When Financial Identity Breaks, Wealth Becomes Invisible‍

Unclaimed funds in India are often discussed in terms of money crores lying idle in banks, insurance companies, and government funds. But at a deeper level, these funds exist because financial identities break apart over time.

What starts as a valid, verified customer relationship slowly becomes unrecognisable as people change jobs, cities, names, contact details, and life circumstances. When systems fail to reconnect these identities, money turns into invisible wealth.

Financial Identity Is Not a Single Record

Most financial systems treat identity as a point-in-time event:

• KYC at account opening

• Nominee details at purchase

• Static records stored indefinitely

In reality, identity is dynamic. Over a lifetime, individuals accumulate multiple financial relationships that are never fully reconciled.

This gap explains why:

• Bank deposits become dormant

• Insurance policies go unclaimed

• PF and pension accounts are forgotten

• Dividends fail to reach shareholders

Siloed Systems Multiply Identity Gaps

Each financial institution operates its own data stack:

• Banks

• Insurance companies

• Employers

• Pension administrators

• Capital market intermediaries

Even though all are regulated by authorities such as the Reserve Bank of India and the Insurance Regulatory and Development Authority of India, identity data is not interoperable.

As a result:

• The same person exists as multiple records

• Updates in one system never propagate

• Ownership continuity silently erodes

When Time Breaks Identity

Unclaimed funds rarely arise overnight. They are the outcome of long time horizons.

Over 10–30 years, people experience:

• Migration and address changes

• Job switches and employer exits

• Name changes after marriage

• Loss of documentation

• Death without consolidated records

Legacy identity systems were not designed to survive decades of change.

Nominees Don’t Solve Discovery

Nominee frameworks exist but discovery remains weak:

• Nominees may be unaware of policies

• Families may not know where assets exist

• Documentation may be incomplete

Without discoverability, nomination alone cannot prevent funds from becoming unclaimed.

Invisible Wealth Is a Trust Problem

When families discover unclaimed funds late or never trust erodes:

• Individuals lose faith in institutions

• Institutions face operational and reputational burden

• Recovery becomes manual and emotionally costly

Unclaimed funds are therefore not just an operational issue they are a trust continuity failure.

The Infrastructure Shift Needed

Preventing invisible wealth requires:

• Persistent identity resolution

• Relationship mapping across time

• Secure, privacy-aware data reconciliation

• Recognition of individuals beyond onboarding

Identity must be treated as infrastructure, not paperwork.

Unclaimed Insurance Money in India: How Forgotten Policies Leave Crores Unclaimed

Insurance is designed to provide financial protection at critical moments yet a surprising amount of insurance money in India remains unclaimed. These unclaimed amounts include life insurance maturity proceeds, survival benefits, and even death claims that were never settled because beneficiaries did not come forward or were unaware of the policy’s existence.

To protect policyholders and beneficiaries, Indian insurance regulations require insurers to identify, disclose, and safeguard unclaimed insurance money ensuring it remains fully claimable by rightful owners or legal heirs at any time.

What Is Unclaimed Insurance Money?

Unclaimed insurance money refers to policy proceeds that have become due but remain unpaid because the insurer could not successfully disburse them to the policyholder or nominee.

This typically includes:

• Life insurance maturity proceeds

• Survival benefits under endowment policies

• Death claims not claimed by nominees or legal heirs

• Refunds or residual balances under lapsed or discontinued policies

Unclaimed insurance money does not lapse or get forfeited it remains payable indefinitely.

Who Regulates Unclaimed Insurance Money in India?

All insurance companies in India operate under the oversight of the Insurance Regulatory and Development Authority of India (IRDAI).

IRDAI mandates insurers to:

• Periodically identify unclaimed and unpaid amounts

• Attempt to trace policyholders or nominees

• Disclose unclaimed amounts publicly

• Maintain accurate policy and nominee records

These requirements exist to ensure transparency and consumer protection.

Types of Insurance Money That Go Unclaimed

1. Unclaimed Life Insurance Maturity Proceeds

When a policy reaches maturity, the insurer is required to pay the maturity amount. If the policyholder:

• Has changed address or contact details

• Is unaware of the maturity

• Has multiple legacy policies

the proceeds may remain unpaid and become unclaimed.

2. Unclaimed Death Claims

Death claims often go unclaimed when:

• Nominees are unaware of the policy

• Nominee details are missing or outdated

• Legal heirs lack documentation

• Policies were purchased decades earlier

These are among the most sensitive and complex unclaimed insurance cases.

3. Unclaimed Survival Benefits

In policies with periodic payouts, survival benefits may remain unpaid if policyholders fail to respond to insurer communications or update bank details.

Why Do Insurance Policies Go Unclaimed?

Unlike bank accounts, insurance policies are often long-term and low-touch, making them easier to forget.

Common reasons include:

• Policyholders purchasing multiple policies over time

• Change in address, phone number, or email

• Lack of nominee awareness

• Death of the policyholder without consolidated records

• Poor documentation passed on to family members

In many cases, families discover policies only years later.

How Insurers Identify and Handle Unclaimed Amounts

As per IRDAI guidelines, insurers must:

• Categorize unpaid amounts based on duration

• Make reasonable efforts to contact policyholders or nominees

• Publish unclaimed amount details on their websites

• Maintain internal systems to track unpaid claims

These disclosures are intended to help beneficiaries discover forgotten policies.

How to Check for Unclaimed Insurance Money

Individuals or legal heirs can:

• Search insurer websites for unclaimed amount disclosures

• Contact insurance companies directly with basic identity details

• Review old documents, emails, or bank statements for premium payments

• Check policies issued under previous employers or group schemes

Unlike banking, insurance discovery is often manual and fragmented.

How to Claim Unclaimed Insurance Money

The claim process generally involves:

Step 1: Establish Policy Existence

Provide:

• Policy number (if available)

• Policyholder details

• Supporting evidence such as premium receipts

Step 2: Identity and Relationship Verification

Insurers require:

• Identity proof of claimant

• Proof of relationship (for nominees or heirs)

• Death certificate (in case of death claims)

Step 3: Claim Settlement

Once verified:

• Insurer releases the payable amount

• Interest may be added as per policy terms and regulatory norms

There is no expiry period for valid claims.

Claiming Insurance Money as a Legal Heir

If no nominee is registered, legal heirs may need:

• Legal heir certificate or succession certificate

• Indemnity bonds (in certain cases)

• Additional documentation for verification

Insurers follow strict due diligence to prevent wrongful claims.

Why Unclaimed Insurance Money Is Also a Data Problem

Unclaimed insurance funds highlight deeper systemic gaps:

• Fragmented identity data across insurers

• Outdated nominee and contact records

• Long policy tenures without periodic updates

• Poor linkage between identity, family, and financial records

Preventing unclaimed insurance is as much about data continuity as it is about claims processing.

The Role of Better Identity and Record Continuity

Regulators increasingly emphasize:

• Accurate customer identification

• Periodic KYC updates

• Clear nominee records

• Traceability across time

Strong digital identity infrastructure helps ensure that insurance benefits reach the right person at the right time.

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The Hidden Identity Problems in Unclaimed Funds in India

Unclaimed funds in India whether in bank deposits, insurance policies, dividends, or retirement accounts are often treated as isolated financial lapses. In reality, they represent a systemic failure of identity continuity and data infrastructure.

These funds are not unclaimed because they are unknown. They are unclaimed because systems fail to reliably connect people, identities, and financial relationships over time.

Unclaimed Funds Are a Symptom, Not the Root Problem

Regulators have established clear custodial mechanisms for unclaimed funds through institutions such as the Reserve Bank of India, the Investor Education and Protection Fund, and the Insurance Regulatory and Development Authority of India.

Yet, despite regulatory safeguards, unclaimed balances continue to grow. This indicates that the issue is structural, not procedural.

At its core, unclaimed funds emerge when:

• Identity records fragment

• Ownership data becomes outdated

• Systems cannot reconcile past and present identities

Fragmented Identity Across Financial Institutions

Most individuals interact with multiple financial entities over their lifetime:

• Banks

• Insurance companies

• Employers

• Pension administrators

• Capital market intermediaries

Each institution maintains its own identity records often with no persistent linkage across time or across institutions.

As a result:

• A person becomes multiple identities in parallel systems

• Updates made in one institution are invisible to others

• Financial relationships decay silently into dormancy

Time Is the Biggest Enemy of Identity Systems

Unclaimed funds rarely arise quickly. They accumulate over years or decades.

Common triggers include:

• Change in address, phone number, or email

• Name changes due to marriage

• Job changes and employer transitions

• Migration across cities or countries

• Death without consolidated financial records

Legacy systems were never designed to maintain identity fidelity across long time horizons and unclaimed funds are the outcome.

Nominee Data: The Weakest Link

Nomination frameworks exist across banks, insurers, and pension systems, but nominee data is often:

• Missing

• Outdated

• Inconsistent across institutions

• Poorly communicated to families

When the primary account holder is no longer reachable, systems struggle to transition ownership smoothly causing funds to drift into custodial pools.

Data Silos Create Invisible Wealth

Each unclaimed fund pool whether under RBI, IEPF, or insurers operates independently.

This means:

• No unified view of an individual’s financial footprint

• No cross-institution discovery mechanism

• No automatic reconciliation of ownership across asset classes

For families, this creates a paradox: wealth exists, but visibility does not.

Why Compliance Alone Cannot Solve This

Regulatory compliance ensures:

• Funds are protected

• Claims are honoured

• Disclosure exists

But compliance does not ensure:

• Identity continuity

• Proactive discovery

• Cross-system reconciliation

Unclaimed funds are therefore not a compliance failure they are an infrastructure gap.

The Role of Digital Public Infrastructure

India’s push toward digital public infrastructure has shown that identity-linked systems reduce friction and increase accountability.

Effective infrastructure for preventing unclaimed funds must enable:

• Persistent identity resolution

• Entity and relationship mapping

• Data consistency across institutions

• Secure, privacy-aware reconciliation

This does not require centralization of data but interoperability of identity signals.

Why Institutions Need Better Identity Resolution

For banks, insurers, and financial platforms, unclaimed funds introduce:

• Long-term reconciliation liabilities

• Fraud risk in dormant accounts

• Operational and compliance overhead

• Poor customer and beneficiary experience

Stronger identity and data infrastructure reduces:

• Dormancy

• Ownership ambiguity

• Manual recovery processes

Unclaimed Funds as a Trust Signal

At a societal level, unclaimed funds erode trust:

• Individuals lose confidence in institutions

• Families struggle during financial distress

• Institutions carry reputational and operational burden

Solving unclaimed funds is therefore not just about recovery it is about trust continuity.

The Path Forward: From Custody to Continuity

Preventing future unclaimed funds requires a shift in thinking:

• From static KYC to continuous identity recognition

• From siloed records to linked relationships

• From reactive claims to proactive discovery

Identity, when treated as infrastructure rather than a one-time check, becomes the strongest defence against unclaimed wealth.

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RBI Rules on Dormant Accounts

Across India, a significant amount of money lies untouched in bank accounts not because it was forgotten forever, but because the account holders stopped operating them. These unclaimed bank deposits arise when savings accounts, current accounts, or fixed deposits remain inactive for extended periods.

To safeguard depositors’ interests and maintain transparency, the Reserve Bank of India (RBI) has laid down clear rules on how banks must classify, manage, and disclose such accounts while ensuring that depositors or their legal heirs can reclaim their money at any time.

What Are Unclaimed Bank Deposits?

Unclaimed bank deposits are balances in bank accounts that have seen no customer-initiated transactions for a continuous period of 10 years.

These deposits typically include:

• Savings and current account balances

• Fixed deposits that have matured but not been claimed

• Interest accrued on such deposits

Once this threshold is crossed, banks are required to transfer the funds to a central pool, while maintaining detailed records of the original owners.

Inactive vs Dormant Accounts: What’s the Difference?

RBI distinguishes between two stages of inactivity:

1. Inactive Account

An account is considered inactive if there are no customer-initiated transactions for 2 consecutive years.

2. Dormant Account

An account becomes dormant after 2 years of inactivity, triggering:

• Enhanced monitoring

• Restrictions to prevent misuse

• Mandatory customer re-verification before reactivation

Dormant accounts are closely tracked due to their higher vulnerability to fraud and misuse.

RBI Rules Governing Unclaimed Deposits

The RBI mandates banks to:

• Identify inactive and dormant accounts periodically

• Attempt to contact account holders using available details

• Publish details of unclaimed deposits on bank websites

• Transfer eligible deposits to the Depositor Education and Awareness Fund (DEAF) after 10 years

Despite the transfer, banks remain responsible for processing claims and returning funds to rightful owners.

What Is the Depositor Education and Awareness Fund (DEAF)?

The DEAF is a fund established under RBI directions to house unclaimed bank deposits.

Key points:

• Banks transfer eligible unclaimed balances to DEAF

• Funds remain claimable at all times

• Interest continues to accrue as per RBI guidelines

• Banks must honour valid claims even after transfer

The purpose of DEAF is custodianship not confiscation.

Why Do Bank Deposits Go Unclaimed?

Unclaimed deposits are often the result of long-term data and identity gaps, including:

• Change in address or contact information

• Death of account holder without nominee updates

• Multiple bank relationships across years

• Forgotten fixed deposits

• Poor awareness among legal heirs

In many cases, families are unaware that such accounts even exist.

How to Check for Unclaimed Bank Deposits

Individuals or heirs can check for unclaimed deposits by:

• Visiting bank websites that publish unclaimed deposit lists

• Using RBI-mandated centralized search facilities

• Contacting the branch where the account was held

Basic details such as name, last known address, and branch are usually sufficient to begin the search.

How to Claim Unclaimed Bank Deposits

The claim process generally involves:

Step 1: Submit a Claim Request

Approach the concerned bank branch with:

• Valid identity proof

• Account details (if available)

Step 2: Verification

Banks conduct:

• Identity verification

• KYC revalidation

• Legal heir verification (if applicable)

Step 3: Settlement

Once verified:

• Funds are released to the claimant

• Interest is paid as per applicable rules

There is no deadline for making a legitimate claim.

Claiming Unclaimed Deposits as a Legal Heir

Legal heirs may need to provide:

• Death certificate of the account holder

• Proof of relationship

• Succession certificate or legal heir certificate (in certain cases)

Banks follow due diligence to ensure funds reach the rightful claimant.

Why Dormant Accounts Pose a Risk for Banks

From a systemic perspective, dormant and unclaimed accounts increase:

• Fraud exposure

• Compliance burden

• Reconciliation challenges

• Identity mismatches across financial systems

This is why RBI places strong emphasis on continuous customer identification and record accuracy.

The Bigger Picture: Unclaimed Deposits as an Identity Challenge

Unclaimed bank deposits highlight a larger issue fragmented identity records over time.

When identity, contact details, and nominee information are not consistently maintained across institutions, accounts drift into dormancy. Preventing unclaimed deposits requires:

• Strong identity verification

• Periodic data updates

• Better continuity across financial relationships

This is where modern digital public infrastructure plays a critical role.

Unclaimed Funds in India: What They Are, Where They Lie, and How to Recover Them

Every year in India, thousands of crores worth of money remains unclaimed, not because it is lost but because the rightful owners never come forward. These unclaimed funds are spread across banks, companies, insurance providers, and pension systems. To protect public interest, Indian regulators require such funds to be transferred to designated government-managed funds while keeping them permanently claimable by owners or legal heirs.

Understanding how unclaimed funds work is essential not only for individuals, but also for financial institutions and businesses responsible for maintaining accurate identity, nominee, and account records.

What Are Unclaimed Funds in India?

Unclaimed funds refer to financial assets that have not been operated, claimed, or settled for a legally specified period, after which they are transferred to a central fund maintained under regulatory oversight.

Importantly:

• Ownership does not lapse

• Funds do not become government property

• Legitimate owners or heirs can claim them at any time

Where Do Unclaimed Funds Exist in India?

1. Unclaimed Bank Deposits

Savings accounts, current accounts, and fixed deposits become unclaimed when there is no customer-initiated transaction for 10 years.

Under directions issued by the Reserve Bank of India, such deposits are transferred to the Depositor Education and Awareness Fund (DEAF).

Common reasons

• Account holder relocation

• Death without nominee update

• Multiple legacy accounts

2. Unclaimed Shares and Dividends

If dividends declared by a company remain unclaimed for seven consecutive years, both the dividend amount and the corresponding shares are transferred to the Investor Education and Protection Fund (IEPF) under the Companies Act.

Shareholders or legal heirs must file a formal IEPF claim to recover them.

3. Unclaimed Insurance Proceeds

Life insurance maturity benefits and death claims often go unclaimed due to:

• Lack of nominee awareness

• Incomplete documentation

• Policyholders losing track of old policies

These are regulated by the Insurance Regulatory and Development Authority of India, which mandates insurers to periodically identify and disclose unclaimed amounts.

4. Unclaimed Provident Fund and Pension Balances

Provident fund and pension accounts may remain unclaimed when individuals change jobs or lose access credentials.

These are administered by:

• Employees' Provident Fund Organisation (EPFO)

• Pension Fund Regulatory and Development Authority (PFRDA)

Why Do Funds Go Unclaimed?

Unclaimed funds are rarely caused by negligence alone. The most common reasons include:

• Missing or outdated nominee information

• Identity mismatches across institutions

• Poor data continuity over time

• Death of account holder without consolidated records

• Fragmented financial relationships across banks, insurers, and employers

At a systemic level, unclaimed funds highlight gaps in identity resolution and record linkage.

How to Check for Unclaimed Funds in India

Individuals can search for unclaimed funds using official, regulator-backed portals:

• RBI-mandated bank unclaimed deposits portals

• IEPF portal for shares and dividends

• Insurance company websites for unclaimed policies

• EPFO and pension portals for PF and retirement funds

A single individual may have unclaimed funds across multiple institutions, making discovery fragmented and time-consuming.

How to Recover Unclaimed Money

While each authority has its own process, recovery generally involves:

1. Identity verification

2. Proof of ownership or legal heirship

3. Submission of prescribed claim forms

4. Verification by the concerned institution or authority

Depending on complexity, recovery timelines can range from a few weeks to several months.

Why Unclaimed Funds Are Also a Data & Identity Challenge

Beyond money, unclaimed funds represent a deeper issue disconnected identity and data silos.

When identity records, nominee details, and account relationships are not consistently maintained across institutions, funds slip into dormancy. This is why regulators increasingly emphasize:

• Accurate customer identification

• Periodic data reconciliation

• Strong digital public infrastructure

Preventing unclaimed funds is as much about identity continuity as it is about financial compliance.

Streamlining Digital Onboarding with ProfileX: A Seamless Experience for Modern Businesses

In the age of digital transformation, a seamless onboarding process is no longer a luxury—it's a necessity. ProfileX offers a reliable onboarding facility designed to simplify user acquisition, enhance compliance, and deliver a frictionless experience for businesses and customers alike.

What is ProfileX’s Digital Onboarding Facility?

ProfileX provides an end-to-end onboarding platform that simplifies the process of bringing new users be it customers, employees, or vendors onto your system. With API integrations, automated workflows, and automated KYC verification, ProfileX minimises manual effort, reduces drop-offs, and ensures full compliance.

This makes it ideal for industries like:

• Fintech and digital lending

• NBFCs and banks

• Insurance companies

• Debt recovery agencies

• E-commerce platforms

• HR onboarding systems

Key Features of ProfileX Onboarding

1. Digital KYC Verification
   ProfileX automates identity checks using government-issued IDs, facial recognition, and liveness detection—ensuring regulatory compliance while enhancing user experience.

2. Customisable Workflows
   Whether you’re onboarding customers for a fintech app or employees for an enterprise platform, ProfileX allows you to build personalized workflows tailored to your unique business requirements.

3. Real-time Data Validation
   Eliminate manual errors and reduce drop-offs with real-time checks and validations. Users receive instant feedback, allowing for a faster and more reliable onboarding process.

4. API Architecture
   Seamlessly integrate ProfileX into your existing tech stack using its developer-friendly API and SDKs. This ensures flexibility and scalability as your operations grow.

5. Holistic Profile with Alternative data
   Go beyond KYC with enriched profiles powered by telecom, employment, financial, and social media signals.

How ProfileX Onboarding Adds Value to Your Business

1. Accelerates User Activation

By minimising manual steps and enabling instant identity verification, ProfileX helps you convert prospects into active users faster—reducing onboarding time from days to minutes.

2. Reduces Operational Load

With automation at its core, the onboarding system cuts down repetitive tasks, freeing up internal teams to focus on high-impact initiatives rather than paperwork or follow-ups.

3. Improves Data Accuracy

Real-time validations ensure that only accurate and verified data enters your system, reducing downstream issues and enhancing the overall integrity of your user base.

4. Boosts Customer Satisfaction

A smooth, intuitive onboarding flow improves first impressions. With guided steps, timely feedback, and mobile responsiveness, users are more likely to complete the process without drop-offs.

5. Scales with Your Growth

Whether you're onboarding hundreds or millions, ProfileX scales with your needs. The API- structure and modular design allow seamless expansion as your user base grows.

FAQs

1. Who can use ProfileX?

Fintechs, NBFCs, banks, Insurance companies, e-commerce brands, debt recovery agencies, any business that needs reliable user onboarding and risk assessment.

2. How is ProfileX different from traditional KYC?

ProfileX offers a fully digital and real-time KYC process, unlike traditional methods that rely on manual paperwork and in-person verification. It streamlines onboarding with faster, customizable, and secure identity checks

3. Can we tailor the onboarding experience with ProfileX?
   Absolutely. With DIY onboarding options and flexible APIs, ProfileX integrates easily into any existing system.

If the Indian economy has taught us one thing, it’s that Know Your Customer (KYC) alone isn’t enough to prevent financial scams. Illegal activities such as money laundering and terrorist financing are quite notorious in the banking and corporate sectors, which indicates a growing need to find a holistic way to prevent such activities.

Enter Anti-Money Laundering (AML) compliance, the answer to combating financial crimes. While KYC effectively verifies customers' identities and filters out bad players, a recent study showed that 70% of frauds have occurred even after completing KYC processes. This is where AML strengthens the KYC process and deters criminals even further. 

While both concepts are similar in objective, they have underlying differences. Let’s explore how KYC differs from AML and some of their best practices in fintech!

What is Know Your Customer (KYC)?

Know Your Customer refers to the mandatory process of verifying customers' identities. Organisations and financial institutions collect information about their customers in compliance with legal requirements for identity verification and risk assessment. As a critical component of anti-money laundering, KYC is primarily used to prevent financial crimes like fraud, identity theft, etc.

What is Anti-Money Laundering (AML)?

Anti-money laundering refers to the regulations and procedures organisations and financial institutions follow to detect and prevent financial crimes such as money laundering and terrorism. It involves performing extensive due diligence on customers, monitoring their transactions for suspicious activities, and reporting them if a crime is suspected. AML compliance is usually carried out to prevent illegal activities such as tax evasion, political corruption, money laundering, terrorist financing, etc. 

What is the Difference Between KYC and AML?

Know Your Customer and Anti-Money Laundering are legal requirements for businesses to protect against financial crimes. However, they differ in the following ways:

Where and When are KYC and AML Required?

To prevent financial crimes, KYC and AML are required in various industries and circumstances. Following both are mandatory for all regulated entities, some of which include:

• Financial institutions: Before onboarding new customers, assess risks and detect suspicious activity. 
• Payment service providers: KYC and AML are done before opening digital wallets or activating digital transactions.
• Cryptocurrency exchanges: Crypto and DeFi platforms implement KYC and AML before allowing users to trade or convert digital assets to prevent money laundering via cryptocurrencies.
• Gambling and casinos: They are done upon player registration, during large transactions, and withdrawal of funds. 
• Corporate entities: Large corporations and venture capital firms conduct KYC and AML checks during mergers, acquisitions, or major investments to ensure legitimacy and prevent illicit financial activities. 

What Does the AML Screening Process Look Like?

Organisations and financial institutions typically perform AML screening. They check potential customers against public lists to verify whether they are high-risk individuals or are involved with entities engaging in money laundering or terrorist financing. In other words, they analyse customer information and transactions to verify their legitimacy and identify suspicious behaviours. 

While conducting an AML screening process, you should be on the lookout for a few red flags like usual transactions, use of anonymous entities, unexplained wealth increase, large cash transactions, etc.

There are a few types of screening processes your business can conduct:

• Sanctions screening: These lists are maintained by government agencies and contain information about individuals or entities deemed national security threats. These are individuals who are prohibited from certain financial dealings.
• Politically Exposed Persons (PEP) Checks: Under this process, individuals who hold high-profile positions in government or politics may be more likely to engage in financial crimes such as bribery or corruption, making them high-risk individuals.
• Adverse media sources: These sources include negative news stories that may be associated with the customer being verified. This check ensures that the individual does not portray the company negatively. 
• Watchlist Screening: Companies check a customer’s information against specific databases containing data about known or suspected criminals. Watchlists are similar to sanction lists but are constantly updated and even employ real-time screening for adequate due diligence.

How does the KYC Process Work?

The KYC process can be carried out both offline and online. Regardless of the method, the following documents are essential:

• Identification proof: These documents verify your identity. Examples include an Aadhar card, passport, driver’s license, or voter ID card.
• Address proof: This is used to verify your current address. Utility bills, rental agreements, and even some ID proofs can be used to verify your address.
• Income proof: A few entities may require proof of income to assess your financial status. Such documents include salary slips, income tax returns, or bank statements.
• Photographs: One or two passport-size pictures are required as well.
• Additional documents: Depending on the entity you’re opening an account with, a few more documents, such as a PAN card or business registration documents, might be needed.
• Self-declaration form: In most cases, you’ll need to fill out and sign a self-declaration form confirming the accuracy of your KYC information, and they’ve been submitted in compliance with applicable laws. 

The KYC process is conducted in the following order:

1. Collection of information: The applicants first submit their personal information. After which, they are required to fill out an online KYC registration form.
2. Uploading of evidence: Once their information is collected, the applicants have to validate it with relevant documents. These serve as evidence to prove they are who they say they are. Neokred’s ProfileX takes this a step further with its secure verification feature that implements facial recognition technology to prevent identity frauds.
3. Verification: Once the forms and relevant documents have been uploaded, they undergo multiple checks to ensure they haven’t been tampered with. The verification process may take time, and the applicants will receive a notification from the entity if their application has been approved. 

What are the Main AML Regulations?

AML regulations in India are primarily governed by the Prevention of Money Laundering Act (PMLA), which mandates businesses and financial institutions to implement robust measures to detect and prevent financial crimes. 

Between 2014 and 2024, the Enforcement Directorate (ED) registered over 5,200 money laundering cases, with 40 convictions and three acquittals. This indicates the threat money laundering poses to the Indian economy, which has led to the necessity of regulatory bodies enforcing AML regulations. 

The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Insurance Regulatory and Development Authority of India (IRDAI) are key regulators that have been integral towards the development of robust AML frameworks. More regulations anchored by the PLMA were implemented to address the rising number of financial crimes and safeguard the nation’s economic system:

1. PML (Maintenance of Records) Rules, 2005: Requires reporting entities to maintain transaction records and submit those deemed suspicious to the Financial Intelligence Unit - India (FIU-IND).
2. PML (Amendment) Act, 2009: Introduced the concept of “corresponding law enforcement agencies” where information about reporting entities could also be shared with foreign agencies.
3. PML (Amendment) Act, 2012: Introduced the concept of politically exposed persons, expanded the scope of reporting entities to NPOs and lowered the threshold for identifying beneficial owners.
4. PML (Amendment) Act, 2015: This was made to align Indian AML laws with international standards by introducing the concepts of “reporting financial institution” and “reporting authority.”
5. PML (Maintenance of Records) Amendment Rules, 2023: This amendment aimed to bolster AML compliance efforts by widening the scope for reporting entities and customer due diligence requirements. It imposed stricter KYC norms for company secretaries and chartered accountants, including cryptocurrency and virtual digital asset transactions under AML norms. 

How Automation Improves KYC/AML Compliance

Automation has the power to streamline KYC and AML in the following ways:

Online Identity Verification

Businesses can automate KYC procedures and obtain customer identity data through online verification. The process begins with the user selecting their ID document type and uploading pictures. Once the KYC platform screens the documents, users are asked to send a photo of themselves holding the document to verify that they are real people. Biometric checks and facial authentications are done under automated KYCs to verify customers' identities.

For example, ProfileX makes digital identity verification easier with its top-of-the-line KYC API. The platform verifies customer identities in seconds with unparalleled accuracy and validates their information with automated document cross-checking with trusted sources.

Automated AML and Sanctions Screening

Automating AML and sanctions screening is also highly effective in reducing businesses' manual burden of conducting the verification processes themselves. Through automation, companies can build verification flows in compliance with AML/KYC regulations, maximising reliability and protecting them from financial crimes. PEP lists, sanctions lists, watchlists, and adverse media lists are a few sources that automation can use to screen customers for possible risks. 

Transaction Monitoring and Digital Wallets

KYC/AML automation facilitates real-time monitoring of customer transactions and detection of illegal or suspicious activities. Since many users also create digital wallets for online payments, automation tools can verify their identities and continuously monitor their transactions. 

Consequences of Poor AML & KYC Compliance

Here’s a brief overview of some of the consequences companies and financial institutions can face due to poor AML and KYC compliance:

Facilitating Criminal Activities Unknowingly

Poor AML and KYC policies can cause financial institutions to unknowingly facilitate illegal activities such as money laundering and terrorist financing on behalf of criminals. This can expose the entity to risks, so robust identity verification and monitoring procedures are required.

Regulatory Fines and Penalties

Did you know that the number of penalties imposed by the RBI on financial institutions grew 88% over the last three years? What’s worse is that AML and KYC non-compliances contributed to that growth. Regulatory bodies impose strict guidelines that companies must follow to maintain AML and KYC compliance. Failure to adhere to these guidelines will result in fines, sanctions, and legal penalties. 

Reputational Damage and Loss of Customer Confidence

Breaching AML and KYC compliance erodes customer trust and confidence in the entity. Adverse publicity, media scrutiny, and loss of loyal customers are common results of such compliance breaches, which can persuade customers to switch to competitors perceived as more trustworthy. 

Exposure to Greater Financial and Operational Risks

The consequences aren’t limited to the above three; there are more. The entities in question will become more vulnerable to financial scams. They will frequently be subjected to regulatory investigations and incur higher costs for remediation efforts. Loss of business partnerships and profitability are also long-term consequences they’ll have to face. 

Best Practices for KYC/AML in Banking, Crypto, and Fintech

Since banking, cryptocurrency, and the fintech industries are more vulnerable to financial fraud, here are some of the best KYC/AML practices that can be followed to mitigate such risks:

• Ensuring compliance with AML laws: Properly complying with AML laws and regulations will prevent businesses from incurring hefty fines and penalties for non-compliance. It will also ensure that their reputation and customer loyalty are preserved.
• Internal controls and audits: Businesses should conduct regular audits and reviews of their KYC/AML policies to ensure there are no weaknesses or loopholes that criminals can exploit to conduct illicit activities.
• Verified users: Fraudsters use fake IDs and various sophisticated schemes to conduct fraud. Financial institutions should ensure that only verified users can become customers, which can reduce innovative fraud attacks.
• Enhancing user experience: Financial institutions can optimize KYC/AML process workflows based on applicant risk profiles so they don’t have to pass extra checks. This motivates the customers to complete the process without dropping off in between, thus improving the overall user experience. Neokred makes this possible as the platform’s onboarding workflows ensure reduced customer drop-offs by 24%. 

Conclusion

To sum up, KYC and AML compliance share the same goal of preventing financial crimes. However, while KYC focuses on verifying customer identities, AML aims to detect and prevent illegal activities such as money laundering and other financial crimes. Understanding the key differences between KYC and AML and implementing their best practices will help you streamline and strengthen your compliance efforts. 

With Neokred’s KYC APIs, you can stay ahead of evolving regulations with constantly updated databases, real-time user identity and secure verifications, and more features that offer your customers a seamless onboarding experience. Contact us today to learn more about our KYC platform’s capabilities!

Imagine never needing to chase payments or worry about late fees again. Customers often forget due dates for credit card bills or subscriptions, which can negatively impact your business’ cash flow. However, with auto debit, these issues are a thing of the past.

The volume of digital payments made across India have surged, with the total valuation rising from Rs. 2071 crore in FY18 to Rs. 13,462 crore in FY23. Auto debit transactions have been a key driver behind this and are used extensively for making seamless recurring payments. Curious about how auto debit works and why it’s essential for your business? Let’s explore!

What is Auto Debit?

Auto debit is a payment facility issued by debit/credit card providers where funds are deducted from your bank account on a recurring basis.

Whether it's loan repayments, subscription fees, or utility bills, this facility lets you automatically transfer funds on a fixed date every month or year. This is one of the most convenient and hassle-free payment forms as you do not have to worry about the strain of missed EMI’s and can ensure proper cash flows.

It also eliminates the administrative burden of issuing reminders and manually collecting payments.

How Does the Auto Debit Facility Work?

With auto debits, you give permission to a company to collect payments directly from your bank account. You activate the auto debit facility through your bank’s website or application. Once activated, you can set the standard instructions for payment. The payment deductions take place without One-Time Passwords (OTPs) on the scheduled date.

However, to avoid any payment interruptions or possible overdraft charges, you’ll need to ensure that your bank has sufficient balance for a successful transaction deducted automatically.

You can also adjust payment dates or set a maximum limit for debits, providing flexibility in managing your finances.

How Are Automatic Debit Payments Different From Bill Pay?

Be Cautious About Sharing Bank Account Information

When it comes to managing your bank account or conducting business or transactions with other entities, safety is typically a major concern.

In FY24, the Reserve Bank of India (RBI) reported bank frauds amounting to more than 139.3 billion Indian rupees. Thus, the importance of safeguarding your bank account information cannot be overstated. 

To safeguard your account, consider these steps before providing authorization:

Verify The Company

Before you provide your bank information, verifying the legitimacy of the entity you are dealing with is essential.

You can start by researching the company by checking out its website, reviews, and business registrations. Additionally, when sharing information with them online, look for secure data transmission, such as Secure Sockets Layer (SSL) certification.

Know Your Rights

You have the right to protect and decide how your financial information is used. Be aware of your rights under regulations like the Information Technology Act (IT Act) and the Digital Personal Data Protection Act (DPDPA). Neokred’s Blutic platform helps you stay ahead of the DPDPA act’s compliance requirements. You can seamlessly manage user consent lifecycles, build user trust with transparent data collection declaration, and get free guidance on data collection and retention plans. Your bank may also offer fraud protection services to safeguard your transactions.

Monitor Account Balances

Ensure you have enough balance in your account before authorizing payments. While some banks offer overdraft facilities, they usually come with significant fees. Similarly, if your account lacks sufficient funds, you may incur an NSF (Non-Sufficient Funds) fee. Regularly monitor your account balances to avoid these unnecessary charges.

Review Your Agreement and its Terms

Before authorizing a payment, read the fine print and understand all the terms and conditions related to recurring payments and how your bank account information will be used. It’s important to understand how you can stop payments or cancel agreements as well.

E-Mandates and Auto Debit Card Payments

E-mandate is a digital payment service introduced by the RBI and the National Payments Corporation of India (NCPI). It allows individuals and businesses to authorize recurring payments from bank accounts.

With e-mandates, customers and businesses can seamlessly manage recurring payments such as SIPs, loans, insurance premiums, etc. as this system eliminates the need for manual labor, paperwork, constant reminders, and late payment charges.

For automatic debit card payments, e-mandates allow you to link your debit card to a merchant and authorize them to deduct fixed or variable amounts of money on a recurring basis. The maximum limit for a transaction via debit card e-mandate is Rs. 15,000. For amounts above that, OTP authentication will be required. In this case, the maximum single transaction limit is Rs. 1 Lakh.

Key RBI Guidelines for Auto Debit Transactions

On October 1, 2021, the RBI announced new guidelines for auto debit transactions to control recurring payments made through debit cards, credit cards, and other prepaid methods. They were also established to ease transaction processes for customers and businesses and to protect them from online frauds.

Here are some key highlights to keep in mind:

Informing Customers in Advance

Banks are mandated to notify customers of recurring payments 24 hours before the due date. After receiving confirmation from the customer, banks can proceed with the transaction. 

Additional Factor Authentication for Transactions above Rs. 15,000

Additional Factor Authentication (AFA) adds an extra layer of security to prevent unauthorized users from accessing your accounts. Once customers receive a pre-debit alert from their banks for recurring payments above Rs. 15,000, they will have to approve the transaction through an AFA in the form of OTPs.

Customers have the option to complete transactions of higher amounts such as insurance premiums or education fees without the need for approval via OTP.

Implementing One-Time Registration

Under the new guidelines, customers are only required to register once, after which they can conduct recurring transactions without an AFA. They can also specify the amount and validity period for subsequent transactions during the registration process.

Providing Opt-Out Options

Customers now have the option to opt-out of any transaction. They are also allowed to view, modify or cancel auto debit payment transactions from their accounts if they cannot make a payment on time.

How to Initiate a Direct Debit from Your Bank Account?

Direct debit is a way of collecting recurring payments directly from your customer’s bank accounts and this form of payment collection is highly advised as it is efficient, cheaper, and offers you higher control in managing your cash flows.

Here’s how to get started:

Step 1: Contact Your Bank

The first step is to get in touch with your bank and let them know that you’d like to join the direct debit scheme.

By verifying a few factors such as your company’s administrative capabilities and financial situation, the bank will decide whether you are eligible to accept direct debits.

Step 2: Choose a Direct Debit Company

The next step is to pick a payment aggregator or a payment service provider to process the payments received. You can choose a suitable platform considering several factors such as pricing, scalability, software interface, ease of use, and customer service provided.

Integration with your accounting software is also another key feature to look into, which is where Neokred shines at - it streamlines payment processing and management giving you maximum convenience and security in the processes. 

Step 3: Get Direct Debit Mandates From Your Customers

Once you’re all set up with your bank and payment provider, you can start collecting payments from your customers.

However, before that, you’ll need to acquire a Direct Debit Instruction (DDI). This document, signed by the customer, authorizes you to collect payments from their bank and it will be valid until it is canceled.

What are the Benefits of Autopay Options?

Autopay options are highly convenient for customers as they can set up auto-payments for their rent, cable, mortgages, to name a few.

Based on the initial authorization and payment details issued by the customer, businesses can automatically charge their customers every month for the services they provide.

Similar to customers, businesses also benefit from automatic payments. See how:

Offers Maximum Time Savings

Manually collecting payments or sending frequent follow-ups to your customers can be cumbersome and time consuming for your Accounts Receivable team. But when payments are set on auto-pilot, the administrative burdens of your A/R team are significantly reduced.

Enhances Customer Satisfaction

Put yourself in the customer’s shoes—late fees and repeated follow-up calls for overdue payments can be frustrating. As a business owner, it’s important to recognize that constant reminders and late payment notices could strain your customer relationships. Auto-payments solve this issue by allowing customers to enter their payment details once and authorize future transactions, removing the hassle of missed payments.

Provides Consistent Revenue

When billing your customers on an automated basis, you consistently receive payments as per the predetermined billing date. That means no waiting around for your customers to make a payment or to send them a follow-up. Since these payments are processed immediately, your business is more liquid. You can fast-track payment processing further with Neokred’s intelligent scheduling that clears the queue of pending payments to avoid any delays.

Promotes Increased Spending

According to a study conducted by Duke University, it was found that both residential and commercial customers increased electricity usage after switching to auto-payments. Although this may seem strange and highly debatable, automatic payments could encourage customers to spend more, assuming they aren’t too concerned about how much they spend on a regular basis.

For example, if you have an OTT-based subscription service, your customers may be willing to upgrade to a higher tier so their family members or friends can also access it.

The Bottom Line

Auto debit simplifies payment processing, allowing businesses to focus on growth rather than chasing down invoices. Whether it’s subscriptions or regular bills, auto debit can keep your cash flow stable and reduce administrative headaches.

Neokred makes auto debits easier with multiple early payment options, automated payment reminders, and real-time payment confirmations. To know more about our platform’s capabilities, contact us today!

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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.

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!

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:

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 payment's 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, neo banking, and FinTech's. 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:

BaaS vs. Platform Banking

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

BaaS vs. Neobanks

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

BaaS vs. FinTech

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

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.

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.

Credit, especially in the financial sector, is a high-stakes game where even one misstep can lead to serious consequences for companies and institutions, potentially impacting entire economies.

So, how do we navigate this minefield without putting the system at risk? The answer lies in credit risk analysis—a careful examination of the return on investment (ROI) and potential default risks every time credit is granted. However, this process has become far more detailed. With FinTech disruptors continuously shifting the market, economic volatility becoming the norm, and regulatory scrutiny tightening amid rising fraud and financial crimes, credit risk analysis has become more complex.

For example, the rate of delinquencies—where borrowers fail to make timely loan payments—has been increasing. Commercial real estate loans saw delinquencies reach 0.22% by the end of 2023, while commercial mortgage-backed securities experienced a steeper climb to 4.7% in early 2024. These trends show how rising interest rates and economic instability have made credit risk analysis increasingly challenging.

Today, the best approach combines time-tested methodologies with cutting-edge technology to analyze credit risks more effectively. This guide will help you learn how to do that, deepen your understanding of credit problems and risk management, and upgrade your existing analysis process. But first, let’s cover the basics.

What is Credit Risk?

Credit risk refers to the possibility that a borrower or counterparty will fail to fulfill their financial obligations according to the agreed terms. This could be in the form of missed loan payments, defaults, or even bankruptcy.

For lenders, such as banks or investment firms, credit risk directly impacts profitability and financial health. For businesses, it can affect cash flow, operational stability, and long-term growth.

What is Credit Risk Analysis?

Credit risk analysis involves evaluating the likelihood of a borrower defaulting on their financial obligations. This comprehensive assessment examines a potential borrower's creditworthiness, financial history, and capacity to repay. 

The analysis helps lenders and businesses make informed decisions about extending credit, determining loan amounts and establishing terms.

The process typically involves:

• Gathering financial information on the borrower
• Analyzing their credit history and current financial status
• Assessing external factors that might affect their ability to repay
• Quantifying potential risks using various models and metrics
• Making a decision based on the risk assessment and the lender's risk tolerance

Who Needs to do a Credit Risk Analysis?

Credit risk analysis is crucial for a wide range of entities, including:

• Banks and financial institutions
• Credit card companies
• Mortgage lenders
• B2B companies offering trade credit
• Investors in bonds or other debt instruments
• Insurance companies
• FinTech companies offering loans or credit products

Even small businesses that offer payment terms to customers must perform some level of credit risk analysis to protect their cash flow and financial health.

Why is Credit Risk Analysis Critical?

In an era of economic uncertainty and rapidly changing market conditions, credit risk analysis has become more important than ever. Here's why:

• Financial Stability: Effective credit risk analysis helps maintain the financial stability of lending institutions and businesses by minimizing potential losses from defaults.
• Regulatory Compliance: Many industries, especially banking and financial services, are subject to strict regulations regarding risk management. Proper credit risk analysis is often a regulatory requirement.
• Informed Decision Making: It provides a basis for making informed decisions about lending, pricing, and credit terms.
• Resource Allocation: By identifying high-risk and low-risk borrowers, companies can allocate their resources more efficiently.
• Competitive Advantage: Better risk assessment allows companies to offer more competitive terms to low-risk customers while appropriately pricing higher-risk loans.

What is the Purpose of Credit Risk Analysis?

The main goal of credit risk analysis is to strike a balance between risk and reward. It aims to:

• Minimize Potential Losses: By identifying high-risk borrowers, lenders can avoid or mitigate potential losses.
• Optimize Pricing: Risk-based pricing ensures that the interest rates or terms offered reflect the level of risk associated with each borrower.
• Improve Portfolio Management: For institutions managing large loan portfolios, credit risk analysis helps maintain a balanced and diversified portfolio.
• Enhance Strategic Decision Making: It provides insights that can inform broader business strategies, such as which market segments to focus on or which products to develop.
• Build Trust and Reputation: Robust risk management practices can enhance a company's reputation among investors, regulators, and customers.

Credit Problems and Risk Management

Credit risk management goes beyond individual borrower assessment. It involves managing risks at a portfolio level and addressing systemic issues. The Bank for International Settlements (BIS) has identified three key areas of focus:

1. Concentration Risk:

‍This isn't just about the largest borrowers, but about exposures where expected losses could significantly deplete capital. For example, in trade credit, offering the same terms to a startup and a public company represents different levels of concentration risk.

2. Credit Processes:

‍These encompass the steps taken to assess, measure, and conduct credit risk analyses. Errors in these processes can lead to significant credit problems, such as:

• Using unvalidated value-at-risk (VaR) models.
• Making inconsistent or non-replicable decisions.
• Poor monitoring of collateral and fraud risks.
• Mispricing of non-financial collateral.

3. Market and Liquidity-Sensitive Exposures:

‍This includes risks from foreign exchange, financial derivatives, and contingent liabilities. It's crucial to distinguish between a borrower's willingness and ability to pay, especially when dealing with illiquid collateral or volatile markets.

How to Analyze Credit Risk: A 5-step Guide

Step 1: Gather Comprehensive Information

Begin by gathering key financial documents such as balance sheets, income statements, and cash flow reports to assess the borrower's financial health. Additionally, review their credit scores, bank statements, tax returns, and, in the case of businesses, their business plans.

Analyze market trends to gain broader context about the borrower’s industry.

Step 2: Assess the Five C's of Credit

Evaluate the borrower’s character (credit history and reputation), capacity (income, cash flow, existing debt), capital (financial strength), collateral (assets to secure the loan), and conditions (loan purpose and external market factors).

Step 3: Utilize Quantitative Models

Use credit scoring models and advanced tools like Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) to assess risk. These models provide a numerical estimate of potential losses, with Expected Loss (EL) calculated using the formula: EL = PD x LGD x EAD.

Step 4: Perform Qualitative Analysis

Beyond the numbers, assess the borrower’s management team, experience, and strategic decisions. Consider broader economic factors like regulatory changes and industry trends that could influence the borrower’s financial stability.

Step 5: Conduct Stress Testing and Scenario Analysis

Simulate various economic conditions, such as recessions or market shocks, to test the borrower’s resilience. This helps determine how well they can continue to meet repayment obligations under unfavorable conditions and protects the overall loan portfolio from unexpected risks.

3 Ways to Upgrade Your Credit Risk Analysis Process

1. Refine Credit Scoring Techniques

To enhance credit scoring, move beyond traditional methods by incorporating real-time financial activities and cash flow status.

Consider external factors like economic stability and industry trends, while implementing market and performance trend analysis for a more comprehensive assessment.

2. Incorporate Trend Analysis

Analyze the client's business performance over-time and monitor relevant market environment trends.

Track national and global economic trends affecting the client's industry, and keep a close eye on changes in their debt-to-income ratio to gain deeper insights into their financial health.

3. Embrace New Technology and Tools

In a 2024 McKinsey survey of senior credit risk executives from 24 financial institutions revealed that 20% have implemented at least one generative artificial intelligence (AI) tool in their processes, with another 60% planning to do so within the year.

These tools, especially AI and machine learning, offer enhanced credit risk modeling and continuous monitoring of customer financial health.

The Fault(s) in the Current Credit Risk Assessment Systems

Current credit risk assessment models are failing to keep pace with the rapidly changing financial market. Traditional models, once reliable, now struggle to capture the complexities of modern economies and innovative business structures. This gap between risk assessment capabilities and real-world dynamics exposes lenders to unforeseen vulnerabilities.

As financial institutions grapple with these challenges, the need for a fundamental overhaul of risk assessment methodologies becomes increasingly urgent.

• Over-reliance on Historical Data: Traditional models often rely heavily on historical data, which may not accurately predict future performance, especially in rapidly changing economic conditions.
• Limited Scope of Traditional Credit Scores: While useful, credit scores don't capture the full financial picture of an individual or business.
• Difficulty in Assessing New Business Models: Emerging industries and innovative business models often lack historical data, making risk assessment challenging.
• Inadequate Consideration of Macroeconomic Factors: Many risk assessment systems fail to adequately account for broader economic trends that can impact creditworthiness.
• Bias in Algorithmic Decision-Making: AI and machine learning models can inadvertently perpetuate or even exacerbate existing biases in lending practices.
• Data Quality and Consistency Issues: Inaccurate or inconsistent data can lead to flawed risk assessments.
• Lack of Real-time Updates: Many systems don't incorporate real-time financial data, leading to outdated risk profiles.

How Neokred Fills Loopholes for Accurate Credit Risk Analysis

Neokred’s mission is to address the critical gaps in traditional credit risk assessment, enhancing accuracy and fairness. By integrating diverse data sources, including alternative and real-time data, it creates a more comprehensive borrower profile.

Neokred's real-time monitoring ensures risk profiles stay current, while customizable models adapt to specific business needs. By incorporating alternative data and focusing on bias mitigation, we extend reliable risk assessment to underserved markets. This innovative approach leads to more informed lending decisions and healthier loan portfolios.

Upgrading your current credit risk analysis process is a crucial step towards ensuring your institution or business’s long-term financial stability and success, and partnering with Neokred will give you that much-needed edge needed to thrive in the current era. Talk to our sales team today.

You’ve finally found your dream home!

Everything is finalized and you’re all set to close the deal. The only thing left is transferring the down payment to the seller.

You pick up your phone to make the payment. But, with so many bank transfer methods available, you need to choose one that ensures the funds are transferred swiftly and securely. Should you choose IMPS, NEFT, or RTGS?

While all three methods allow you to transfer money electronically, they have key differences. Understanding these can be crucial, especially when time is of the essence, and you want to avoid any payment delays.

By the end of this blog, you’ll know exactly which method to use—whether you're transferring money to a seller, paying a friend, or covering school fees. Ready to dive in?

What are NEFT, IMPS, and RTGS?

NEFT, IMPS, and RTGS are all methods to electronically transfer money from one account to another.

Think of them as different modes of transportation—sometimes you need a slow route, other times something faster, or even immediate. Each method offers its own pace and purpose for transferring funds. 

National Electronic Funds Transfer (NEFT)

NEFT is a one-to-one transfer system operated by the Reserve Bank of India (RBI) since 2005. 

It allows money transfers across India, but the transactions are processed in batches at regular intervals, meaning it’s not instant.

Immediate Payment Service (IMPS)

IMPS, launched by the National Payment Corporation of India (NPCI) in 2010, is perfect for real-time transfers. The funds are credited to the beneficiary’s account instantly, making it the fastest option available.

Real-Time Gross Settlement (RTGS)

RTGS is designed for high-value transactions that require immediate clearance. Unlike NEFT, which operates in batches, RTGS transfers money immediately on a gross basis. This means the funds reach the recipient’s account within minutes.

Difference Between NEFT, IMPS, and RTGS

Now that we’ve got an idea of each of these payment methods, let’s compare them so that you can easily decide which one to use in which situations.

How to Choose Between IMPS, NEFT, and RTGS?

The best method for you depends on factors like fund transfer speed, transaction limits, and convenience. Here’s a breakdown to help you decide:

Transaction Speed

• NEFT: Processes transactions in batches, taking up to a few hours for the funds to reflect in the recipient’s account.
• IMPS & RTGS: Offer instant transfers, with funds reaching the recipient in real time.

Fund Transfer Limits

• NEFT: No minimum or maximum limit, though some banks set their own limits.
• IMPS: Maximum limit of Rs. 5 lakhs per transaction. 
• RTGS: Minimum limit of Rs. 2 lakh per transaction, with no upper limit (depends on bank policies).

Charges

While digital transfers are more affordable and reliable, they aren't always free. Here are the charges applicable: 

NEFT Charges

Since July 1, 2019, the RBI has eliminated processing fees for NEFT transactions charged to banks. Additionally, starting from January 1, 2020, the RBI mandated that no fees be charged for NEFT online transactions made from savings accounts. The RBI has also waived charges for inward transactions at destination bank branches, ensuring that transferring funds to beneficiary accounts remains free of cost.

If you're doing an outward transaction in other ways (like at the bank branch or through a non-savings account), there could be some minimal fees involved:

• Less than or equal to Rs. 10,000: Rs. 2.5 + GST
• Between Rs. 10,000 and Rs. 1 Lakh: Rs. 5 + GST
• Between Rs. 1 Lakh and Rs. 2 Lakh: Rs. 15 + GST
• Equal to or more than Rs. 2 Lakh: Rs. 25 + GST

IMPS Charges

IMPS charges vary from bank to bank and are largely subject to the amount transferred. The regular IMPS charges range from Rs. 2.5 to Rs. 25 for amounts up to Rs. 5 lakhs. 

• Less than or equal to Rs. 10,000: Rs. 2.5 + GST
• Between Rs. 10,000 and Rs. 1 Lakh: Rs. 5 + GST
• Between Rs. 1 Lakh and Rs. 2 Lakh: Rs. 15 + GST
• Between Rs. 1 Lakh and Rs. 5 Lakh: Rs. 25 + GST

Here’s a look at the IMPS charges for some of the major banks in the country:

*These charges are subject to change

RTGS Charges

With effect from July 01, 2019, RBI has waived the processing charges for RTGS transactions for the recipient, but banks can charge a service fee for outward transactions. To ensure banks charge a fair and reasonable fee to transfer money, RBI has mandated a general set of guidelines:

1. Inward transactions: Free, no charge to be levied.
2. Outward transactions: some text
   • Rs. 2,00,000 to Rs. 5,00,000: Rs. 25 or less + GST 
   • Above Rs. 5,00,000: Rs. 50 or less + GST

Banks can choose to charge a lower rate, but they can't charge more than the RBI's limit.

Network Compatibility

NEFT, IMPS, and RTGS transactions can be processed only between the banks that offer the respective services.

For example, you cannot RTGS to a bank that offers only NEFT services. For an RTGS transfer, both the sending and receiving bank need to be RTGS-enabled. Each bank needs to be a part of the respective system for you to be able to use it to transfer money. Before making a transfer, it's always good to check if both the sender’s and recipient's banks support the service you plan to use.

• NEFT: Available at 216 banks across the country.
• IMPS: Available with 888 members (including banks and PPIs).
• RTGS: Supported by more than 1,60,000 bank branches.

Safety and Security

All three transfer methods—NEFT, IMPS, and RTGS—are highly secure and reliable. They use robust encryption protocols to protect your money and information.

However, it’s always recommended to double-check the recipient’s details before confirming a transaction as incorrect information could lead to delays or even fund loss. 

NEFT, RTGS, and IMPS - Which is Better? 

At the end of the day, it’s all about your needs. NEFT is perfect for not-so-rush situations. It’s cost-effective and reliable for routine payments like rent, moving money between your own accounts, or making payments that are not urgent. As long as the recipient doesn’t need the funds “right at this second”, NEFT is a solid choice.

On the other hand, IMPS will be your go-to option when you need to transfer money quickly. Whether it’s an emergency bill, paying for something on-the-spot or making time-sensitive payments, IMPS makes sure that the money gets to the recipient immediately.

RTGS is best for transferring large sums of money, widely used for business transactions, real estate purchases, or in any situation where speed and security are important, and a large amount is involved.

Wrapping Up

So, the next time you are in a situation to send money, you’ll know exactly which option to choose. NEFT for no-rush transfers, IMPS for instant money transfers, and RTGS when you’re moving huge amounts!

As digital transactions continue to evolve, businesses are turning to advanced solutions like virtual account numbers (VANs) to simplify their financial processes. Neokred’s Virtual Account Number is an innovative tool that allows businesses to streamline payments by offering unique account identifiers for each customer or transaction, reducing the risk of errors and improving reconciliation.

If you're looking to enhance your transaction management, explore Neokred. It's a smart step towards more efficient, secure, and organized financial operations.

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Have you ever opened a bank account, applied for a loan, purchased insurance, or connected to an LPG service? If so, you’ve likely filled out a KYC form and submitted the required documents.

But what is KYC, and why is it so important?

As online and cross-border transactions increase, so does the risk of fraud, money laundering, and other financial crimes. This reality makes it necessary for businesses and financial institutions to identify and verify customers before engaging in any form of business interaction. To safeguard financial systems from these illicit activities, the Reserve Bank of India (RBI) mandates Know Your Customer (KYC) process.

While many individuals and businesses undergo this process, few fully understand what KYC is, why it’s required, or which documents are necessary. This guide aims to address these questions and simplify what can often feel like a cumbersome process.

What is KYC?

Know Your Customer or Know Your Clients (KYC) is the process of verifying a customer’s identity to prevent financial crimes by ensuring they are who they claim to be. This verification is done by collecting and authenticating documents that confirm the customer’s identity and address.

The main goal of KYC is to prevent money laundering, terrorist financing, and other illegal activities. Additionally, it’s a regulatory requirement, and failure to comply can lead to hefty fines.

Why Does KYC Matter?

KYC procedures are crucial for maintaining financial integrity and safety. Although the process may seem tedious, here’s why it’s important:

• Due Diligence: Businesses, especially financial institutions, must assess and verify customer information during onboarding to identify potential risks. By doing so, businesses can protect themselves from reputational damage, legal consequences, and involvement in illicit activities.
• Prevention of Corruption and Financial Crimes: Strict KYC regulations help financial institutions verify customer identities and report suspicious activities, ensuring the security of the financial system.
• Building Accountability and Trust: By implementing KYC procedures, financial institutions guarantee transparency and foster trust between customers and businesses.

What is eKYC?

Traditionally, KYC is carried out through physical documents for verification. However, digital advancements have led to the rise of eKYC (electronic KYC). It leverages technology to electronically verify customer identities, making the process faster and more convenient.

eKYC benefits both businesses and individuals by improving speed, convenience, and security. It helps businesses onboard customers remotely without the need for physical documents.

KYC Regulations and Legal Foundations

In India, KYC is regulated by the RBI, Securities and Exchange Board of India (SEBI), and other regulatory bodies. Key regulations include:

• Prevention of Money Laundering Act (PMLA), 2002: The PMLA is one of the primary regulations governing KYC in India. It mandates financial institutions to perform due diligence on their customers and report suspicious transactions to the Financial Intelligence Unit (FIU).
• RBI KYC Guidelines: The RBI has issued detailed guidelines on KYC, which requires banks and other financial institutions to verify the identity and address of their customers before providing any services.
• SEBI KYC Regulations: These regulations apply to individuals/businesses involved in the securities market, including brokers, mutual fund houses, and portfolio managers. These regulations are issued to maintain the integrity of the securities market and protect all parties involved.

Who Needs to Comply with KYC?

Any business operating in Anti-Money Laundering (AML) regulated industries must conduct KYC checks. This applies to both financial and non-financial sectors, including:

• Banks and Credit Unions: The KYC process is critical for opening accounts, providing loans, or offering other financial services.
• Telecom Companies: KYC helps verify the identity of customers before issuing SIM cards or other services.
• FinTech Apps: Mobile wallets, UPI services, and digital payment solutions are required to perform KYC to protect against fraudulent activities.
• Asset Management Firms: KYC helps manage risks associated with clients and sustain financial security.

Nevertheless, with the growing use of online services, businesses must perform KYC extensively, regardless of their industry.

Steps to Achieving KYC Compliance

To stay compliant with KYC regulations, it’s essential to thoroughly verify customer identities before onboarding them as clients.

It involves the following steps:

Step 1: Customer Identification Program (CIP)

Collect and verify basic information about the customer, such as their name, date of birth, and address using government-issued documents (e.g., PAN card, voter ID, passport).

Step 2: Customer Due Diligence (CDD)

Based on the collected information, businesses must perform CDD to assess the risk profile of each customer. Additional checks and verifications can be conducted, especially for high-risk customers.

Step 3: Continuous Monitoring

KYC is not just limited to the onboarding process. You should continuously monitor their customers’ transactions and financial activities for suspicious activities. Regular KYC updates are also a must, specifically when there is a change in customer details.

What Documents are Needed for KYC Verification?

Financial institutions must gather specific documents during the KYC process to verify customer identities and comply with regulations. Clear knowledge of these required documents ensures smooth onboarding and risk management:

• Proof of Identity (PoI): PAN card, voter ID, passport, or driving license.
• Proof of Address (PoA): Utility bills (electricity, water, gas, etc.), bank statements or rental agreements.
• Photographs: Passport-size photographs are usually required for proper KYC documentation.
• Additional Documents: Depending upon the risk profile, businesses might require income statements, salary slips, employment verification, or other such documents.

The exact KYC requirements also vary depending on the industry. For example, financial institutions have a more stringent KYC process than other businesses.

How Does the KYC Process Work?

KYC can be completed either offline or online. Here’s an overview of both methods: 

Offline KYC Process

• Customers have to fill out the KYC form and submit the required documents.
• Businesses should verify the submitted documents.
• Biometric verification should be executed to confirm identity.
• Customers’ addresses should be verified against government-issued documents.
• Risk assessment must be done by verifying other relevant documents.
• Physical documents are stored for record-keeping.

Online KYC Process

• Customers will register online.
• Documents are uploaded digitally.
• Biometric verification is done using a webcam or mobile device.
• Customers will electronically sign the necessary KYC document.
• Real-time verification is conducted with government records.
• Documents are digitally stored for record-keeping.

The specific steps may vary depending on the industry and risk profile, but these steps represent the general KYC process.

The Benefits of Implementing a Robust KYC Process

A well-executed KYC process is key to maintaining a secure and transparent financial environment. Listed below are some of its benefits:

• Available Anytime, anywhere: eKYC allows remote verification, which is convenient especially when a physical store is not accessible.
• Better Risk Management: Verifying customer identity and background helps businesses better manage fraud risks.
• Prevention of Financial Crimes: KYC is primarily implemented to prevent money laundering, terrorist funding, and other financial crimes. This protects businesses and the country’s overall financial ecosystem.
• Increased Compliance with AML Regulations: Adhering to KYC guidelines ensures compliance helping avoid hefty fines and legal repercussions.
• Cost-efficiency: Automated eKYC processes reduce the time and resources required for customer verification, making the onboarding process more efficient and cost-effective.

KYC Requirements Across Sectors in India

KYC requirements are tailored to meet the needs and risks of different industries. Here’s an overview of the specifics for key sectors:

KYC for the Banking Sector

Banks in India must adhere to strict KYC regulations under the Prevention of Money Laundering Act (PMLA) and the RBI guidelines. They require comprehensive KYC documentation, including proof of identity, address, and biometric verification. These measures prevent banks from being involved in fraudulent or illicit activities.

KYC for Financial Services

Financial service providers, such as insurance companies, private lenders, and non-banking financial companies (NBFCs), are required to collect and verify documents, assess risk, and maintain transaction records. They must also adhere to guidelines issued by the Insurance Regulatory and Development Authority of India (IRDAI), SEBI, and other relevant regulatory bodies.

KYC for Crypto

The cryptocurrency industry in India is still evolving, and KYC requirements are gradually becoming more stringent. Experts recommend implementing tighter KYC regulations to combat money laundering and other illegal activities within the sector.

How NeoKred Helps with the KYC Process

KYC is more than just a regulatory requirement; it’s also a tool to safeguard businesses and maintain the integrity of the country’s financial system.

With NeoKred’s integrated platform, businesses can seamlessly onboard customers, verify their identity in real time with unmatched accuracy and security while delivering an exceptional customer experience. 

Contact us today to learn more about how we can streamline your KYC processes.

Have you ever bought something online with just one click or used a ride-sharing app to pay for your trip without pulling out your wallet? If so, you've experienced embedded finance in action. 

Embedded finance is revolutionizing the financial landscape by seamlessly integrating financial services into non-financial platforms and applications. This innovation reshapes how businesses and consumers interact with financial products, creating new opportunities and challenges in the digital economy. But what exactly is it, and why should you care? Let’s find out!

What is Embedded Finance?

Embedded finance integrates financial services seamlessly into non-financial products or services, fundamentally changing how we interact with financial products daily. For instance, when you use a ride-sharing app, you're experiencing embedded finance in action - the payment for your ride is processed automatically without needing to take out your wallet or credit card. 

This integration goes beyond just payments. Other industries increasingly incorporate various financial solutions into their core offerings. Retailers offer "buy now, pay later" options at checkout, effectively becoming lenders. Software companies provide invoicing and payroll services, taking on roles traditionally held by banks. 

As a result, the traditional financial services industry is being reshaped. The need for standalone financial services is decreasing as consumers can access many banking, lending, and insurance products directly through the non-financial platforms they already use and trust. 

Essentially, embedded finance enables businesses to integrate financial services closely related to their business:

• Banking services (like checking account balances)
• Lending (getting loans or credit)
• Insurance (protecting your purchases or activities)
• Investing (buying stocks or other financial products)

Instead of requiring users to leave a platform or app to complete a financial transaction, embedded finance brings those solutions directly to where customers are already engaged.

Examples of Embedded Finance

Embedded finance isn't just a fancy term – it's already part of many services you might use daily. Let's look at some examples:

1. Embedded Banking:

‍Embedded banking involves integrating essential banking services into non-financial platforms. Imagine a freelance platform that lets you manage your earnings and expenses in the app. That's embedded banking. It can include features like virtual accounts, balance checking, and money transfers.

Example: Uber's driver app includes a banking feature that allows drivers to open an account, receive payments, and manage their earnings directly within the app.

2. Embedded Payments

‍This is the most ubiquitous form of embedded finance. It allows customers to make purchases or transfers without leaving the platform they're using.

Example: Consider how easy it is to pay for an Uber ride. The payment happens automatically at the end of your trip – that's embedded payments in action. Another example is Amazon's one-click purchase option, which uses stored payment information to make buying quick and easy.

3. Branded Payment Systems

‍These are payment solutions co-branded between a non-financial company and a financial institution.

Example: The Apple Card, created in partnership with Goldman Sachs, is deeply integrated with Apple's ecosystem. It offers features like instant cashback and spending tracking directly in the Apple Wallet app, blending financial services with Apple's user experience.

4. Embedded Lending

‍This involves offering credit or loans at the point of sale, often in e-commerce settings.

Example: Klarna's "buy now, pay later" option, which allows shoppers to split payments into installments directly at checkout on partner websites.

5. Embedded Investing

‍Investment services integrated into non-financial platforms, allowing users to invest in stocks, bonds, or other financial instruments.

Example: Robinhood's API allows third-party apps to offer stock trading features directly within their platforms.

6. Embedded Insurance

‍Insurance products offered at the point of sale for relevant purchases.

Example: Tesla offers car insurance as part of the vehicle purchase process, using data from the car to determine premiums. Some car-sharing apps provide insurance as part of the rental process. Another example is how some travel booking sites offer travel insurance as part of the booking process.

What are the Key Components of Embedded Finance

Here are the critical components of embedded finance:  

APIs (Application Programming Interfaces):

‍These are the technological backbone of embedded finance. Think of APIs as digital bridges that allow software systems to talk to each other. They facilitate the connection of a non-finance app with financial services. For instance, a payment API might allow an e-commerce site to process credit card transactions without building the entire payment infrastructure.

Open Banking Infrastructure:

‍This framework secures financial data sharing between different institutions, facilitating the integration of various financial services. For example, a ride-sharing app could use open banking APIs to connect directly with a user's bank account, allowing seamless payments without needing a separate payment processor. The app could also offer instant cash advances to drivers based on their earnings history, all within the same platform they use for their daily work.

Regulatory Compliance Frameworks:

‍Robust compliance measures are crucial to ensure legal and ethical operations. For example, a social media platform integrating peer-to-peer payment features must implement Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. This might involve verifying users' identities through document uploads and automated background checks before allowing them to send or receive money, ensuring compliance with financial regulations while maintaining a seamless user experience within the app.

Data Analytics and AI:

‍These technologies enable personalized financial services and risk assessment, enhancing the user experience and improving decision-making processes.

Data Security and Privacy Measures:

Robust security protocols are crucial to protect sensitive financial information.

Embedded finance differs from traditional financial services in several key ways:

1. Contextual Integration: Financial services are woven into the user's existing journey rather than being a separate, standalone service.
2. Seamless User Experience: Customers can access financial services without leaving their preferred platform or app.
3. Non-Financial Brand Relationships: Users interact with financial services through brands they already know and trust, even if those brands aren't traditional financial institutions.
4. Data-Driven Personalization: Embedded finance can offer more tailored financial products and services by leveraging user data from the host platform.

How Embedded Finance Works

The mechanics of embedded finance rely on a complex interplay of technology, partnerships, and regulatory compliance. Here's a breakdown of how it typically functions:

1. Technical Infrastructure: A robust API infrastructure is at the core of embedded finance. These APIs bridge the host platform (e.g., an e-commerce site) and financial service providers (e.g., payment processors and banks).
2. Integration Process: The host platform integrates these APIs into its existing systems, allowing it to offer financial services seamlessly within its user interface.
3. Data Exchange: When a user initiates a financial action (like making a payment), the host platform's system communicates with the financial service provider's system via the API, exchanging necessary data in real-time.
4. Regulatory Compliance: Throughout this process, all parties must adhere to relevant financial regulations and data protection laws. This often involves Know Your Customer (KYC) checks, anti-money laundering (AML) procedures, and secure data handling practices.
5. User Experience: From the user's perspective, this process happens seamlessly within the host platform's interface, often requiring just a few clicks to complete a financial transaction.

When you use an embedded finance service, all of this tech and teamwork come together to give you a smooth, easy experience. You might not see all the complex stuff happening in the background, but it's there, making everything work seamlessly.

Key Players in the Embedded Finance Ecosystem

Understanding the key players in the embedded finance ecosystem is crucial to grasping how this innovative approach to financial services operates:

1. Digital Platforms:

‍These companies integrate financial services into their existing offerings. They can be from various sectors:

• E-commerce platforms (e.g., Amazon, Shopify)
• Ride-sharing apps (e.g., Uber, Lyft)
• Social media companies (e.g., Facebook, WeChat)

These platforms leverage embedded finance to enhance user experience, increase customer loyalty, and create new revenue streams.

2. Financial Institutions:

‍Traditional banks and fintech companies are crucial in the embedded finance ecosystem. They provide the underlying economic infrastructure and often hold the necessary regulatory licenses. Some are adapting their business models to become "Banking-as-a-Service" (BaaS) providers, offering their banking capabilities via APIs for other companies to embed.

Examples: Goldman Sachs, BBVA, Green Dot

3. Embedded Finance Infrastructure Companies:

These specialized firms, like Neokred, provide the technological backbone enabling businesses to integrate financial services seamlessly. They offer:

• API integration capabilities
• Compliance and risk management tools
• Data analytics and reporting features
• White-label solutions for various financial products

Example: Neokred is a leading embedded finance infrastructure provider that enables businesses to seamlessly integrate financial services through robust API solutions, compliance tools, and data analytics. Their customizable white-label offerings accelerate time-to-market, enhance customer experiences, and ensure regulatory adherence, making them an invaluable partner in the evolving financial landscape.

Pros and Cons of Embedded Finance

Like any technological innovation, embedded finance comes with its own set of advantages and challenges:

Benefits:

1. New Revenue Streams for Businesses: Companies can offer financial services without becoming entire banks, opening up new income sources. 
2. Enhanced Data Insights: Businesses can learn more about their customers' financial behaviors and preferences, enabling them to create more targeted marketing campaigns and develop new products that better meet customer needs. For instance, a retailer offering embedded payments could analyze purchase patterns to optimize inventory and create personalized promotions.
3. Improved Customer Experience: Financial services become more seamless when built into platforms we use. 6 in 10 consumers want to transact with financial institutions that provide a single platform, such as social media or mobile banking apps. This demonstrates the rising acceptance and reliance on fintech solutions globally, indicating that consumers are increasingly integrating these services into their daily financial activities.
4. Increased Financial Inclusion: People who might not use traditional banks can access financial services through familiar apps.
5. Faster Innovation: New financial products can be developed and launched more quickly. This is possible because embedded finance platforms often use modular, API-based architectures. For example, a company could rapidly deploy a new lending product by integrating a third-party credit scoring API with its existing payment system rather than building the entire infrastructure from scratch.

Drawbacks:

1. Regulatory Challenges: Companies must navigate complex financial regulations, which can be difficult for non-financial firms.
2. Data Privacy Concerns: More sharing of financial data raises questions about security and privacy.
3. Potential for Market Concentration: There's a risk that a few large platforms could dominate the space.
4. Blurred Lines of Responsibility: When issues arise, it may not always be clear who is responsible—the platform or the financial service provider.
5. Cybersecurity Risks: More integrated financial services could mean more potential targets for cybercriminals.
6. Customer Trust Issues: Some people may hesitate to use financial services from non-traditional providers.

Comparison with Related Concepts

It helps to compare embedded finance with similar ideas in the financial world to get a clearer picture. 

Embedded Finance vs. Open Banking

Let's look at how embedded finance stacks up against open banking. Both of these concepts involve bringing financial services closer to consumers, but they work in different ways:

• Open Banking is about banks sharing your financial data with other companies, with your permission. This helps create new services and increases competition among banks. Consider opening up the banks' data vaults to let other companies peek inside.
• Embedded Finance takes things a step further. It allows non-financial companies to offer financial services directly to the customer. It's like your favorite coffee shop app suddenly offering you a savings account or loan.

Open banking enables embedded finance, providing the data-sharing infrastructure that makes many embedded finance applications possible.

Embedded Finance vs. DeFi (Decentralized Finance)

Embedded finance and DeFi both seek to increase accessibility to financial services, but their techniques differ:

• Embedded Finance integrates typical banking services into non-financial platforms.
• DeFi uses blockchain technology to provide financial services without the need for centralized middlemen, frequently operating outside of established banking rules.

While embedded finance works to improve current financial services, DeFi aspires to establish whole new financial paradigms.

The Embedded Finance Market

The embedded finance market is experiencing explosive growth, with some projections suggesting it could reach $7 trillion in transaction value by 2026. Several factors are driving this growth:

1. Increasing Digitalization: As more aspects of our lives move online, the demand for integrated digital financial services grows.
2. Changing Consumer Expectations: Users now expect seamless, one-stop experiences in all their digital interactions, including financial services.
3. Advancements in API Technology: Improved API capabilities make it easier and more secure to integrate financial services into various platforms.
4. Regulatory Changes: Open banking initiatives in various countries have created a more favorable environment for embedded finance.
5. COVID-19 Impact: The pandemic has accelerated digital adoption, including in financial services, boosting the embedded finance market.

Key market segments showing significant growth include:

• Embedded payments in e-commerce
• Integrated insurance offerings
• Embedded lending in various sectors
• Integrated investment services

The Future of Embedded Finance

As we look to the future, several trends and innovations are likely to shape the evolution of embedded finance:

1. AI and Machine Learning: These technologies will enable more personalized financial services and better risk assessment. For example, an AI-powered budgeting app could analyze spending patterns and automatically adjust savings goals or suggest investment opportunities.
2. Blockchain and Cryptocurrencies: We may see increased integration of blockchain-based financial services into traditional platforms. For instance, a social media platform could implement a blockchain-based loyalty point system, allowing users to earn, trade, and redeem tokens for real-world goods or services across multiple partnered businesses.
3. Internet of Things (IoT): As more devices connect, we can see financial services embedded into a broader range of products and services. For example, smartwatches and fitness trackers could integrate with health insurance platforms, allowing users to earn discounts or rewards based on their activity levels and health metrics. This real-time data sharing could lead to more personalized insurance premiums and incentivize healthier lifestyles.
4. Hyper-Personalization: Advanced data analytics will allow highly tailored financial products based on user behavior and needs. For example, a fitness app could offer personalized health insurance premiums that adjust in real-time based on activity levels and health metrics.
5. Expansion into New Sectors: Embedded finance will likely penetrate more industries, from healthcare to education to government services. For instance, a university app might offer student loans or payment plans directly integrated with course registration.
6. Regulatory Evolution: As embedded finance grows, we can expect regulatory frameworks to evolve to address new challenges and opportunities. We might see the emergence of specialized "embedded finance" licenses or new data protection laws tailored to integrated financial services' unique risks.

The rise of embedded finance will likely have significant implications for traditional financial institutions. Banks and other financial service providers may need to adapt their business models, potentially focusing more on becoming backend financial infrastructure providers rather than consumer-facing brands.

Over $3.1 trillion in illicit money flowed through the global financial system in 2023, nearly equivalent to the market cap of Amazon and Meta combined, quite close to the nominal GDP of India (USD 3.5 trillion). Such staggering sums severely threaten the integrity and stability of our global financial system.

Financial crime doesn’t discriminate. However, fintech companies face an exceptionally high risk of being exploited. Their innovative services, which provide quick access to credit and streamlined account opening processes, can inadvertently create vulnerabilities in the system.

Regulators have developed a comprehensive set of laws called Anti-Money Laundering (AML) to combat this threat. Continue reading to understand how AML approaches money laundering and helps to maintain the trust and stability that underpin the global economy.

Understanding Money Laundering

To understand the ins and outs of AML, we first need to understand what money laundering is and how it works. 

Money laundering is the process of disguising the source of illegally gained money (such as terrorist funding or drug trafficking) so it appears to have come from a legal source. It can have far-reaching economic, social, and security-related consequences globally. 

The process essentially ‘launders’ this ‘dirty’ money ‘clean’, so it can be injected into the legal financial system. 

Stages of money laundering

Money laundering typically occurs in three stages: 

1. Placement

It involves introducing illicit funds into the legitimate financial system. Some standard methods of placement are:

• Smurfing (making multiple deposits below the AML reporting threshold)
• Commingling (blending dirty money with legit business revenues)
• Making payments to cash-based businesses like casinos to disguise the origin
• Paying off legitimate debt

2. Layering

Now these funds undergo a series of complex transactions so they’re buried within the financial system to disguise the owners’ identity. This process is called layering and it creates a convoluted audit trail. 

For example, the funds may be wired from a US account to a shell company in the Cayman Islands, converted to bonds, sold, and transferred to a Swiss bank account within a short timeframe.

3. Integration

This involves reintroducing the now laundered money into the legit economy. The money is withdrawn and integrated into the economy. This is often done through:

• Real estate investments
• Acquiring luxury assets
• Securities trading

The global financial system has developed a coordinated approach in response to this growing threat — anti-money laundering. 

Anti-Money Laundering Explained

Anti-money laundering is a comprehensive framework of policies, laws, and regulations designed to detect, prevent, and report money laundering. It addresses a wide variety of crimes, such as corruption, market manipulation, tax fraud, terrorism financing, and drug/human trafficking.

Anti-money laundering acts are created by global and local regulators and applied to financial institutions (FIs) and other regulated entities, such as:

• Banks and credit unions
• Insurance companies
• Asset reconstruction companies
• Gaming businesses and casinos

Different countries have different acts that FIs must adhere to. 

India’s Key AML Acts 

Prevention of Money Laundering Act (PMLA) is a critical anti-money laundering act in India, enacted in 2002 and subsequently amended multiple times, the latest being in 2023. 

PMLA is enforced by the Enforcement Directorate (ED) under the Ministry of Finance. It works with the Financial Intelligence Unit-India (FIU-IND) to combat money laundering and terrorist financing, with the latter providing financial intelligence to the former.

India is also a member of the Financial Action Task Force (FATF) — a global organization with the aim “to develop policies to combat money laundering and to maintain certain interests.” It sets standards and promotes effective implementation of the AML. At the time of its formation, it had 16 members, though the number was 40 in 2023.

The Foreign Exchange Management Act (FEMA) was enacted to prevent money laundering through cross-border transactions. While its primary purpose is to regulate forex transactions, it limits the amount of foreign currency that can be taken out of or brought into India. Plus, it gives authorities the power to examine and investigate suspicious foreign exchange transactions.

A Brief History of PMLA

A brief history of India’s PMLA is shown in the following image:

Link to the infographic

The Importance of AML for FIs

In the wake of the 2008 financial crisis and the rise of financial crimes, regulators have tightened oversight on traditional FIs and fintechs. The fintech sector, in particular, faces increased scrutiny due to its rapid growth and innovative business models. 

For instance, India’s fintech market alone is projected to reach $1.5 trillion by 2025. While this growth is driven by cutting-edge technologies, it also introduces new vulnerabilities that criminals may exploit. AML compliance is, therefore, substantial in:

• Combating financial crime: The UN Office on Drugs and Crime estimates that 2–5% of global GDP or $800 billion–$2 trillion is laundered annually. AML measures help detect various forms of financial crimes.
• Maintaining the integrity of the system: AML restricts bad actors’ access to financial resources, thus contributing to the overall stability and trustworthiness of the global financial system.
• Risk Management: Effective AML programs help institutions identify and mitigate risks associated with their products, services, and customer base.

Consequences of Non-Compliance for FIs

The stakes are high — over $485 billion were lost to fraud scams and bank fraud schemes in 2023 despite the current AML measures. Unsurprisingly, if the FIs and fintech don’t comply with the AML, regulators can impose sanctions and disciplinary actions:

AML Compliance Framework

To comply with the Anti-money Laundering Act, FIs need to register as reporting entities with FIU-IND and follow a set of requirements that form the foundation of an effective AML program: 

• Create internal policies to detect and prevent laundering and signed by the board
• Appoint a compliance officer to ensure compliance
• Train the employees in AML compliance
• Have an independent review done by a third party
• Do customer due diligence to assess the risk of doing business with them

AML Solutions and Best Practices

In general, fintech and FIs are expected to take the following steps to ensure compliance with the anti-money laundering act: 

Know Your Customer (KYC)

It’s the process of verifying the identity of a client:

• Collect and verify documents such as Passport, proof of address
• Regularly update the KYC information 
• Categorise customers based on risk and apply enhanced due diligence (EDD) for high-risk customers

The goal is to ensure customers are who they claim to be and to assess potential risks of illegal intentions. It also allows FIs to trace each transaction to an organization. 

Customer Due diligence (CDD)

CDD is a more comprehensive process that includes KYC but goes beyond it. It involves assessing the risk profile of the customers based on their background, financial status, and the nature of their transactions:

• Verify the identity of customers
• Identify and verify the beneficial owners of legal entity customers
• Understand the nature and purpose of customer relationships to develop a risk profile

It also includes ongoing monitoring of customer transactions to detect and report suspicious activities. If any unusual patterns or high-risk indicators are identified during this process, it may trigger the need for EDD. It involves more rigorous checks like:

• Obtaining additional information about the customer and business
• More frequent updates of customer information
• Closer scrutiny of the customer’s transactions
• Obtaining senior management approval to establish or continue the business relationship

Proper Reporting and Transaction monitoring

To the FIU, FIs must report suspicious transactions—Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs). 

Transaction monitoring systems detect unusual or suspicious transactions. They analyze transactions in real-time or batch mode to identify patterns that may indicate laundering. Compliance officers review the alerts generated by these systems. Report transactions above Rs 1 million to the FIU.

Wallet Screening

For cryptocurrency FIs, wallet screening involves verifying the source and destination of crypto transitions to ensure they aren’t linked to illicit activities. Wallets are screened against known blacklist wallets to identify high-risk transactions. 

Use Case: Data-Driven Decision Making in AML

Data-driven decision-making can help FIs bolster their AML capabilities. By leveraging advanced analytics and comprehensive data aggregation capabilities using services like Neokred’s ProfileX, you can transform your AML efforts. Here’s how: 

• Data aggregation: ProfileX aggregates transactional and non-transaction data from multiple sources, giving you a holistic view of customer behavior to help detect patterns indicative of money laundering. 
• Risk-based assessments: Using advanced analytics, ProfileX can conduct risk assessments based on alternative data, such as behavioral insights. This enhances the accuracy of identifying high-risk customers. 
• Real-time monitoring: ProfileX monitors customers’ transactions in real-time, allowing you to identify and respond to suspicious activities promptly. 

Anti-Money Laundering and Neokred

AML compliance protects FIs and fintechs from reputational damages and regulatory penalties while fostering a secure financial system. However, while AML measures are necessary, traditional KYC processes can be cumbersome, leading to a poor user experience. 

Neokred’s ProfileX addresses this challenge head-on, offering a streamlined approach to onboarding, KYC, and CDD using a name and mobile number. Then, it captures quality information from the documents and aggregates it in real-time to complete user profiles. It also offers insights into customers’ behavior, preferences, and creditworthiness to help detect potential fraud early on. API integration also minimizes disruption to existing operations. 

Moreover, ProfileX is designed with regulatory compliance at its core, adhering to banking and data protection regulations. To explore how Neokred can improve your AML compliance and streamline customer onboarding, contact us here.

Staying competitive and creating growth in today's fast-paced corporate market requires efficiency. The area where efficiency can be significantly improved is the account receivables management. Automating accounts receivable processes can make it easier to monitor payments and invoices while reducing the possibility of human mistakes. Automation solutions allow firms to streamline AR operations, improve accuracy, and boost performance. In this blog, we'll discuss how automation affects AR management and how to use it to reduce risks.

Challenges Associated With Accounts Receivable

The challenges with accounts receivable consist of staff training requirements, resistance to change, and integration complexities. Organizations frequently encounter disruptions that demand time and resources throughout the learning trajectory. Technical expertise, customization, and efficient navigation from third-party partners can alleviate these issues.

Importance of Accounts Receivable Management

What is Receivables Management? Customer payments are tracked and collected by accounts receivable management. This is crucial as it enables the organization to monitor and regulate cash flow, ensures prompt customer payment, and aids in cash flow management.

• If you keep a close eye on payments and invoices, your business can ensure it gets the total amount due on time, which is suitable for your credit.
• Using a paperless invoicing system, one can conveniently monitor invoices and payments, promptly identifying consumers with outstanding balances. This lets you easily collect unpaid amounts.
• Managing accounts receivable (AR) can also help reduce bad debt costs (accounts that aren't paid) and boost profits.
• Management of receivables enhances customer service by facilitating payment plans or automatic payments.
• Tracking customer payments helps identify late payers and improve payment practices.

Automation of AR Management

At first, companies had to deal with accounts receivable process steps that were done by hand, took a lot of time, were prone to mistakes, and were time-consuming. Sophisticated automated techniques, made possible by the evolution of modern technologies, revolutionized AR management with improved speed and accuracy by facilitating smooth invoice preparation, payment reminders, and reconciliation.

After some initial implementation issues, businesses began using automated AR systems, increasing productivity and accuracy. Organizations will use enhanced AI-driven automation to integrate with existing systems, minimize human intervention, and optimize AR operations for maximum efficiency.

The change will revolutionize receivables automation. Businesses will benefit from automated processes, faster cash flows, and lower operating expenses, solidifying automation as the core of modern AR practices.

However, accounts receivable management requires monitoring and controlling an organization's balances. It includes billing, managing credit, and applying cash, all of which are meant to ensure customers pay on time.

Effective Accounts Receivable Strategies

Businesses may automate and improve AR management using these strategies:

• Advanced Automation: Implement AI-driven automation technologies to speed up typical AR activities, eliminating manual labor and processing errors.
• Automated Reminders: Implementing automated reminders for past-due payments to improve communication and increase on-time payments.
• Efficient Credit Rating System: To make better decisions and reduce risk, integrate computerized credit scoring systems to evaluate customers' creditworthiness in real time.
• Auto-reconciliation: Automated reconciliation methods ensure accuracy and reduce the likelihood of errors in AR records by matching payments with invoices.
• AI-powered collections: Optimize debt recovery using AI algorithms to assess client behavior and modify collection techniques.
• Automating Workflows: Workflow automation can improve department communication, speed up AR approvals, and reduce delays.

The Best Ways To Automate Accounts Receivable (AR)

1. Begin with data free of errors and a billing blueprint.

Before applying the software, you need clean, precise data to feed your automation tool. Create an invoice template to avoid errors. This also reduces balance sheet errors.

When considering getting accounts receivable software, ensure it works well with your current tech system so you don't have to deal with problems or extra costs. For this, it's necessary to check the compatibility of prospective AR automation solutions with existing systems.

Check your accounts receivable data to ensure it's ready for AR automation software.

This action minimizes errors, and data precision remains intact when using accounts receivable automation tools.

2. Provide your employees with extensive training

The most critical thing you can do to get the most out of your AR automation software is to instruct your staff on how to use it. This includes instruction on pertinent protocols, software functionalities, and best practices.

Your personnel can maximize software use with adequate training. They would save time learning the platform.

The user interface (UI) of most augmented reality automation software is complex, making training employees tedious.

3. Streamline your accounts receivable process.

Your AR automation software can boost team output by automating workflows and taking over tedious, repetitive tasks. Automated accounts receivable process steps let your personnel focus on more vital duties instead of manual tasks. Automation eliminates errors that can occur while conducting these processes manually.

Once again, the initial stage is to assess and highlight the operations that can be automated using your chosen AR automation platform. Using AI-driven collection management technologies, you can maximize AR management through individualized tactics and predictive analytics.

Your AR automation programs allow you to create multi-step approval procedures, which save time when multiple invoice approvals are required.

Make a to-do list of all the things your AR automation tool can handle, and then put workflows in place to automate them all. That way, you can save time and make sure no mistakes happen.

4. Monitor important finance metrics

Monitoring critical accounts receivable metrics can provide precise insights into effective and ineffective strategies.

You must monitor your key metrics to ensure a steady cash flow into the business or optimize your cash collection strategies.

A compelling accounts receivable automation program can track and enhance important indicators. The following are essential AR metrics to monitor:

These metrics provide a distinct indication of the AR system's performance. We need to investigate AR methods further to find possible bottlenecks or areas for improvement if these figures fluctuate significantly or don't add up.

If you use KPIs correctly, your AR automation will run efficiently, and your finances will stay in good shape.

5. Improve cross-team teamwork

The performance of your accounts receivable is not solely the responsibility of the receivables management in financial management. Each department engages in a unique mode of client interaction, ranging from sales to client service.

The success of AR operations in fulfilling customer experiences and needs depends on establishing a feedback loop that continuously links these departments.

6. Maintain an up-to-date technology stack.

Your accounts receivable management system should link with ERP and CRM platforms to streamline data transfer and synchronization. Ensure that the technology base of your AR automation program is updated and functions without any issues.

When you connect your accounts receivable tools to your CRM, you can see all your customer contacts and financial information in one place. Due to this integration, your accounts receivable staff can view your customers' information in one place, including invoices, payments, and conversations.

7. Increase your proactivity toward customers

Being proactive is a fundamental principle of effective AR management. Chasing late payments affects client relationships and reduces cash flow.

A systematic communication strategy with clients is essential for collections to be influential.

Automating follow-ups lets organizations remind customers of upcoming payments in advance. This keeps clients informed, eliminates payment delays, and improves client-business relations.

In recent years, the financial landscape in India has undergone a remarkable transformation, with technology playing a pivotal role in reshaping the way businesses manage their finances. Business-to-business (B2B) fintech companies have emerged as key players in this financial evolution, offering innovative solutions to streamline processes, enhance efficiency, and drive growth. The rise of financial technology, or fintech, has revolutionized the way businesses manage their finances, paving the way for a more efficient and interconnected ecosystem.

In India, a burgeoning hub of innovation and entrepreneurship, B2B fintech companies have played a very important role in shaping the country's financial evolution. Here in this blog, we will be exploring top B2B fintech companies in India, B their contributions to the financial sector, and their impact on the broader economy. So let us start and first understand what B2B Fintech is.

Understanding B2B Fintech

B2B fintech refers to financial technology companies catering to businesses, not consumers. They use technology to optimize financial processes like payment processing, invoicing, and payroll management for other businesses. Essentially, B2B fintech aims to improve the efficiency, security, and overall effectiveness of financial operations for business-to-business transactions and financial management.

The Fintech Revolution in India

The Fintech revolution in India is a testament to the transformative power of technology in the financial sector. Over the past decade, India has experienced a significant surge in financial technology innovations, reshaping the way people access and manage their finances. This revolution has touched various aspects of the financial ecosystem, from digital payments and lending to insurance and wealth management.

The FinTech industry in India is not only making a significant impact on the under-served sections of society but is also thriving in one of the world's most dynamic markets. With more than 50% of the Indian population now using the internet, the digital revolution is in full swing. According to the reports, the average data consumption per month in India currently stands at 20 GB, a figure that is projected to rise to approximately 47 GB/month by 2027. Impressively, Indian mobile data consumption has surpassed the combined figures of the USA and China.

So, we hope now you have an idea about B2B fintech and how the Fintech revolution in India has emerged, now it’s time to get into the details of the top 10 FinTech companies in India at present, exploring their innovative approaches and contributions to reshaping the financial landscape.

Top B2B Fintech Companies in India

1. Neokred:

‍Neokred is a fintech company that allows corporations, fintech's, and startups to start their banking services with the help of modified tools. The Neokred Dashboard provides users with real-time visibility of their transactions, customer data, and expense records in an analytical format for better visibility and decision-making. One can manage business spending at the tip of their finger and set up customized controls unique to their company card while issuing.

2. Perfios:

Perfios is a leading SaaS B2B FinTech organization, that envisions an ecosystem where real-time data drives financial decisions. Leveraging cutting-edge Artificial Intelligence and ML algorithms, Perfios empowers global financial institutions to make well-informed choices. Trusted by over 900 banks & FIs, their AI-powered solutions specialize in real-time insurance claims, credit decisions, fraud control, and more, making them instrumental in supporting other FinTech companies in India.

3. PayTm:

‍PayTm is an acronym for Pay through Mobile, is a pioneer and one of India's most popular payments FinTech companies. Initially a mobile wallet provider, PayTm expanded into offering banking, lending, and insurance services. Processing over 5 million daily transactions, with 450 million registered users and 60 million bank accounts under its PayTM bank, PayTm stands as a key player in India's digital economy.

4. LendingKart:

LendingKart is a top Fintech company, that excels in providing lending solutions as its name suggests. Categorizing their digital lending services into Business Loans, Working Capital Loans, MSME, SME loans, and special business loans for Women, LendingKart has earned a competitive edge in the market. With online approval and quick sanctioning, they offer collateral-free loans with flexible repayment options, serving as a go-to option for many businesses.

5. Zerodha:

Zerodha tops the list of wealth management Fintech companies in India. As an online platform for investing in stocks, mutual funds, and more, Zerodha's user-friendly interface and commission-free mutual funds have gained a loyal investor base. Registered with SEBI & CDSL, Zerodha ensures legitimacy and offers a variety of financial tools, making investing accessible to all.

6. DMI Finance:

Operating since 2008, DMI Finance has evolved into one of India's top FinTech companies, specializing in digital underwriting and loan management. Working primarily with B2B FinTech organizations, they offer services such as business loans, housing finance, and asset management. Regulated by RBI, DMI Finance provides reliable lending solutions to those seeking top FinTech companies in India.

7. Satya Microcapital:

Satya Microcapital aims to empower the underserved, specifically small businesses and low-income entrepreneurs. Providing lending facilities online, Satya Microcapital offers limited liability loans, micro business loans, consumer durable loans, and individual micro loans. Their mission to catalyze socio-economic development drives their efforts in supporting the underserved segment.

8. PhonePe:

PhonePe is one of the most renowned FinTech companies in India, boasting over 440 million users. As a digital payments and financial services provider, their UPI-based app offers a range of services, including money transfers, bill payments, fund investments, and more. Licensed by RBI, PhonePe has garnered numerous awards for its innovative services, recently incorporating the Account Aggregator system to ease loan access.

9. Acko:

Acko's digital-only model revolutionizes car insurance, providing users with a seamless experience to purchase insurance plans. Offering additional benefits like financial protection against medical emergencies, no room rent capping, and other personalized coverages, Acko stands out in the insurance sector.

10. Unnati:

Unnati is a top-notch Agri-Fintech organization that empowers farmers through digital technologies. By providing financing, yield insights, and correct advisory, Unnati optimizes farming practices, minimizing losses, and supporting farmers at every stage of the crop lifecycle.

11. Upstox:

Upstox is a newcomer in the FinTech arena that offers a low-cost online investment platform. With free equity delivery and a 3-in-1 account, Upstox provides affordable options for long-term and intraday investing. Their user-friendly platform and ease of IPO applications and mutual fund investments have earned them unicorn status in the FinTech division.

Impact of B2B fintech Companies on Financial Inclusion and Economic Growth

The proliferation of B2B fintech companies in India has not only transformed the way businesses operate but has also contributed significantly to financial inclusion and overall economic growth. By providing accessible and user-friendly financial solutions, these companies empower businesses of all sizes, including small and medium enterprises (SMEs), to participate more actively in the economy. While the B2B fintech sector in India continues to thrive, it faces its share of challenges. Regulatory complexities, data security concerns, and the need for constant innovation pose hurdles to the sustained growth of these companies. However, with challenges come opportunities. The evolving regulatory landscape provides a chance for collaboration between fintech companies and regulatory bodies to create a conducive environment for innovation.

The financial evolution driven by B2B fintech companies in India represents a transformative force that has reshaped the traditional financial ecosystem. B2B fintech companies are not just catalysts but they are architects of change, shaping a future where businesses operate in a seamlessly connected, technologically advanced, and efficient financial ecosystem. As India continues on this transformative journey, the impact of these pioneering companies will reverberate not just in boardrooms but in the very fabric of the nation's economic narrative. Financial evolution is not a destination but an ongoing journey toward a future where finance is not just a function but a force driving sustainable growth and prosperity.