC protocols.
These ways enhance the level of data governance, auditability, and accountability of the operators, minimizing the chances of abuse or breach of privacy. FT ventures should make sure that their enrollment partners are on fully favorable terms with the software mandate of the UIDAI so that their KYC requests are not rejected.
The Reserve Bank of India has again clarified that the OTP-based Aadhaar eKYC verification process can be done only in low-risk customers and through new accounts, subject to certain transaction amount limits. In particular:
Financial institutions and other businesses that enrol customers with Aadhaar OTP should adhere to full KYC within one year or reduce services in line with the stipulated procedure.
Aadhaar OTPs have been subject to tighter constraints on the period of validity and frequency of use by the Unique Identification Authority of India (UIDAI). Recent measures encompass:
Such trends would help contain acts of fraud related to Aadhaar but also necessitate that fintech and financial institutions integrate new changes much faster.
Aadhaar holders shall be mandated to update their evidence of identity and address every ten years, and they shall use one of three approved mechanisms:
The updates can be done at enrollment centers or digitally, where UIDAI will strictly follow the authentication procedures. Individuals can also authorize the UIDAI to fetch updated data directly from government databases.
Consent to identity verification now allows the UIDAI to access identity proofs directly in the databases of the issuers of such identity proofs. Such acceptance should be through authorized software that ensures password-proof transfer. Businesses must:
All businesses have the option of using Aadhaar OTP to know the identity of clients. Institutions under SEBI, RBI, and IRDAI remain authorized, but telecommunication providers and other unregulated fintechs must seek other avenues, like
Name, gender, and date of birth updates are now restricted:
Additional verification is required for further changes. Fintechs must cross-check user-provided data early to avoid reconciliation issues later.
Aadhaar enrollment/updates for foreign nationals now align with:
The modifications will add responsibilities on fintech operators, NBFCs, prepaid wallet providers, and even banks that have been using Aadhaar OTP KYC to onboard customers digitally in an efficient manner.
Through the 2024 amendments announced by the UIDAI, which tighten the parameters of Aadhaar-based eKYC procedures, financial institutions and fintechs need to reconsider their approach to identity verification. At least that is what KYC Hub, with its vast experience in digital compliance, offers: a layered, dynamic framework that surpasses the use of rudimentary One-Time Password (OTP) identification. The subsequent suggestions enable regulated entities to maintain regulatory compliance and ensure a seamless user experience.
Within the current regulatory framework, Aadhaar OTP eKYC cannot be used solely as a means of determining a customer’s entire identity. The UIDAI and the Reserve Bank of India (RBI) have made this clear, stating that OTP KYC is suitable only for low-risk users or those with zero or low levels of applications, such as wallets (with low value). Companies should therefore consider OTP as the first point in a more extensive multi-step identity verification process.
With KYC Hub, the orchestration engine is competent. It can dynamically route users towards Digital KYC or Video KYC based on real-time risk scoring, transaction thresholds, and geographic indications. Such an implementation will ensure compliance with and the scalability of regulations without affecting the user experience.
Companies must utilize certified biometric tools to meet the stringent compliance requirements of the UIDAI for Aadhaar-based eKYC recognition. Such instruments involve software that is specifically authorized or required by UIDAI to be used in biometric capture, document verification, and enrollment. Unofficial or legacy systems should be avoided, thereby ensuring the prevention of data rejection and audit non-compliant behavior. Collaboration with certified enrollment agencies and the implementation of official UIDAI application biometric SDKs ensure the flawless capture and verification of IDs, as well as real-time verification.
KYC Hub offers ready-out-of-the-box integration with these certified solutions, making the onboarding process more straightforward and ensuring complete compliance is maintained.
Beyond the one-time update of address and identity proofs, which is a mandatory requirement under the newly introduced regulations, Aadhaar cardholders must update their address and identity proofs at least once every ten years to ensure the accuracy of their records in the Central Identities Data Repository (CIDR). This requirement has significant repercussions for KYC processes that rely on Aadhaar data.
KYC Hub suggests implementing automated mechanisms that would constantly check the last date the Aadhaar was updated and prompt users when it is time to refresh. Reminders within the app itself or via email could help people update their Aadhaar by visiting an enrolment centre or submitting a document-free Application Programming Interface (API) application. These practices ensure continuity and reduce delays caused by scattered credentials during the onboarding process.
There is now a fiduciary responsibility on the revised UIDAI design to identify any irregularities at the earliest possible stage in the necessary fields —namely, name, gender, and date of birth. These attributes are under stringent restrictions to make amends after enrolment, and so discrepancies, in this case, must be detected up to the end of KYC.
KYC Hub thus recommends the adoption of more advanced validation systems, which involve comparing the Aadhaar number with other government-issued identification numbers, such as the Permanent Account Number (PAN), passport, and voter identification number. Such pre-KYC screening excludes further mistakes that could also be remedied over time and assists in maintaining the integrity of the user’s identity profile.
Foreign nationals or non-resident Indians may always be required to have an Aadhaar. KYC processes for these types of users should therefore consider alternative forms of identification, including passports, Overseas Citizen of India (OCI) cards, and visa histories. An option of a hybrid system with Aadhaar (where present) and a combination with non-Aadhaar credentials will enable institutions to comply with the Foreign Exchange Management Act (FEMA) issued by the Reserve Bank of India.
The orchestration system in KYC Hub offers configurable KYC processes tailored to nationality, residence, and risk level, enabling smooth onboarding in compliance with various standards.
Any identifying information incorporated into Aadhaar should be collected through software and application programming interfaces (APIs) approved by the Unique Identification Authority of India (UIDAI). This includes biometric authentication platforms, as well as systems for uploading documents, monitoring consent, and providing further updates. The unauthorised system creates liability and invalidates KYC procedures.
KYC Hub ensures that all integrations, whether with the Aadhaar XML gateway, DigiLocker, or biometric authentication services, are UIDAI-compliant and kept updated with policy changes in order. This will guarantee a safe, auditable identity capture throughout the lifecycle.
As a result of satisfying the ten-year update requirement, companies will now need to ensure the accuracy of the Aadhaar information under ongoing due diligence. Systems must verify the last date of Aadhaar update during onboarding and at regular intervals thereafter. Users with stale records should be profiled and offered an opportunity to update their information.
The Identity Management module of KYC Hub provides configurable expiry reports and alerts to allow compliance departments to plan regulatory schedules, exclude risk exposure, and avoid service downtimes due to incomplete KYC.
UIDAI has insisted that any collection and authentication of Aadhaar data now requires granular, verifiable consent. Such consent must be traceable, timestamped, and readily auditable. A Consent Lifecycle Management (CLM) framework that allows human beings to manage the real-time capture, change, and revocation of user consent should be considered by businesses.
KYC Hub provides live consent tracking APIs and interfaces, as well as retrieval in audit scenarios and control of third-party data access opt-in or opt-out flows. Besides fulfilling regulatory requirements, this increases user trust since it introduces additional levels of transparency and control over the information about oneself.
The Aadhaar OTP KYC, which initially was considered the pillar of the Indian digital identity scheme, is currently being rebalanced to adapt to modern standards of information security, anti-fraud measures, and control requirements. More significant is the fact that the 2024 amendments introduced by UIDAI are part of a larger push towards a frictionless onboarding process at any cost, in an environment that is more risk-sensitive, auditable, and consent-centric in terms of KYC.
By applying the suggestions put forth through the KYC Hub to test specific solutions, such as biometric compliance mechanisms and automated integrity checks on the freshness of data, companies can navigate the changing landscape, balancing competing security requirements, user experience, and regulatory concerns.
By adopting this shift to more fintech-friendly levels of regulation, companies will not only keep up with regulatory change but also require a combination of means enabling them to build trust and resilience in an increasingly strict regulatory environment: the proliferation of smart automations, the promotion of compliant data practices, and the development of adaptive onboarding flows.
Ready to modernize your KYC stack? Explore KYC Hub’s compliance-ready solutions today.
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