The assisted banking sector, which bridges traditional financial services with innovative technology, is at the forefront of expanding banking services to the last mile. However, it is also grappling with a rapidly evolving regulatory landscape. This dual role-driving financial inclusion while ensuring compliance with stringent regulations-has become a defining feature of the sector.
As of today, nearly 80 per cent of India’s population has access to bank accounts, a remarkable improvement from 2021, when almost one-third of the country’s adult population remained unbanked. Assisted banking has played a pivotal role in this transformation by bridging the digital divide and integrating millions of underserved individuals into the formal financial system.
Yet, this growth has also led to the introduction of a complex and ever-evolving regulatory framework aimed at ensuring data security, consumer protection, and financial stability. For the assisted banking sector, navigating this dynamic regulatory environment is critical to sustaining growth and fostering innovation.
Compliance with regulations
Assisted banking operates in a highly regulated environment. Among the complex set of regulations and guidelines that are to be adhered to include anti-money laundering (AML), know-your-customer (KYC), and data protection norms.
The impact of assisted banking is evident in the dramatic increase in bank account penetration across India. From being a country with a significant unbanked population just a few years ago, India has made tremendous strides in ensuring that the majority of its citizens have access to basic financial services.
This progress has been driven in large part by government initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY), which aimed to provide every household with a bank account, and the rapid adoption of digital payment systems like the Unified Payments Interface (UPI). Assisted banking has complemented these efforts by providing the necessary support to individuals who may lack the confidence or capability to navigate digital platforms independently.
However, the constantly shifting regulatory landscape poses challenges for service providers, as they invest a significant amount of their time and resources in continuously upgrading their compliance processes. Having said that, such regulatory challenges are not insurmountable. From my experience in operating a Pan-India network of more than one lakh touchpoints providing financial services across the spectrum of Rural, Semi-Urban, Urban and Metro landscape of India, the regulatory maze is navigable — if not easily — but with a bit of innovation and a firm commitment to comply.
Tackling the KYC challenge
Financial fraud and identity theft are the primary concerns for every regulator. In a recent report, the Reserve Bank of India (RBI) has already indicated a sharp rise in bank fraud cases in the first half of the current financial year.
In reality, a large number of these frauds can be avoided with a diligent approach towards KYC and re-KYC of customers availing banking services. The fact is almost one-third of all banking fraud cases take place only because of the lackadaisical attitude towards KYC and re-KYC.
Assisted banking service providers must step up by adopting stricter KYC rules, streamlining customer onboarding and implementing stringent processes for verification and periodic re-validation of customers.
For instance, KYC and re-KYC is a process where we work with several leading banks, and periodically update the customer information they have on record. This process helps ensure that the information provided at the time of account opening or opting for a service is not outdated. The Reserve Bank of India (RBI) mandates that banks conduct Re-KYC regularly, based on a risk approach. The procedure is smooth, accurate, and impenetrable thanks to sophisticated digital tools, AI-driven monitoring, and rigorous documentation checks by companies like us.
Such rigorous KYC and re-KYC practices would not just mitigate risks but also enhance customer confidence in assisted banking platforms.
Cybersecurity and data protection
The increasing dependence on digital platforms is making assisted banking more vulnerable to cybersecurity threats. Around the globe, regulatory agencies are tightening rules on data protection and privacy.
The RBI has also introduced several fraud mitigation initiatives while encouraging banks and service providers to make their customer onboarding and transaction monitoring processes fool-proof. Acknowledging the sharp rise in digital fraud, particularly the use of mule bank accounts to scam customers, the RBI recently rolled out an Artificial Intelligence and Machine Learning solution called MuleHunter.ai. This tool is, designed to spot and prevent fraudulent transactions linked to mule accounts, and will help in tackling digital fraud head-on. Mule accounts, which are often used by fraudsters to launder money, have become a significant concern for regulators and financial institutions alike. Tools like MuleHunter.ai represent a proactive approach to tackling this issue, leveraging advanced technology to detect and prevent fraud in real time.
Even though putting in place such tech-driven and sophisticated solutions requires a hefty investment, they also present an opportunity for assisted banking providers to strengthen their security systems. Adopting such measures will not just help assisted banking providers meet regulatory demands but also set themselves apart as safe and reliable platforms.
Building customer trust
Regulatory compliance is not just about meeting legal requirements-it is also a critical factor in building and maintaining customer trust. In the assisted banking sector, where many customers are new to the formal financial system, trust is especially important. When customers feel secure and see transparency in the services provided, they are much more likely to engage with the platform and explore additional financial products and services.
By adhering to regulatory guidelines, assisted banking service providers can boost confidence among their users and financial partners. Moreover, a commitment to compliance reflects a broader goal of empowering customers financially. Organisations that prioritise ethical practices and transparency are more likely to build strong brand reputations and foster customer loyalty, which are essential for long-term success in a competitive market.
Conclusion
The regulatory landscape in assisted banking is undergoing rapid transformation, bringing both substantial challenges and exciting opportunities. To thrive in this ever-changing environment, service providers such as ourselves must proactively address compliance requirements, prioritise investments in cybersecurity and AI, and maintain an unwavering dedication to the core principle of “Customer Service”.
As the industry expands, embracing a forward-looking and flexible strategy to navigate regulatory shifts will be crucial for driving sustainable growth and ensuring that financial services remain inclusive and accessible to everyone. Throughout this journey, we must keep our mission- “Delighting the citizen. Strengthening the Nation” at the heart of everything we do.
(The writer is the Chairman of BLS E-Services Ltd. Views expressed are personal)