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KYC

What is e-KYC, Meaning, Process, and Eligibility?

By
Rohith Reji
4 Sep
5 Mins

KYC, or "Know Your Customer," is a standard procedure financial institutions and businesses use to verify the identity of their clients. Many financial processes like buying insurance, taking out loans, and applying for credit cards and e-commerce transactions or telecommunications verifications after sim purchases are verified using KYC 

KYC involves submitting documents, such as proof of identity and current address, to a bank or any service provider offering financial or utility services. However, the manual KYC process is slow and prone to human error, which is why e-KYC, is needed. 

What is e-KYC?

e-KYC, or electronic Know Your Customer, is a digital KYC process for verifying customers' identities. Industries, such as e-commerce & retail stores, financial institutions, and companies providing e-KYC services, use biometrics and digital document uploads to identify their customers faster. 

e-KYC (or the Aadhaar e-KYC in India) allows these service providers to verify your identity through your Aadhaar details from the Unique Identification Authority of India (UIDAI) database.  

This process uses the biometric and demographic information linked to your Aadhaar number for a quick and efficient verification. After they verify your account, you can open bank accounts, register sim cards, and do other essential things you need the eKYC verification for. 

Why is e-KYC Important?

One of e-KYC’s benefits is that it reduces the time and effort required to verify your identity. Traditional KYC often requires in-person verification, which can be:

  • Time-consuming 
  • Demands more effort
  • Requires a lot of documents,

e-KYC is fast, and can be done on a laptop or a mobile. It is more secure, as it requires biometrics and multi-factor authentication. Nobody can replicate your biometric; it is unique to you, which makes your details safer. 

Besides, the UIDAI only allows a few vetted organizations to carry out e-KYC verification services, so you’re in good, compliant hands. 

Difference between e-KYC vs. KYC

Traditional KYC and e-KYC have an obvious difference—physical vs. online customer verification processes. Here is a rundown of the differences:

Traditional KYC e-KYC
KYC requires you to walk into a physical office to verify your application— which could take several days. You can complete the whole e-KYC process online.
KYC requires several multiple meetings at the physical office, which can be stressful. e-KYC is convenient.
Customers need to visit physical stores, so it limits them to local stores and businesses. Customers can complete their verification process from any location, as long as they have a working computer or smartphone and internet access.
Uses manual procedures and physical document handling that are prone to errors and efficiencies. Has better technological infrastructures that limit the space for error.

What is the List of Documents Required for e-KYC Verification?

Some important documents for digital identity verification include: 

  • Proof of identity through your Aadhaar or PAN card: Your Aadhaar card has a 12-digit unique identity number that is linked to the UIDAI database. The database has your demographic information (your name, date of birth, address, and other important information) and biometric data (iris and fingerprint scan). You need an Aadhaar number to enroll in any government-based service or business in India, and you can get an Aadhaar card from the UIDAI. 
  • Proof of address, like a driver's license or utility bill. 
  • A registered mobile number for verification.
  • Passport 

What is the Eligibility Criteria for the e-KYC Process?

Eligible individuals for e-KYC registration must:

  • Be 18 years old and above; 
  • Have an Aadhaar number 
  • Be a citizen of the country where the financial institution's e-KYC service provider operates. In India, documents like Aadhaar and PAN are specific to Indian citizens, and non-citizens may need to provide alternative documents like their passports, 
  • Have all the required documents needed to register for e-KYC, like a driver's license and utility bill. 

What are the Benefits of Using Electronic Know Your Customer Processes?

As the financial industry goes digital, the eKYC process offers several benefits that make performing financial transactions easy. Some of the e-KYC benefits include: 

  1. It is fast. Customer onboarding and identity verification usually take less than one second (or, in some cases, a few minutes).
  2. It's more accurate. e-KYC uses automated data checks to verify your identity and a digital document verification system to reduce the risk of human error. 
  3. It's a cheaper alternative. e-KYC reduces operational costs for businesses and service providers like e-commerce brands, banks, and fintech companies. Automating these processes ensures businesses can minimize the need for physical paperwork and in-person interaction, which cuts down on labor and admin expenses. 
  4. Customers have a better user experience. You don't need to go through lengthy visits and paperwork to complete their verification, as it is done online from the comfort of your home. 

What Is The Online e-KYC Process?

The e-KYC process in India is straightforward. You provide your Aadhaar number and give consent for the company or service provider to access your data from the UIDAI Database. 

If you’ve registered and received an Aadhaar card, The UIDAI already has your address, and identity details, and the service provider can access it from there. 

If you're using a PAN card, the service provider will require consent to verify your identity with the Income Tax Department's records. Once you’ve been verified, the system may prompt you for a final confirmation via biometric scan or an OTP to your email address or a registered mobile number.  

Types of Aadhaar e-KYC

Aadhaar e-KYC uses several methods to verify a user’s identity, including the Aadhaar OTP-based e-KYC and Aadhaar biometric-based e-KYC. 

1. Aadhaar OTP Online Application

To complete the Aadhaar OTP online application, you only need to provide your Aadhaar number to the service provider. An OTP (one-time password) will be sent to your registered mobile number, and you’ll input the OTP into the system to complete the verification. 

2. Aadhaar-Based Biometric Online Application

This method requires more than your Aadhaar number. Aadhaar-based biometric e-KYC requires customers to provide biometrics like their fingerprint or iris scans into the system. The service provider runs the biometric data through the UIDAI database to confirm customers’ identity, and verification is completed. This method is more straightforward and secure, considering each person’s biometric data is different. 

What are Aadhaar paperless offline e-KYC?

Aadhaar paperless offline e-KYC is a method for verifying identity that allows customers to complete the process without needing to go online or have real-time access to the Aadhaar database. This method enables service providers to verify your identity even without internet connectivity. 

How?

  • Log into the UIDAI website. 
  • Download a UIDAI-signed XML file containing your demographic details. 
  • Share the XML file with the service provider for e-KYC verification— you can upload it on their portal. 
  • The service provider will verify the details in the XML file against the details you provided. 
  • Your identity is confirmed after successful verification without needing real-time access to the Aadhaar database. 

This Aadhaar e-KYC process gives customers control over when and where to share their Aadhaar details. It also doesn't require internet connectivity during the e-KYC implementation.

Understanding offline e-KYC

Offline e-KYC methods allow users to complete their KYC verification without internet access, and customers using offline KYC can get verified in three ways:

QR Code Scan

Here, service providers can scan the unique QR code on the customer’s physical Aadhaar card or a downloaded one from the UIDAI website. The QR code has all the user’s information that the service provider may need. The scanner will decrypt this data and display it for verification. 

Aadhaar App

You can download the Aadhaar app from Apple or Play Store and select the offline e-KYC option on the app. The app will generate the XML file, and you can share it with the company. 

Paperless Offline KYC

The customer can log in to the UIDAI website and download their XML file with their Aadhaar number and an OTP. The customer can then share the file with the service provider. Customers using the Paperless offline KYC method don't need to reveal their Aadhaar number or provide any biometric data. The only thing required is the UIDAI-signed XML file. 

Aadhar e-KYC and Government Regulations

The Indian government has established a comprehensive regulatory framework to govern the use of Aadhaar e-KYC processes. The Aadhaar Act of 2016, mandates that Aadhaar numbers can be used for verification only with the individual’s consent. 

The Government has charged the UIDAI to ensure adequate measures are taken to protect people's data from unauthorized access and that agencies adhere to e-KYC compliance. As such, the Aadhaar and Other Laws (Amendment) Act, 2019, has set new rules to allow only private entities verified by the UIDAI to provide KYC verification services. The UIDAI ensures that these private entities follow the e-KYC regulations and that people's Aadhaar data is not misused.

What Are the Limitations of Electronic Know Your Customer?

While eKYC has several advantages compared to traditional KYC, it isn't without its limitations. Some of them include: 

  • Potential security risk: e-KYC’s reliance on digital platforms makes it susceptible to cyber-attacks and data breaches. This is why it's important to use a secured platform that can withstand cyber attacks. The UIDAI vets these service providers to determine whether they can protect the data released to them. 
  • Technical issues: Regions with a poor internet connection might have a hard time completing an internet-reliant biometric e-KYC. 

Challenges and Future of e-KYC

e-KYC assumes that every customer should have a certain level of digital literacy. Individuals who are not tech-savvy or do not have access to digital devices may find it difficult to complete the e-KYC process on their own. 

Future Trends in Digital Identity Verification

Some of the expected future trends in e-KYC include biometric advancement, especially in technology like facial and voice recognition. The introduction of Blockchain can also provide a more secure and decentralized method to verify identity without the risk of data breaches. 

Innovations and Advancements

Artificial intelligence and Machine Learning can assist e-KYC systems in analyzing patterns and detecting anomalies during the verification process. e-KYC also lets customers complete onboarding, whether for a loan application or a credit card application, remotely. 

How Can Companies Implement e-KYC?

Companies that want to upscale from KYC to e-KYC must consider the following:   

  • Invest in the right biometrics, AI, and Blockchain technology 
  • Comply with regulations 
  • Prioritize a user-friendly interface so customers don't get frustrated during their verification process 
  • Train employees on the new e-KYC systems 
  • Ensure that the new system integrates with existing systems, like the customer relationship management (CRM) system
  • Review and update their systems against any technical issues or security vulnerabilities
  • Maintain transparent communication with customers about their e-KYC process, including how it works and how their data will be protected 

Conclusion

e-KYC provides a better user experience and convenience to internet users who need to carry out financial transactions. And while it's an easier and faster way to verify customers, using a trusted e-KYC provider for these processes is crucial. NeoKred is a fintech company with a progressive e-KYC solution that provides security checks and ID verification to simplify user onboarding. Our digital technology helps businesses in the BFSI sector maintain a secure and efficient verification process for both businesses and customers. 

FAQs

What is meant by e-KYC?

e-KYC, or electronic Know Your Customer, is a digital process for verifying customers' identity.

Is e-KYC secure?

Yes, e-KYC is secured through encryption, biometric verification, and multi-factor authentication

What is the difference between Aadhaar authentication and Aadhaar e-KYC?

Aadhaar authentication verifies with customers’ Aadhaar number and either OTP or biometrics, while Aadhaar e-KYC accesses the customer’s information from the UIDAI database. 

How do I complete KYC online?

Visit the service provider's e-KYC portal, enter your Aadhaar number, and verify your identity with OTP or biometric authentication.

How Can I Check My Online e-KYC Status?

Log in to the service provider portal, and navigate to the section for checking the e-KYC status on your progress or completion details. 

How to change KYC details online?

Log into the service provider portal, update the necessary information, upload the required documents for verification, and then submit the changes for approval. 

What are the advantages of using electronic know-your-customer processes?

With e-KYC, you have access to faster processing times, improved security, and more accurate verification. 

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25 Sep
5 Mins

KYB Explained — A Comprehensive Business Verification Guide

With 4 out of 5 organizations reporting business identity theft, KYB ensures companies verify partners and prevent fraud. Learn how KYB safeguards your business.

Did you know that 4 out of 5 organizations globally have reported fraud in the form of business identity theft? This statistic comes from the collective responses of 705 professionals across various industries such as banking and healthcare.

As India undergoes a digital transformation in its business ecosystem, Know Your Customer (KYC) and Know Your Business (KYB) play crucial roles in preventing fraud and other illicit activities that threaten the economy.

If you are a business owner looking to enter into partnerships or deals with other companies, KYB is the solution to address your suspicions on whether the company you’re about to go into business with is legitimate or not. Ready to know more about KYB? Let’s dive in!

What is Know Your Business (KYB)?

Know Your Business (KYB) refers to the process of conducting a due diligence review of a business that a company is dealing with. Unlike how KYC (Know Your Customer) deals with the verification of individual customer identity, KYB is exclusive to businesses to verify their authenticity before onboarding them into potential dealings or partnerships.

The primary objective of KYB is to ensure that the entities in question are not involved in any fraudulent activities such as money laundering, corruption, or terrorist financing and they are screened against blacklists and sanction lists accordingly.

Know Your Business verifications are also mandated to be followed in compliance with national AML (Anti-Money Laundering) guidelines where due diligence is conducted to verify the legitimacy of business partners.

Who Needs KYB?

The KYB process is typically required by law for businesses involved in financial transactions or regulated industries. Here are a few examples of entities that might need KYB:

  1. Financial Institutions: Banks, credit unions, and other financial bodies need to verify their identities with corporate clients to comply with AML regulations.
  2. Payment Service Providers: Companies that offer e-wallets and payment gateways need to carry out KYB checks to ensure the legitimacy of businesses using their platforms.
  3. Cryptocurrency Exchanges: Crypto exchanges must conduct KYB checks to prevent any illicit activities that take place when buying, selling, or trading cryptocurrencies and other digital assets.
  4. Insurance Companies: Insurers are required to conduct a thorough business verification process to verify the identities of businesses when issuing policies or handling claims.

Differences Between KYB & KYC

The table below highlights the key differences between KYB and KYC.

Know Your Business (KYB) Know Your Customer (KYC)
Primary Focus Businesses Individual customers
Purpose Verifies a business’s legitimacy Verifies the customer’s identity
Documentation Business licenses, owner identity, articles of incorporation, etc. Personal ID, proof of address, etc.
Risk Assessment Focuses on the business’s financial stability and history Focuses on the individual’s transaction history, Politically Exposed Person (PEP) status, financial behavior, etc.
Complexity More complex due to multiple layers of business ownership and regulations Less complex as it deals with individuals
Monitoring Continuous monitoring is done to ensure regulatory compliance Regular updates and checks are conducted based on the individual’s activity and risk profile

Why is KYB Verification Important?

The global KYB market is projected to reach a valuation of about $712.87 million by 2023 from $263.54 million in 2022, reflecting a 13.28% CAGR. This market is rapidly growing, especially considering how common fraud has become. 

With that being said, here are some of the reasons why KYB is important for your business:

  1. Prevents Fraud: KYB can help keep your business away from fictitious or illegal entities. By verifying the identity and authenticity of the company and its owners, you ensure you’re entering into a commercial relationship that is legal and legitimate. 
  2. Ensures Compliance: In many countries, KYB is a legal requirement mandated by anti-money laundering norms. These regulations ensure KYB compliance by preventing illegal activities such as corruption, trafficking, money laundering, and terrorist financing.
  3. Builds Trust: Following proper KYB procedures maximizes trust in business relationships. Verifying the identity of a partnering company and its owners is pivotal to boosting confidence and trust. With increased trust comes more transparency and integrity in relationships.
  4. Protects Reputation: Entering into business with illegal or fictitious companies can severely damage your company’s reputation and finances. Hence, KYB can indirectly preserve your goodwill as it protects your business from dealing with fraudulent companies.

What is a KYB Solution?

A Know Your Business (KYB) solution is a software tool that is used to verify the identities of a business and its owner and assess the risks they may present to the company. However, business verification is not the only function of KYB solutions as now companies are looking to streamline the verification and onboarding processes through automation.

Hence, a KYB solution not only aims to ensure compliance with regulations in the verification process but also aims to remove the manual burdens involved in KYB.

Requirements for KYB Compliance

When establishing a relationship with a corporate customer, regulated companies must conduct due diligence procedures in accordance with AML regulations. Here are the requirements:

  1. Company Information: Information includes Name, registered number, registered office, board of directors, senior management, legal and beneficial owners, description of the company’s activities, etc.
  2. Company Documents: Documents include articles of association, proof of legal existence, proof of registered and physical address, documents detailing beneficial ownership structure, and audited financial statements.
  3. Identities of Beneficiaries: Documents include proof of identity, proof of address, declaration of trust, etc.
  4. Geographical Considerations: Checking the company’s compliance with local regulations and cross-border operations.
  5. Industry-specific Requirements: Includes regulatory filings , professional licenses of key personnel
  6. AML Screening: Involves performing a risk assessment of corporate customers and conducting ongoing monitoring of business relationships.

7 Steps for an Effective KYB Verification Check

Here are the seven steps companies can take to perform an effective Know Your Business verification:

Step 1: Collecting Business Information

Businesses start by collecting details such as company name, registration number, tax identification number, and address.

Once collected, they can use an API webhook to generate a KYB case from within their internal systems. The information collected is saved in their internal systems, making it easier for compliance teams to begin verification processes.

Step 2: Auto-verifying Registry Data Against Business Information

At this stage, compliance teams confirm if the collected information matches with the register by auto-validating the information obtained. They can cross-check with official government databases as well to confirm the company’s legitimacy.

Step 3: Assessing the Accuracy of Registry Information

Compliance teams manually add additional information regarding beneficial ownership obtained during the verification process and generate a comprehensive summary of the case. This promotes transparency and prevents hidden ownership risks.

Step 4: Getting Dynamic Risk Scores for the Company

KYB systems can offer real-time updates on changes in the risk profile of the corporate customer.

Once it receives an update, it alerts compliance teams to conduct an evaluation. The risk scores can also be used to further automate due diligence throughout the onboarding process thereafter.

Step 5: Conducting Sanctions and Watchlist Screening

Compliance teams screen the business and its owners against global sanction lists, criminal watchlists, and politically exposed persons (PEP) to ensure they aren’t involved in any criminal activities.

Step 6: Make the Decision on Whether to Onboard or Reject

Here, the final decision takes place where the business decides whether to onboard or reject based on the risk levels. 

Step 7: Perform Ongoing Monitoring

One thing to remember is that KYB is not a one-time process. Once the corporate customer is onboarded, they are subject to ongoing monitoring, which includes frequent reviews and monitoring of any changes in ownership, structure, or financial status that could impact their risk profile. 

The Importance of Automated KYB Verification Checks

Regulated companies are mandated to follow a robust KYB process that ensures compliance and risk management. However, traditional KYB methods can be cumbersome and time-consuming, with verification and onboarding taking days or weeks to complete. This can hamper customer experiences and even slow down business growth.

Automated KYB solutions help here by transforming the onboarding process, which is beneficial for businesses and compliance teams alike.

These solutions play the following roles:

Improving Accuracy and Reducing Human Error

Manual KYC checks are susceptible to human errors due to the risk of overlooking some key information that is important to assess a business’s risk profile.

And in AML compliance, such risks can have costly consequences such as compliance breaches, fines, and reputational damage.

Automated KYB systems have the ability to consolidate and cross-check information from multiple sources, ensuring ease of access and accuracy for your compliance teams.

Enhancing the Speed of KYB Verifications

Traditional KYB methods require manual verification of business information, which is time-consuming and can take days and even weeks. However, automated KYC solutions have the power to speed up the verification and onboarding of new businesses.

Such speed not only gives your clients a strong start but can also help you generate revenue more quickly and maintain a long-term business relationship.

Compliance teams also save plenty of time and can focus on other high-value tasks that need their attention.

Real-time Monitoring and Updates

Risk profiles of companies can change over time, potentially increasing non-compliance risks and threats of financial crime. This is where automated KYB solutions come in to conduct real-time monitoring of your clients to ensure they are complying with AML regulations. 

The solutions ensure that business information and risk profiles of your clients are accurate and thoroughly updated.

Through real-time monitoring, compliance leaders can also swiftly react to sudden or short-term changes in a business’ status or risk profile such as global sanctions, negative press, political exposure, etc. 

Get Started on Know Your Business (KYB) with Neokred

With frauds becoming more prevalent, mastering the concepts and processes involved in KYB is no longer an option—but a necessity. KYB is not just a regulatory requirement, but also a vital tool that protects yourself and your business from non-compliance risks and frauds.

If you’re wondering how you can streamline business identity verification and make it more simple, look no further. Neokred specializes in KYB and KYC. As your trusted partner, we ensure you stay ahead of regulatory norms while minimizing risk and maximizing growth. If you’d like to know more about our platform’s capabilities and services, contact us today!

25 Sep
5 Mins

Understanding Banking as a Service, a Detailed Guide

Over 40% of consumers now prefer online financing for major purchases, highlighting the shift toward digital-first banking solutions driven by BaaS and embedded finance.

Over 40% of consumers now prefer online channels for financing major purchases, like cars. This shift points to a larger trend: younger generations, particularly Gen Z, are moving away from traditional bank visits in favor of digital-first solutions powered by Banking as a Service (BaaS).

This generation demands for advanced financial services that align with their tech-savvy lifestyles — enhanced identity and credit protection, robust data security, automated financial guidance. Traditional banking methods often fall short of these expectations, creating a gap that needs to be addressed.

In this context, BaaS bridges the gap. It seamlessly integrates banking and financial services in your day-to-day apps, changing the way we shop.

In this guide, we’ll explore how BaaS and embedded banking are revolutionizing the banking experience for businesses and end users alike.

BaaS, Explained

BaaS enables companies to integrate financial services traditionally offered by banks into their existing platforms. This integration allows Non-Financial Companies (NFCs) to offer banking functions like issuing cards and granting loans directly to their customers.

BaaS products include, but are not limited to:

  • Card issuing
  • Lending services
  • Buy-now-pay-later financing
  • Payment processing
  • Direct financing options on merchant websites

BaaS providers collaborate with banks to offer services through banking APIs (Application Programming Interfaces — technology that allows different systems to essentially talk to each other).

These APIs allow end users to access banking services via the BaaS platform while still maintaining their relationship with their trusted bank.

The BaaS Value Chain

The BaaS ecosystem consists of four key components:

Progression → Providers Aggregators Distributors Experiences
Stakeholder Bank BaaS provider NFCs or new/enhanced banks End users
Function Provide core banking products and services Combine different elements to create usable solutions Utilize BaaS to offer innovative financial services Retail customers or small businesses benefiting from modernized financial offerings

Configurations of BaaS

Historically, banks owned the entire value chain, from building products to distributing them through their channels (like branches). BaaS, however, focuses on 1-2 parts of this value chain. Based on this, companies can use four strategies to offer their products:

  1. Providers: NFCs simply provide banking licenses and products.
  2. Providers-Aggregators: NFCs integrate their services with BaaS providers to offer enhanced solutions.
  3. Distributor-Aggregator: NFCs combine services from banks and BaaS providers to create unique products.
  4. Distributor-only: NFCs distribute pre-built financial services tailored to their customer base.

Embedded Payments and Finance

When NFCs use the services of a BaaS provider, it’s called embedded finance.

This concept builds on ‘embedded payments’ — platforms providing services like payment gateways, wire transfers, and ACH access through a payments provider. The scope is limited to payments only.

A BaaS provider simply enables them to add even more financial services to their platform, boosting their unique selling proposition (USP).

The evolution from embedded payments to embedded finance represents significant growth in the capabilities of non-financial companies — from SaaS 2.0 to SaaS 3.0.

What BaaS is Not

It’s easy to confuse BaaS with open banking, platform banking, neobanking, and FinTechs. However, key differences set them apart.

BaaS vs. Open Banking

Open banking is a system where banks allow NFCs to access customers’ financial information (like transaction history) with customer consent. While both BaaS and open banking use banking APIs, they apply to different aspects of the financial ecosystem:

Aspect BaaS Open Banking
Definition Offers banking services via APIs Shares customer data via APIs
Purpose Enables non-banks to build financial products Enhances competition and innovation
Use case Embedded finance, subscription billing Personal finance apps, payment initiation

BaaS vs. Platform Banking

BaaS and platform banking are closely related since both use banking APIs, but there’s an important difference:

Aspect BaaS Platform Banking
Definition Enables non-banks to integrate banking services Enables banks to use products/services from other companies through APIs
Purpose Facilitates the creation of innovative customer experiences Creates an ecosystem where financial and non-financial services can coexist
Example A phone company uses a bank’s API to offer loans to customers A bank partners with a FinTech to provide instant credit at the point of sale

BaaS vs. Neobanks

BaaS serves as the foundational layer that powers other companies' financial services, while neobanks are the direct providers of banking services:

Aspect BaaS Neobanks
Definition Equips non-banks to offer banking services Fully digital banks offering banking services without a physical presence
Purpose Enables non-banks to create financial products without needing a full banking license Revolutionize banking by offering user-friendly and personalized services. They cater to tech-savvy customers.
Examples Neokred, Stripe Fi Money, Jupiter, RazorPay

BaaS vs. FinTech

BaaS can be a facilitator for FinTechs, helping them deliver financial services without needing to become licensed banks:

Aspect BaaS FinTechs
Definition Gives non-banks the means to offer complete banking services Financial services + technology to improve delivery of financial services
Use cases Embedded finance, payment processing, compliance Digital payments, online banking, personal finance apps

How Does BaaS Work?

Let’s take an example of Buy Now, Pay Later (BNPL) offered by Amazon at the point of purchase to understand how BaaS works.

Recently, Amazon started offering BNPL options, which allow customers to purchase items and pay for them in installments over time, typically without interest if paid within a specific period.

To offer this service, Amazon integrated banking services directly into its checkout process. This allows customers to get instant approval for small loans at the point of purchase, without leaving the app or applying for a traditional credit card or loan.

By leveraging Banking as a Service, Amazon seamlessly provides these financial services. Customers can split their purchases into manageable payments, making larger items more affordable, without Amazon having to become a bank itself.

Behind the scenes, BaaS  connects Amazon’s platform to a partner bank’s services through APIs. When a customer selects BNPL, the BaaS infrastructure quickly performs credit checks, approves the loan, and sets up the payment schedule — all within seconds during checkout.

Common Use Cases for BaaS

BaaS creates diverse opportunities for businesses by streamlining financial operations, speeding up payments, and enhancing customer financing — all while improving the overall user experience. Here’s how Neokred’s Collectbot ensures this:

  • Banking API Integration: Collectbot simplifies banking API integrations for different purposes with comprehensive documentation and support.
  • Comprehensive Payment Solutions: Collectbot helps businesses accept payments across multiple channels (cards, net banking, UPI, wallets) without building their own banking infrastructure.
  • Virtual Account Numbers (VAN): Businesses can create unique accounts for various functions — such as escrow services, merchant settlements, and KYC verification.
  • Advanced Payout Systems: Collectbot handles complex operations like refunds, vendor payments, and reward disbursements, all while providing real-time reporting and analytics.

Plus, Collectbot offers tailored business solutions across different sectors:

  • FinTech companies can leverage escrow accounts for P2P transactions
  • E-commerce platforms can simplify marketplace seller payouts
  • Subscription businesses can manage tiered subscriptions and prorated billing

Benefits of Banking as a Service

BaaS fosters collaboration between banks, NFCs, and customers, creating mutual benefits. 

BaaS’ Benefits for Banks

  • New Revenue Streams: Banks earn revenue from API transactions and FinTech partnerships.

Cost-Savings: Outsourcing technology reduces development costs and operational expenses. 

  • Enhanced Customer Insights: Collaboration with NFCs provides data on new customer groups, enabling personalized offers that boost sales as 80% of consumers are more likely to make a purchase when offered personalized experiences. 

BaaS’ Benefits for NFCs

  • Faster Market Entry: NFCs bypass banking regulations by integrating with BaaS providers, launching financial products faster. 
  • Increased Customer Trust: Leveraging a bank’s reputation enhances trust and also helps NFCs gain valuable customer insights.
  • New Opportunities: NFCs can build new products by using various banking APIs, opening additional revenue streams.

BaaS’ Benefits for Customers

  • Improved Experience: Customers enjoy embedded financial services within platforms they already use.
  • Personalized Financial Solutions: Niche financial products designed for specific needs.
  • More Options: Increased competition leads to a broader range of financial products.

The Rise of BaaS

BaaS is now a $7 trillion industry which has unsurprisingly reshaped financial services. Here are four primary factors driving the rise of BaaS:

Evolving Customer Demand

  1. An increasing number of customers are seeking integrated, user-friendly financial services that cover their entire financial journey.
  2. Plus, SMEs find their needs unmet by traditional banks and FinTechs are targeting this segment with tailored solutions.

FinTech Industry Growth

  1. India’s FinTech adoption rate is 87% (compared to the global average of 64%). Thishigher adoption rate is fueling growth in this space.
  2. BaaS allows FinTechs to enter the market quickly without having to meet the central bank’s stringent compliance requirements.

Regulatory Environment

  1. Changes in the regulatory environment have also created a more favorable landscape for BaaS. Many jurisdictions now require banks to make their APIs public, encouraging competition and innovation.
  2. Banks are also adapting to meet new regulatory requirements and ensure customer satisfaction.

Banking Industry Transformation

  1. The industry itself is undergoing transformation thanks to shifts towards digital and mobile-first banking solutions.
  2. Forecasts of declining banking revenue and profitability push banks to seek new income streams through BaaS partnerships.

Neokred and BaaS

As BaaS continues to evolve, it faces several challenges. Traditional banks must overhaul their technology and rethink their role in the financial ecosystem. Organizations also need to develop a well-defined API strategy that balances easy integration and business value with minimal complexity.

One such API is created by Neokred — its innovative BaaS solution, Collectbot, offers a comprehensive suite of banking APIs that enable businesses to seamlessly integrate banking services into their platforms.

Are you ready to transform your business with cutting-edge banking services? Schedule a demo to explore how Collectbot can empower your platform with seamless financial integration.

25 Sep
5 Mins

A Comprehensive Guide to API Banking and Beyond

API banking has transformed finance by enabling secure data exchange and seamless integration of financial services. Learn how APIs drive innovation in BaaS and embedded finance.

Remember when transferring money, no matter how little or small, to another bank account was a significant hassle? Most people today may not recall this as vividly, thanks to the advent of internet banking, which gradually made these transactions easier, though they still took time for verification, updates, final payment, etc.

But today, instant digital payments seem to be everywhere. And it doesn’t stop there. A vast number of online applications offer services ranging from wallets and budgeting to investments, savings, credit payments, all accessible at your fingertips.

But with such convenience, the question arises: are customers’ sensitive personal and financial data safe? The good news is that banking information remains secure, thanks to an intermediary  – the Application Programming Interface (API).

APIs serve as the bridge between different applications, facilitating secure communication of customer data. With secure banking APIs, you can now pave the way for a secure financial experience for your customers with ease.

What is API Banking?

API banking refers to APIs that integrate with banks to retrieve and communicate relevant data to other FinTech or non-financial applications. API integration in banking has revolutionized business operations across the board, enabling seamless data exchange and communication.

This is the era of the API economy.

How Does API Banking Work?

For banks, APIs extend their reach beyond traditional boundaries. By partnering with FinTech companies or non-financial businesses without banking licenses, banks can access new customer segments while maintaining data security.

Take Revolut, a popular neobank based in the UK. It operates on a digital-first approach and initially held an e-money license. With the help of several APIs, Revolut created a flexible and scalable platform offering core banking services, payments, currency exchange, open banking, and more. Banking APIs played a phenomenal role in how Revolut scaled up, with an expected user base of 47.5 million by the end of 2024.

Types of API Banking

There are three main types of API banking that businesses can utilize:

  1. Open APIs: Publicly available interfaces that allow any developer to access and integrate certain banking functionalities into their applications.
  2. Internal APIs: Used within financial institutions to improve efficiency and communication between different departments or systems.
  3. Partner APIs: Shared with specific business partners to enable collaborative services or products, offering a balance between openness and control.

Examples of API Banking

There are various real-world examples of businesses across different sectors leveraging API banking to transform their offerings and create new revenue streams. But mainly their functions can be categorized into two: embedded finance and Banking as a Service (BaaS) or Banking SaaS.

According to a detailed study conducted by Finastra in Nov 2023, it was found that the areas of technology that will see a significant year on year investment in the US over the next 12 months would be BaaS, embedded finance and AI with 30% focused on open API implementation

These are a few specific examples:

Embedded Payments for E-commerce Platforms

In an e-commerce platform or marketplace, integrating payment APIs can significantly enhance user experience. Merchants get the ability to accept payments directly on the platform, without redirecting customers to external payment gateways. This  simplifies the checkout process and creates a new revenue stream through transaction fees

BaaS for FinTech Startups

For FinTech entrepreneurs, BaaS APIs can be a game-changer. Instead of going through the complex and time-consuming process of obtaining a banking license, you can leverage BaaS APIs to offer digital banking services under your own brand. This allows you to focus on your unique value proposition and customer experience, while leaving the backend digital banking operations to established partners.

Lending APIs for Traditional Banks

If you're a traditional bank looking to modernize your lending process, integrating lending APIs can help you automate credit decisions and offer instant loans. Doing so improves your operational efficiency and enhances customer satisfaction by providing quick, hassle-free lending experiences.

Account Aggregation for Personal Finance Apps

FinTech companies building personal finance management tools can use account aggregation APIs to give users a holistic view of their finances across multiple financial institutions. This creates a sticky product that keeps users engaged and provides opportunities for personalized financial advice.

KYC and Identity Verification for Non-financial Businesses

Non-financial businesses can leverage Know Your Customer (KYC) APIs to streamline customer onboarding processes. Whether you're running a real estate company, a car rental service, or an online marketplace, these APIs can help you verify customer identities quickly and securely, reducing fraud risks and improving compliance.

The Role of APIs in Embedded Finance

Embedded finance represents a significant shift in how financial services are delivered to consumers. It involves integrating financial services directly into non-financial platforms, apps, or products. This integration is made possible through the power of APIs.

API banking integrations save time and resources and allow companies to focus on their core competencies while providing value-added financial services to customers.

Real-world Examples of Embedded Finance

Buy Now, Pay Later (BNPL) Services

E-commerce platforms can integrate BNPL options at checkout, allowing customers to split their purchases into installments.

According to a report, the global BNPL market is expected to reach $3.98 trillion by 2030, growing at a CAGR of 45.7% from 2021 to 2030.

Insurance in E-commerce Platforms

Online marketplaces can offer product insurance at the point of sale, enhancing customer experience and generating additional revenue streams.

FinTech Apps Offering Banking Services

Mobile applications can now provide a full range of banking services, from account opening to loan applications, all powered by APIs. In a report by Plaid, consumers in the US have said that they are 79% comfortable with using FinTech companies to open an account. A very narrow gap in their comfort level compared to traditional banks (87%) has been observed.

How APIs Power Banking-as-a-Service (BaaS)

BaaS is a model that allows non-banking companies to offer financial services by leveraging the infrastructure and licenses of traditional banks through APIs. Unlike traditional banking, where services are provided directly by banks to customers, BaaS enables third-party providers to integrate banking services into their own offerings.

APIs are the backbone of BaaS, facilitating the modular and flexible integration of various banking services. They allow BaaS providers to offer a menu of financial services that can be easily plugged into other companies' products or platforms.

Key Components of BaaS Powered by APIs

  • Digital Account Creation: Instant account opening and KYC processes.
  • Payment Processing: Integration of various payment methods and real-time transaction processing.
  • Compliance and Regulatory Services: Automated checks and reporting to ensure adherence to financial regulations.

A survey by Finextra found that 52% of 25-34 year olds have mentioned that they prefer using their favorite brand’s financial services over traditional banks. This underscores the increasing adoption of API-powered BaaS solutions among the next generation of users.

Benefits of API Banking

API banking offers numerous advantages to different stakeholders in the financial ecosystem.

For Banks

  • Innovation and Faster Time-to-Market: APIs letbanks quickly launch new products and services by leveraging existing infrastructure.
  • New Revenue Streams Through Partnerships: Banks can monetize their APIs by partnering with FinTech companies and other businesses.
  • Enhanced Customer Experience: Integrating with popular apps and platforms allows banks to offer services where customers already spend their time.

For Businesses

  • Simplified Integration of Financial Services: Companies can easily add banking capabilities to their products without building complex financial infrastructure.
  • Customization and Flexibility in Offerings: APIs authorize businesses to pick and choose the specific banking features they want to offer.
  • Increased Customer Engagement and Loyalty: Offering a wider range of services keeps customers within the business’s ecosystem.

Challenges and Considerations

While API banking offers numerous benefits, it also presents challenges:

  • Security Concerns: As financial data is shared across multiple platforms, ensuring robust security measures is paramount. According to a report by Salt Security, 95% of respondents have experienced security breaches in their production APIs while only 7.5% of organizations have implemented dedicated API threat testing.
  • Regulatory Compliance: The evolving nature of financial regulations poses a challenge for API banking. Companies must ensure that their API integrations comply with local and international financial regulations, such as the Digital Personal Data Protection Act (DPDP) in India.
  • Integration Complexity: While APIs simplify integration, the process can still be complex, especially for companies without strong technical expertise. Ensuring seamless integration across different systems and maintaining API performance can be challenging.

Addressing these challenges requires ongoing collaboration between banks, FinTech companies, and regulators to establish best practices and standards for API banking.

How to Implement APIs in Banking

Implementing APIs in banking requires a strategic approach:

  • Identifying key services to expose via APIs
  • Developing a robust API strategy aligned with business goals
  • Ensuring strong security measures and compliance with regulations
  • Creating comprehensive documentation for developers
  • Establishing a developer portal for easy API access and support
  • Continuously monitoring and optimizing API performance

How APIs Drive Innovation in Banking

APIs drive innovation in banking by:

  • Enabling personalized financial services through data-driven insights
  • Fostering collaborative ecosystems between banks and FinTech companies
  • Facilitating rapid prototyping and testing of new financial products
  • Integrating emerging technologies like artificial intelligence (AI) and blockchain into banking services

The Future Impact of APIs on Banking

Financial APIs are set to transform banking by encouraging open financial ecosystems and greater inclusivity, known as open banking. They are enabling personalized banking experiences and driving the integration of financial services into various industries through embedded finance. This API-powered transformation is spurring competition and innovation, ultimately reshaping how we interact with financial services in our daily lives.

Final Thoughts

API banking represents more than just a technological advancement; it's a paradigm shift in how financial services are delivered and consumed. As we've explored, financial APIs are enabling unprecedented levels of innovation, collaboration, and customer-centricity in the banking sector.

Neokred is dedicated to empowering businesses with the API solutions they need to thrive in this new era of embedded finance and BaaS. Our comprehensive suite of APIs enables seamless integration of financial services, helping companies of all sizes innovate and expand their offerings.

Interested in exploring how APIs can transform your financial capabilities? Visit Neokred  to learn more about our solutions.

Ready to take your customer experience and product to next level with Neokred