Digital Lenders’ Operational Costs Increase As NPCI Suspends eSign-based eMandate

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Source: YourStory

Digital lenders are set to see operational costs increase as they will no longer be able to use a completely paperless model for automated collection of loan payments from customers, after the National Payments Corporation of India (NPCI) on Friday informed banks that the eSign-based eMandate product will be suspended starting Monday.

Source: Wikipedia

This is likely to have an impact on digital lenders, especially smaller fintech startups.

This move also comes after fintech lenders were hit by the Supreme Court’s Aadhaar ruling, which curbed the Aadhaar-based eKYC process.

“Digital lending industry seems to be moving in the reverse gear. First, it was the eKYC issue, then liquidity issue and now eNACH is getting blocked. Time to re-imagine business models considering consumer demand for credit is strong,” tweeted PayU India managing director Jitendra Gupta, following the NPCI order.


Digital Lending industry seems to be moving in reverse gear. First, it was e-kyc issue, then liquidity issue and now e-NACH is getting blocked.  Time to re-imagine business models considering consumer demand for credit is strong.

NPCI CEO Dilip Asbe said the agency had to take the stand to be compliant with the apex court’s Aadhaar judgement, which disallows private companies from asking for Aadhaar authentication for eKYC from users.

eKYC workflows in FinTech & payment companies
Source: 50p Blog

“The problem with continuing eSign on eNACH is it uses eKYC infrastructure to obtain authentication from the UIDAI database. This may result in contempt of the Supreme Court order if continued,” Asbe said.

“I completely understand and appreciate the concerns of fintechs and banks, since any other alternative may not have the same scale and also raise the cost for mandate substantially. The ecosystem in consultation with the government and the UIDAI need to identify the appropriate solution, till then eSign on eNACH will be suspended,” he added.

The NACH mandate is an authorisation that consumers provide to institutions to credit or debit funds periodically. This product has been used by digital lenders for cost-effective, paperless collections of recurring loan payments. Authentication of an eSign user is done through eKYC service, after which an online electronic signature service is facilitated.

The NPCI’s committee on NACH sent a circular to member banks on Friday, saying that eSign-based eMandate product would be suspended from November 26 and that they would be given time till November 30 to clear all the mandates presented on them.

The Aadhaar ruling and the suspension of eKYC has already raised costs for fintech lenders, since it now involves a physical verification. A recent report by Omidyar and the Boston Consulting Group estimates digital lending to MSMEs in the country to go up to Rs 6-7 lakh crore by 2023, but the report cited challenges from the Aadhaar ruling.

“The physical mandate for NACH entailed about Rs 50, had high failure rates of about 50% and took a longer time, whereas paperless mandate had only Rs 5 in onboarding costs, two days time and up to 90% success rate,” Razorpay CEO Harshil Mathur said.

Source: Anblik

However, there is some respite for fintech players since the NPCI has introduced alternatives in the form of net banking-based mandate, which is currently live with only five banks. It is also set to launch debit card-based eNACH soon.

This is as per a report in the Economic Times.


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