Digital finance companies could be allowed to verify customer antecedents through the Aadhaar database according to a central government note that envisages grant of the electronic KYC facility to non-banking firms. This will mark a significant gain for those struggling to comply with central bank rules on mandatory customer verification including mobile wallets and digital lending startups.The note, circulated by the department of revenue in the finance ministry, indicates that if non-banking companies --bound by the Prevention of Money Laundering Act, 2002-- follow the privacy and security standards of Aadhaar, the government will consider providing them with access to the biometric-based database.“Any reporting entity which desires to carry out authentication of the client’s Aadhaar number using eKYC authentication facility needs to be notified under these provisions,” said the note, sent on May 9 to all financial regulators including the Governor of the Reserve Bank of India and the chairman of the Securities and Exchange Board of India.ET has reviewed a copy of the note.“The regulator and UIDAI should be satisfied of the credentials of the reporting entity,” it said.The notelays out a three-step process which ‘reporting entities’ like wallets, non-banking finance companies and stock brokers need to follow in order to access the Aadhaar database. For instance, payment and lending companies must first seek permission from the RBI, while broking entities will need the sanction of Sebi, before they can query the database.Once the regulator permits them, these entities have to apply to the Unique Identification Authority of India (UIDAI), which manages Aadhaar, for a privacy and security examination. The request for information will then be sent to the finance ministry for clearance.“While it requires a three-step process at least now (we) will get access to the Aadhaar database (and) will be able to do KYC remotely,” said Adhil Shetty, chief executive officer of Bankbazaaran online marketplace for credit cards and personal loans.Typically, the eKYC facility is essential for companies looking to onboard customers digitally. However, following the Supreme Court ruling in September 2018which struck down provisions in the Aadhaar Act allowing private entities from accessing Aadhaar, these companies have been forced to move to paper based processes for customer verification.Subsequently, banks and telecommunication companies were allowed to access Aadhaar data of customers who share it voluntarily through an ordinance passed in February.But other entities like mobile wallets have remained on tenterhooks, with the central bank further instructing them to capture full details about their customers by end August to keep the accounts operational.Payments Council of India, the industry body representing payment companies, welcomed the proposal to widen access to Aadhaar database saying, “This step will bring opportunities for greater financial innovation and inclusion.”“It will lead to a paperless, cashless and a fair digital economy with the mechanism of substantial audit trail preventing various scrupulous activities,” said a representative for the council.The note also highlights the provision for UIDAI to suspend and cancel access to any entity that defaults.Industry executives said while access to Aadhaar will help, it also throws up new challenges.For multiple players to be able to access this service KYC authentication agencies (KUAs) will require new licences, while biometric authentication will still require physical presence of customers.Wriju Ray, cofounder, IDfy which offers authentication services to multiple Indian companies said, “An Aadhaar based verification via OTP is valid only temporarily, after which a full KYC through physical checks is mandatory.”