KYC Market: Analysis & what the future holds

~Utkarsh Chaudhary

Introduction
To begin with, I’d like to break down the KYC market. Namely, these are the processes that cover
most of it:

1. Offline / Paper based KYC

2. E-KYC
a. Video KYC
b. Aadhar KYC
c. Biometrics
d. E-sign

The choice of method depends on the regulatory requirements, the level of security needed,
customer convenience, and the specific industry use case.

Latest Trends in KYC

Since the market is fragmented and there’s no clear winner with a sizeable market share, let’s first
discuss the trends in each KYC segment.

Budget 2023-24 announcement

Govt. announced that a one-stop solution for identity will be established using the DigiLocker
service and Aadhaar as foundational identity. This will increase customer’s trust and reduce
privacy concerns.

But this will definitely affect the market size as govt. Can standardise and make it easier and
cheaper for fintech cos to verify their customers’ identities.
Video KYC

Recently, RBI made amendments that impose extra due diligence for non face-to-face customers,
which include C-KYC, Digilocker, etc. These customers will be automatically categorized as
high-risk, and they will be monitored more going ahead.

Therefore, this might lead to higher adoption of the Video KYC method. The global video KYC
market was valued at $212Mn in 2022, and it’s expected to grow with a 15.3% CAGR in the
upcoming years.

Aadhar KYC

This has been the most utilized form of KYC for the Indian consumer tech as the address proof
and other data have already been linked, and this also leads to Digilocker based KYC.
Aadhar KYC transactions jumped 18.53% in Q3 of the Financial year 2022-23, reaching around
85Cr total transactions. RBI has imposed a few regulations for OTP verification, as it only comes
to the linked phone number, and entities are not allowed to permit the use of alternate phone
numbers.

Market size
According to studies Global eKYC market was around $518Mn in 2022 and is expected to grow
at a CAGR of 21.5% amounting to around $2445Mn by 2030. The following image shows the
$447Mn market in 2021.
There’s not much data around revenue/client or revenue by the leading players in the Indian KYC
market. Another approach we can use is estimate the end-users who are doing KYC in India.

For eg: Zomato employs around 285k partners in it’s delivery fleet. We can calculate the contract
based blue collar workers in India and asume a cost/user of KYC and get to a market estimate.
Similarly we can get an estimate of users who use atleast one fintech product that employs an
eKYC solution.

Due to a wide variety of industries, it’s not possible to get the data of all the companies. Since
this is a bottom-up approach.

To comment on the larger trends that’ll affect the market, I’d say the projected CAGR for the
global market might not hold true for India. Since Indian government announced a central
solution like ONDC for various KYC services.

Govt. also announced a segmentation based approach in which users are categorised on the
basis of risk and for low risk users, expensive process like Video KYC won’t be a necessity. This
will further reduce the overall TAM as the users who will do KYC are independent of the
cost/KYC, hence affecting the market.
Persona Analysis
Fintech and bank - B2B persona analysis

The target clients of Setu are the companies in the fintech space who provide financial services
to the end users. Eg: Groww, Navi, INDMoney, UNI, Stashfin.
These clients provide services like:
1. Payments & wallets
2. Lending
3. PFM (personal finance products) products
4. Investment and trading platforms
5. Insurance

Understanding the business objectives of these clients will help us serve them better and define
our roadmap for the future. Some of the major objectives will be:

1. Compliance: matching regulatory requirements is a dealbreaker for all fintech cos

2. Risk Mitigation: to prevent frauds and defaults to ensure it doesn’t impact their revenue &
security targets etc. It helps reduce churn post sign-up as well.
3. Customer onboarding: 20% of the users sign up in week 1 after installing the app, which
is even lower in the fintech industry hence, it’s paramount to have a smooth onboarding
experience.
4. Scalability & Cost efficiency: As a company scales, it needs reliable and cost-efficient
methods.
5. Data: Along with verification, KYC provides a lot of demographic data points about the
user, which helps in targeting, upselling products, and personalization.

These are the major business objectives of a B2B client, which ultimately defines their persona
comprehensively. As for a B2B client, their needs == persona.

From this business objective, we can link pain points & use cases that most of these clients would
require. This will help us decide on the next step, which is planning a roadmap.
 1. Complex regulations & frequent updates: Any fintech company is at the mercy of the
regulators. Hence, ensuring they always comply with the latest regulations becomes a
pain point. More relevant for global cos.
2. Onboarding funnel dropoff: Onboarding is a core metric for any company as they’ve
spent the CAC but didn’t acquire the customer in the end. This could be due to:
a. Technical issues in the flow
b. Cumbersome process for the end user
c. Extensive documentation needed for KYC
3. Data privacy: It’s a huge concern for every fintech to ensure data privacy and be
compliant. Any mishap around this can lead to bad PR
4. Frauds: Inaccurate processes can leave fintech cos vulnerable to fraud. E.g., If a lending
co has a mishap in KYC flow, it can lead to defaults, Identity theft etc.

End users - persona analysis

1. Seamless onboarding: Everyone expects a smooth sign-up flow for any fintech cos. The
absence of it can lead to reduced trust. Hence as an end user, I might not take high-value
actions. E.g. taking credit & loans. This is a prominent user behaviour in the industry.
2. User preferences
a. Smooth flow
b. Paperless & low-effort KYC
c. Trust markers
3. Support: As an end user I need exceptional support to build the trust we have highlighted
above to resolve any issues I might face during the KYC process.

Lack of these things can be linked to an end user's pain points.

Execution plan
Considering we are making this from scratch, to prioritize the features according to market
demand:
Compliance

- Potential impact: Very High

- Ease of implementation: depends on regulatory changes, but it’ll have fewer iterations
therefore, it’s prioritized first
- Market need: This is “Very essential” as it comes under MVP for any KYC product

Customer Onboarding

Impact: “High”
1. It directly impacts user acquisition and retention, making it a high-priority feature.
2. Essential for user acquisition; hence it becomes the 2nd priority after we have ensured a
functional MVP

Ease of implementation: Moderate, as it requires UX research to ensure a smooth UI & user flows
that fit the requirements of most clients.

Scalability & Cost Efficiency

Impact: High
1. As fintech cos scale, they need reliable and cost-efficient KYC methods to accommodate
a growing customer base.
2. Again it plays a major role in retention as clients may switch vendors as they outgrow your
product.

Data

Here, we discuss the secondary data and insights that help clients target and cross-sell better.
Impact: High as this feature directly helps clients to increase revenue and move more business
objectives
Ease of implementation: Low

Considering all the factors, this is the execution plan of execution I’d follow. Once we have the
tech requirements and exact line items we can user more nuanced prioritization frameworks.
Also, a lot of feedback/requirements from clients would influence the decision-making for an
execution plan.