Build vs. Buy for KYC: When In-House Identity Verification Stops Making Sense

KYC for Microfinance: Biometric eKYC in Low-Connectivity, Field-Led Onboarding

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/marketing-cms/m2p-blog/2026/10/baas-cover-fraud-loss-ownership_2x1.webp" alt="In a BaaS Stack, Whose Fraud Loss Is It, Really?" title="" id="x6grswgvy" width="100%" height="60">A customer gets defrauded on a neobank app. The app was built by a fintech. The fintech doesn't hold a banking license — it operates under a sponsor bank. The sponsor bank doesn't run the technology stack — that's handled by a Banking-as-a-Service (BaaS) platform sitting in between. The card that was compromised was issued through a program manager. The transaction that moved the money ran over a card network and a processor neither the customer nor, often, the fintech's own support team has direct visibility into.Now ask the obvious question: whose fraud loss is this?In a traditional bank, the answer is uncomfortable but at least clear — it's the bank's, full stop, because the bank is the only regulated entity in the relationship and the customer's contract is with no one else. In a BaaS stack, the honest answer is: it depends on the contract, it depends on which party had operational control at the moment of failure, and in a meaningful share of cases, it depends on who blinks first in the dispute. That's not a regulatory framework. That's a negotiation.This is one of the more uncomfortable open questions in modern financial infrastructure, and it's worth examining directly, because every month that it stays unanswered, more transaction volume flows through stacks where the question hasn't been settled.<h2 class="heading-node" id="7lr4v0tra">The Stack: More Parties Than the Customer Ever Sees</h2>A typical BaaS arrangement for a consumer neobank or embedded finance product involves, at minimum:<ul class="list-node" id="qyifg25jq"><li>The sponsor bank — the regulated, licensed entity whose charter underpins the whole arrangement, legally the entity "providing" the financial service</li><li>The BaaS/infrastructure platform — the technology layer that provides APIs, core banking rails, card issuing processing, ledgering, and often the actual fraud and risk tooling</li><li>The program manager or fintech — the brand the customer actually sees and trusts, who designed the product experience and owns the customer relationship</li><li>The card network — Visa, Mastercard, RuPay, or equivalent, which has its own rulebook on chargeback liability</li><li>The processor — handling authorization and settlement, sometimes a separate entity from the BaaS platform</li><li>Downstream service providers — KYC/identity verification vendors, fraud scoring vendors, dispute management vendors — each potentially a different company again</li></ul>A customer onboarding into this product has a relationship with the fintech brand. Legally, their account is with the sponsor bank. Operationally, their transaction data, fraud scoring, and dispute workflows run through the BaaS platform. None of these three — brand, license holder, and infrastructure operator — necessarily has full visibility into what the other two are doing at the moment a fraud event occurs.This isn't a hypothetical structure drawn up for the sake of argument. It's the default architecture of embedded finance today, in India under the NBFC-fintech co-lending and PPI issuance models, in the US under the sponsor-bank model that's powered most neobanks and embedded finance launches of the last decade, and increasingly across Southeast Asia, the GCC, and Africa as digital-first banking licenses proliferate. The question of who owns fraud risk isn't a corner case. It's the central unresolved question of the entire BaaS category.<h2 class="heading-node" id="jr3nukzcb">Why "The Contract Decides" Isn't a Satisfying Answer</h2>The reflexive answer from most legal and commercial teams is that the contracts between these parties allocate liability, and in a narrow sense, that's true — most BaaS and program agreements do contain indemnification clauses, loss-sharing formulas, and service-level commitments that assign financial responsibility for different fraud scenarios.But this answer breaks down in practice for three reasons.First, contracts are written before the fraud happens, and fraud typologies evolve faster than contract renegotiation cycles. A loss-sharing clause drafted around card-not-present fraud risk in 2022 may say nothing coherent about a 2026 scam where the customer is socially engineered into authorizing their own transaction, moved through a mule account the sponsor bank's own compliance team should arguably have flagged, using a device fingerprint the BaaS platform's fraud engine scored as "unusual" but didn't block. Which clause governs that? Often, none cleanly does — and the parties end up negotiating the specific incident rather than applying a pre-agreed formula.Second, contractual liability and operational control frequently don't line up. The sponsor bank may be contractually on the hook for a category of loss, but the fraud model that failed to catch it was built, tuned, and operated entirely by the BaaS platform, with the bank having limited visibility into its thresholds or decisioning logic. Conversely, the fintech brand — the party the customer trusts and who designed the user experience that may have made the scam more or less likely to succeed — often carries little to no direct financial liability at all, because they're not a regulated entity and their contract with the sponsor bank was deliberately structured to limit their exposure. The party with the most contractual liability is not always the party with the most operational ability to have prevented the loss, and that mismatch is exactly why these disputes drag on.Third, regulators have not caught up to the structure. Most financial regulation — in the US, India, the EU, and most of APAC and MEA — was written with a bilateral mental model: one regulated institution, one customer, one relationship. Outsourcing and third-party risk guidelines (RBI's guidelines on outsourcing of financial services, the EBA's guidelines on outsourcing arrangements, the US OCC and FDIC's third-party risk management guidance) all gesture at the idea that the regulated entity remains accountable for outsourced functions — but "remains accountable" is a supervisory statement about who the regulator will come after, not an operational answer to who absorbs the loss, who built the control that failed, or how four or five companies should coordinate incident response in real time during an active fraud event. The regulatory answer and the commercial answer are different documents, written by different people, for different purposes, and they often don't reconcile cleanly.<h2 class="heading-node" id="xpjxeb4hj">A Concrete Scenario Worth Walking Through</h2>Consider a realistic case: a customer of a BaaS-powered neobank falls victim to a phishing scam and is tricked into authorizing a push payment to a mule account. The transaction passes SCA-equivalent authentication because the customer, under the scammer's instruction, approves it themselves. It passes the fraud model's real-time scoring because the device, location, and amount are all consistent with the customer's normal behavior — the only anomaly is the payee, which was flagged as "new" but not blocked, per the risk threshold the BaaS platform configured by default.Now trace the aftermath:<ul class="list-node" id="y0z893cgh"><li>The fintech brand fields the customer's complaint first, because that's the app the customer opened. It has no direct mechanism to reverse the transaction and limited visibility into the fraud model's decisioning.</li><li>The sponsor bank is the regulated entity responsible for the account and, in most jurisdictions, is the party a regulator or ombudsman will ultimately hold accountable for customer treatment — but it likely didn't configure the specific payee-risk threshold that let the transaction through.</li><li>The BaaS platform owns and operates the fraud model, and may have offered a stricter threshold as a configurable option — one the program never enabled, whether due to cost, conversion-rate concerns, or simply not being flagged as a priority during onboarding.</li><li>The card network or payment rail, if involved, has its own dispute rules, which may or may not cover authorized-but-coerced transactions at all — most do not, by design, since the customer genuinely authorized the payment.</li></ul>Every party in this chain has a partially valid claim that the loss isn't "theirs" alone, and every party also had some sliver of ability to have prevented it. This is precisely why these disputes are frequently resolved through negotiation, internal write-offs, or — worst of all — simply left unresolved, with the customer absorbing the loss because no single party accepts full ownership quickly enough to make them whole.<h2 class="heading-node" id="4cb6t7ab8">Three Structural Reasons This Keeps Happening</h2>1. BaaS is multi-party by design, and no single party owns the full transaction lifecycle. This isn't a bug to be patched — it's the entire value proposition of the model. A bank gets distribution without building consumer product. A fintech gets a banking license without becoming a bank. A BaaS platform monetizes infrastructure instead of owning customer relationships. That division of labor is exactly what makes embedded finance commercially viable — but it also means the full transaction lifecycle, end to end, isn't visible to or controlled by any single entity, which is precisely the condition that makes fraud liability so hard to assign cleanly.2. Regulatory frameworks still presume a bilateral relationship. Virtually every consumer protection and fraud liability regulation on the books — whether it's Regulation E in the US, RBI's customer liability circulars in India, or PSD2/PSD3's liability provisions in the EU — was drafted assuming the customer's financial institution is a single, identifiable, directly accountable entity. These frameworks are only slowly being updated to contemplate multi-party technology stacks, and in the meantime, the gap gets filled by private contracts that were never designed to do the job regulation is supposed to do.3. Commercial incentives push liability downstream rather than toward the party best positioned to prevent the loss. In commercial negotiations between banks, BaaS platforms, and fintechs, liability allocation is a point of leverage, not a principled design exercise. The party with the most negotiating power — frequently the sponsor bank, given its licensing position — tends to push liability toward the parties with less leverage, regardless of which party actually controls the systems that could have prevented the fraud. This produces contracts that are internally consistent and legally enforceable, but structurally disconnected from where operational risk actually sits.<h2 class="heading-node" id="v4aptyex9">What a More Defensible Model Looks Like</h2>None of this means the problem is unsolvable — it means it hasn't been treated as a design question with the seriousness it deserves. A few principles point toward a more defensible structure:Liability should be mapped to operational control, stage by stage. Rather than a single blanket liability clause, BaaS agreements need granular control-mapping: who configures authentication thresholds, who owns fraud model tuning, who monitors real-time alerts, who has authority to freeze a suspicious transaction before settlement. Liability for a given failure mode should sit primarily with whoever had the operational ability to prevent it — not whoever has the weakest negotiating position.Shared, real-time fraud visibility has to replace siloed dashboards. A meaningful share of these disputes exist because the bank, the fintech, and the BaaS platform are each looking at partial data after the fact. A fraud and risk management layer built for multi-party visibility — where the sponsor bank, the program manager, and the infrastructure platform see the same transaction-level risk signals in real time, not reconstructed after a complaint — removes much of the ambiguity about who knew what, when.Incident response needs a predefined, cross-party playbook, not an improvised negotiation. When a scam or account takeover is detected, the question of who freezes funds, who notifies the customer, and who initiates recovery shouldn't be settled contract-clause-by-contract-clause during the incident itself. The institutions handling this well have pre-agreed, tested incident response protocols that span all parties in the stack, triggered automatically by defined fraud signals.Regulators and industry bodies need to keep building multi-party liability guidance, not just bilateral frameworks. Some progress is visible — the UK's Confirmation of Payee and APP fraud reimbursement rules under the PSR, and evolving guidance from US regulators following several high-profile bank-fintech partnership failures, both represent early attempts to address multi-party accountability directly. APAC and MEA regulators drafting open banking and BaaS-specific frameworks have a real opportunity to build this in from the start rather than retrofitting it later.<h2 class="heading-node" id="3weu95n7b">The Bottom Line</h2>The honest answer to "who owns fraud risk in a shared BaaS stack" today is: it's split across several parties, unevenly, inconsistently, and in ways that frequently don't match who actually had the ability to prevent the loss. That's not a satisfying answer, but it's the accurate one, and pretending otherwise — treating a signed indemnification clause as if it resolves the operational question — is exactly how these disputes end up taking months to settle while customers wait for resolution.Getting this right isn't primarily a legal exercise. It's an infrastructure exercise. The institutions that will handle this well are the ones that build — or partner for — fraud and risk systems designed from the outset for multi-party visibility and clear, stage-by-stage control mapping, rather than treating shared liability as something to be resolved after the fact through negotiation.If you're a bank, fintech, or program manager operating in a BaaS stack and this question has come up in a real dispute rather than a hypothetical one, it's worth examining whether your fraud and risk infrastructure actually supports shared visibility and clear control attribution — or whether it's quietly assuming the bilateral model that regulation was built around. <a class="link" href="https://m2pfintech.com/frm-aml/?utm_source=blg&amp;utm_medium=frm&amp;utm_campaign=oct" target="_blank">M2P's FRM</a> system is built for exactly this multi-party reality, giving every party in a BaaS stack visibility into the same transaction-level risk signals rather than reconstructing them after a dispute. If this is a live question for your organization, <a class="link" href="https://m2pfintech.com/contact-us/?utm_source=blg&amp;utm_medium=frm&amp;utm_campaign=oct" target="_blank">reach out to M2P</a> to talk through what a clearer ownership model could look like for your stack.

Who Owns Fraud Risk in a Shared Banking-as-a-Service Stack — and Why Nobody's Really Answered This Yet

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/marketing-cms/m2p-blog/2026/09/pci-dss_blog_banner_2000x1000-1.webp" alt="PCI-DSS 4.0 Is Already Here — Is Your Acquiring Stack Actually Ready?" title="" id="745zsdvvn" width="100%" height="362">If you've spent any time in payments over the last two years, you've heard the acronym everywhere: <a class="link" href="https://m2pfintech.com/blog/pci-dss-the-payments-armour/?utm_source=blg&amp;utm_medium=pci-dss&amp;utm_campaign=4" target="_blank">PCI-DSS 4.0</a>. For acquirers and Merchant Management System (MMS) providers, this isn't just another compliance checkbox to tick off — it's a fundamental shift in how card data security is designed, implemented, and proven, with direct consequences for merchant onboarding, technology architecture, and the pace at which new payment products can be launched.With the original <a class="link" href="https://m2pfintech.com/blog/pci-dss-a-quick-guide-to-its-levels/?utm_source=blg&amp;utm_medium=pci-dss&amp;utm_campaign=4" target="_blank">PCI-DSS 4.0</a> deadline of March 2024 behind us, and the final set of "future-dated" requirements becoming mandatory from March 31, 2025, most acquirers and MMS providers are now deep in implementation — or, in some cases, playing catch-up. This blog breaks down what's actually changed, why it matters more for acquirers and MMS providers than for a typical merchant, and how to think about compliance as a competitive advantage rather than a cost center.<h1 class="heading-node" id="gkq36qoik">Why PCI-DSS 4.0 Is a Bigger Deal Than Previous Updates</h1>PCI-DSS has been updated before — 3.0, 3.1, 3.2, 3.2.1 — but those were largely incremental. PCI-DSS 4.0, released by the PCI Security Standards Council, is different in scope and philosophy. It represents the first major overhaul of the standard in nearly a decade, and it was built around three explicit goals:<ol class="list-node" id="z0yqa5g9a"><li>Continue meeting the security needs of the payments industry as threats evolve — particularly around e-skimming, API-based attacks, and cloud-native infrastructure that didn't exist when PCI-DSS 3.2.1 was written.</li><li>Promote security as a continuous process, not a once-a-year audit exercise.</li><li>Add flexibility for organizations using different methods to achieve security objectives — most notably through the new "customized approach" to meeting requirements.</li></ol>For acquirers and MMS providers specifically, this matters more than it does for a single merchant, because you're not managing one card-data environment (CDE) — you're managing (or enabling) card-data environments across potentially thousands of merchants, each with different risk profiles, integration methods, and technical maturity. A change in how PCI-DSS defines scope, authentication, or monitoring doesn't just affect your own infrastructure; it cascades into how you validate, support, and onboard every merchant on your platform.<h1 class="heading-node" id="hdveyd8u0">The Headline Changes That Matter for Acquirers and MMS Providers</h1><h3 class="heading-node" id="jur6xlfjq">1. Multi-Factor Authentication (MFA) Is Now Mandatory Everywhere in the CDE</h3>Under PCI-DSS 3.2.1, MFA was required primarily for remote access and administrative access to the cardholder data environment. PCI-DSS 4.0 (Requirement 8.4.2) extends this significantly: MFA is now required for all access into the CDE, not just remote or administrative access — including access by employees, contractors, and third parties from within the internal network.For an acquirer or MMS provider, this means every internal system touching merchant transaction data, settlement records, or card data — from customer support dashboards to internal risk-monitoring tools to developer access on staging environments — needs MFA enforcement, not just the systems your compliance team originally scoped for it.<h3 class="heading-node" id="u8vbthcuc">2. Password Requirements Have Been Strengthened — and Made More Flexible</h3>Minimum password length has increased from seven to twelve characters (Requirement 8.3.6), and passwords must now include both numeric and alphabetic characters. At the same time, PCI-DSS 4.0 allows for alternative authentication mechanisms that meet an equivalent security bar — a nod to the standard's broader "customized approach" philosophy.For acquirers managing merchant-facing portals and dashboards, this requires an audit of every authentication touchpoint — merchant login portals, internal admin consoles, API key management systems — to ensure password policies actually meet the new bar, not just internal IT systems.<h3 class="heading-node" id="51dpknwfq">3. Targeted Risk Analyses Replace Some Fixed Frequencies</h3>One of the more nuanced changes is the shift from rigid, prescribed frequencies for certain security activities (e.g., "quarterly," "annually") to a framework where organizations can define their own frequency for specific requirements, provided they can justify it through a targeted risk analysis (Requirement 12.3.1).This sounds like it reduces burden, but in practice it shifts the burden from "do the task on schedule" to "prove, with a documented risk analysis, that your chosen schedule is defensible." For an MMS provider managing security processes across a large merchant portfolio, this means building (and maintaining) risk analysis documentation that a QSA (Qualified Security Assessor) can actually validate — not just picking a convenient interval and hoping it holds up in an audit.<h3 class="heading-node" id="x5i77rrnm">4. E-Commerce and Phishing-Related Requirements Have Expanded Significantly</h3>Given the rise in e-skimming attacks (malicious JavaScript injected into payment pages to steal card data at the point of entry), PCI-DSS 4.0 introduces two requirements specifically targeting this vector:<ul class="list-node" id="t2o7s944h"><li>Requirement 6.4.3: All payment page scripts that are loaded and executed in the consumer's browser must be managed — inventoried, justified for business need, and monitored for unauthorized changes.</li><li>Requirement 11.6.1: A change and tamper-detection mechanism must be deployed to alert on unauthorized modifications to HTTP headers and the content of payment pages, with alerts at least weekly.</li></ul>For acquirers and MMS providers who process card-not-present transactions — the majority of e-commerce merchant volume today — this is one of the most operationally demanding new requirements. It requires script inventory management and integrity monitoring across every merchant's payment page, which for a platform serving thousands of merchants means building this as a managed, scalable service rather than a manual, merchant-by-merchant exercise.<h3 class="heading-node" id="pqq4iew47">5. Phishing-Resistant Authentication Is Explicitly Called Out</h3>PCI-DSS 4.0 formally recognizes that not all MFA is equally secure — SMS-based OTPs, for instance, are vulnerable to SIM-swapping and interception in ways that hardware security keys or authenticator apps are not. While not universally mandated, the standard's emphasis on phishing-resistant authentication methods for higher-risk access points signals where the bar is heading, and acquirers building for the next several years of compliance should architect toward this now rather than retrofitting later.<h3 class="heading-node" id="mcuz4ufpz">6. Expanded Scope for Cloud, Container, and Microservices Environments</h3>PCI-DSS 4.0 was explicitly designed with modern infrastructure in mind — containerized deployments, microservices architectures, and cloud-native environments that barely existed in a meaningful way when 3.2.1 was written. This matters enormously for MMS providers, most of whom have built (or are building) their platforms on exactly this kind of infrastructure to achieve the speed and scalability that differentiates a modern acquiring stack from a legacy one.The updated standard requires clearer scoping methodology for these environments — understanding which containers, services, and cloud components touch cardholder data even transiently, and ensuring segmentation controls are validated in environments where infrastructure can spin up and down dynamically. Acquirers running on legacy, static infrastructure may find this section easier to interpret but harder to justify avoiding modernization; MMS providers on cloud-native stacks get more precise scoping tools, but need to invest in continuous compliance validation rather than point-in-time audits.<h3 class="heading-node" id="uuphqg8o6">7. The "Customized Approach" — A New Way to Demonstrate Compliance</h3>Perhaps the most philosophically significant change in PCI-DSS 4.0 is the introduction of the customized approach as an alternative to the traditional "defined approach" for meeting many requirements. Instead of following the prescribed control exactly as written, organizations can design and implement their own control, provided they can demonstrate — through rigorous documentation and testing — that it meets the underlying security objective just as effectively.This is a meaningful opportunity for MMS providers with genuinely sophisticated security engineering capability: it allows compliance architecture to be built around how your platform actually works, rather than forcing your architecture to conform to a one-size-fits-all control. But it comes with a real cost — customized approach validation requires significantly more documentation, a formal risk analysis for each customized control, and a QSA with the expertise to assess it properly. For most acquirers and MMS providers, the defined approach remains the practical default, with the customized approach reserved for specific areas where platform architecture genuinely diverges from what the standard's prescribed controls assume.<h1 class="heading-node" id="ba1pbh5js">Why This Matters More for Acquirers and MMS Providers Than for a Single Merchant</h1>A single merchant needs to secure one, reasonably well-understood card data environment. An acquirer or MMS provider is, in effect, responsible for the compliance posture of an entire ecosystem — sometimes directly (as a service provider validating its own infrastructure), and sometimes indirectly (by enabling and supporting merchant compliance across a diverse portfolio).This creates a few distinct pressures:Portfolio-wide scope complexity. Every merchant integration method — hosted payment pages, direct API integration, SDK-based mobile acceptance, POS terminal integration — creates a different PCI-DSS scoping boundary. An MMS provider supporting all of these needs a scoping methodology sophisticated enough to correctly classify each merchant's environment, not a single blanket policy.Service provider-level validation requirements. As a Level 1 service provider (the classification acquirers and MMS platforms typically fall under), the validation bar is the highest in the standard — a full Report on Compliance (RoC) by a QSA, not a Self-Assessment Questionnaire (SAQ). This means every one of the changes above needs to be demonstrably implemented and evidenced, not just self-attested.Merchant enablement responsibility. Many merchants — particularly SMEs — rely heavily on their acquirer or MMS provider's platform to inherit compliance rather than build it themselves (for instance, through PCI-compliant hosted payment pages that keep the merchant largely out of PCI scope). This means the acquirer's own compliance posture directly determines how much compliance burden merchants face — a genuine differentiator in a market where merchants increasingly choose acquiring partners based on how little compliance work they have to do themselves.Continuous compliance, not annual compliance. PCI-DSS 4.0's emphasis on continuous monitoring (script integrity checks, targeted risk analyses, ongoing vulnerability management) means the old model of "get audited once a year and move on" no longer holds. Acquirers and MMS providers need compliance to be an operational capability embedded in the platform, not a periodic project.<h1 class="heading-node" id="v06jy9geb">A Practical Path Forward: What Acquirers and MMS Providers Should Actually Do</h1>1. Run a gap assessment against the full 4.0 requirement set — not just the future-dated ones. Many organizations focused their initial 4.0 efforts on the requirements that became mandatory in March 2024, then treated the March 2025 future-dated requirements as a separate, later project. By now, both sets are in effect, and a genuine gap assessment across the complete standard is essential if this hasn't already been done comprehensively.2. Prioritize e-commerce script and tamper-detection requirements early. Given how operationally intensive Requirements 6.4.3 and 11.6.1 are to implement at scale across a merchant portfolio, these deserve early, dedicated engineering investment rather than being treated as a checkbox exercise near an audit deadline.3. Build MFA and authentication controls as platform-wide, not system-by-system. Given how broadly Requirement 8.4.2 now applies, retrofitting MFA system-by-system as gaps are discovered is inefficient. A platform-wide identity and access management approach, applied consistently across every system touching the CDE, is far more defensible in an audit and far less operationally painful to maintain.4. Treat targeted risk analyses as a genuine documentation discipline, not a formality. If you're using the flexibility PCI-DSS 4.0 offers around setting your own frequencies for certain controls, invest in rigorous, well-documented risk analysis methodology. A QSA will test whether your reasoning holds up — and weak documentation here is one of the more common reasons organizations fail this part of an assessment.5. Evaluate whether the customized approach is worth pursuing for any specific control. For most organizations, it isn't — the documentation and validation overhead is substantial. But for specific areas where your platform's architecture is genuinely more advanced than what the defined approach assumes, it can be worth the investment, particularly if it removes friction elsewhere in your compliance program.6. Make merchant compliance enablement part of your product roadmap, not just your legal team's remit. The acquirers and MMS providers who will win merchant loyalty over the next several years are the ones who treat PCI-DSS 4.0 as an opportunity to reduce merchant compliance burden — through compliant hosted payment pages, tokenization, and pre-validated integration methods — rather than simply passing the compliance requirement down to merchants unchanged.<h1 class="heading-node" id="6u3ers8a3">The Bigger Picture: Compliance as Infrastructure, Not Overhead</h1>It's tempting to view PCI-DSS 4.0 purely as a cost of doing business — another set of controls to implement, document, and prove. But for acquirers and MMS providers, compliance posture is increasingly a genuine point of competitive differentiation. Merchants evaluating acquiring partners are asking sharper questions than they used to: How much of the PCI burden do you take off my plate? How quickly can I integrate in a way that keeps me out of scope? How resilient is your platform against the e-skimming and API-based attacks that keep showing up in breach reports?An acquirer or MMS provider that has built PCI-DSS 4.0 compliance deeply into its platform architecture — rather than bolting it on as a parallel compliance project — can answer these questions convincingly, turning what looks like a regulatory burden into a genuine merchant acquisition and retention advantage.<h1 class="heading-node" id="y97rs8mjw">Explore M2P's MMS</h1>Navigating PCI-DSS 4.0 doesn't need to mean slowing down your acquiring business or diverting your engineering roadmap for a year. M2P's <a class="link" href="https://m2pfintech.com/merchant-acquiring-solutions/?utm_source=blg&amp;utm_medium=pci-dss&amp;utm_campaign=4" target="_blank">Merchant Management System</a> is built with modern, continuously validated security architecture at its core — from platform-wide authentication controls to merchant onboarding flows designed to minimize PCI scope from day one — so banks, NBFCs, and PSPs can meet the highest compliance bar without sacrificing the speed and merchant experience that keeps them competitive.Explore M2P's MMS to see how compliance-ready infrastructure can power your acquiring business — <a class="link" href="https://m2pfintech.com/contact-us/?utm_source=blg&amp;utm_medium=pci-dss&amp;utm_campaign=4" target="_blank">reach out to M2P</a> today.

Navigating PCI-DSS 4.0 Compliance as an Acquirer or MMS Provider

Embedded Finance and Core Banking: How the Lines Are Blurring

PSD2/PSD3 and DORA: Learnings for APAC/MEA Markets from European Regulations

Core Banking Security: Why Modern Architecture Reduces Attack Surface vs. Legacy Systems

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2025/03/main-banner-100-1.webp" alt="What is ULI? And How it Works?" title="" width="100%" height="358">India is on a full throttle in achieving its goal of becoming a USD 5 trillion economy by 2025, bolstered by digital public infrastructure, rapid digital adoption, and fintech innovations. However, access to formal credit remains a major hurdle, especially for small and rural borrowers and MSMEs, the backbone of the Indian economy.&nbsp;&nbsp; To effectively address this, the Reserve Bank of India (RBI) introduced the Unified Lending Interface (ULI), a landmark initiative aimed at streamlining and expanding credit access.&nbsp; A recent study reveals that among 63 million MSMEs in the country, only 14-16% have access to formal credit, leaving a staggering credit gap of about USD 530 billion. On the other hand, a significant portion of small and rural businesses struggle to secure credit, with only a small percentage receiving timely financing, resulting in a large credit gap.&nbsp; How will ULI help bridge these gaps? Let’s break it down.&nbsp;<h2 class="heading-node" id="o03y9fn35" style="text-align: justify">What is Unified Lending Interface?</h2>The Unified Lending Interface (ULI) is a digital lending platform designed to streamline credit access through a consent-based, digital flow of financial information. It enables faster, more efficient, and more inclusive borrowing, particularly benefiting small businesses and rural borrowers.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2025/03/sub-banner-1-100.webp" alt="M2P Fintech" title="" width="100%" height="429">Similar to <a class="link" href="https://m2pfintech.com/blog/upi-the-driver-of-economic-growth-and-inclusion/">Unified Payment Interface</a> (UPI), ULI is a Digital Public Infrastructure (DPI) featuring an open architecture supported by open <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">Application Programming Interfaces</a> (APIs), enabling various financial institutions to connect effortlessly. This plug-and-play model aims to eliminate manual documentation, sluggish approval processes, and fragmented data sources.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2025/03/sub-banner-2-100.webp" alt="M2P Fintech" title="" width="100%" height="429">Let’s get down to the brass tacks of how ULI can help transform lending for small businesses with an example.<h2 class="heading-node" id="hbfn068e7" style="text-align: justify">A Real-Life Example: How ULI Transforms Lending for Small Businesses</h2>Meet Sujith: A Small Business Owner in Need of a Loan&nbsp; Sujith owns AA company, a small textile unit in Tamil Nadu. His business is expanding, and he needs a loan of INR 1.5 crores to purchase new machinery and hire additional workers.&nbsp; Sujith approaches XYZ Pvt.Ltd., a leading NBFC specializing in Business lending. However, like many small business owners, he faces a major challenge—he does not have all the required documents readily available to complete his loan application.<h3 class="heading-node" id="uzs8b3twe" style="text-align: justify">The Traditional Lending Process (Without ULI)</h3>If Sujith had to apply for the loan without ULI, he would need to manually gather and submit multiple documents, such as:&nbsp;<ul class="list-node" id="u97wi7knx"><li>Identity proof: PAN, Aadhaar, passport, or voter ID&nbsp;</li><li>Business address proof: Utility bill, trade license, or sales tax certificate&nbsp;</li><li>Income proof: GST returns, profit &amp; loss statements, and tax filings&nbsp;</li><li>Business registration proof: Udyam registration, MoU, Articles of Association&nbsp;</li></ul>At the time of application, Sujith could only provide his GST return and Udyam registration. Without additional documentation, XYZ Pvt. Ltd. might have either delayed or rejected the loan application due to insufficient financial data, forcing Sujith to seek alternative, often expensive, financing options.<h3 class="heading-node" id="fpyolpxrl" style="text-align: justify">How ULI Simplifies the Process for Small Businesses</h3>With the Unified Lending Interface (ULI), XYZ Pvt. Ltd. no longer requires Sujith to manually submit all documents. Instead, the system fetches the missing data digitally from authorized data custodians with Sujith’s consent.&nbsp; KYC &amp; Identity Verification:&nbsp;<ul class="list-node" id="59djmdv4b"><li>Aadhaar authentication via UIDAI&nbsp;</li><li>Business registration details via Registrar of Companies&nbsp;</li><li>Legal business documents from MoU and Articles of Association (AoA)&nbsp;</li></ul>Business Income &amp; Financial History:<ul class="list-node" id="c0ljyofrl"><li>Income tax records from Income Tax Authority of India&nbsp;</li><li>Additional GST filings from the GST database&nbsp;</li></ul>Other Potential Data Sources:&nbsp;<ul class="list-node" id="6kkqsdc36"><li>Aadhaar vault</li><li>Registrar of Companies (ROC)</li><li>Regional Transport Office (RTO)</li></ul><h3 class="heading-node" id="vmgv7cr3f" style="text-align: justify">The Bigger Impact: ULI is Transforming Small Business Lending</h3>ULI instantly consolidates all necessary financial and business data, allowing XYZ Pvt.Ltd. to:&nbsp;<ul class="list-node" id="3vw2dplaq"><li>Assess Sujith’s creditworthiness faster&nbsp;</li><li>Offer him a competitive interest rate based on verified financial health&nbsp;</li><li>Approve his loan within days, not weeks&nbsp;</li></ul>Sujith’s story is just one example of how ULI is breaking down barriers and making credit more accessible for MSMEs across India.<h2 class="heading-node" id="bfj38uc5u" style="text-align: justify">Overview of ULI Use Cases: Transforming Credit Access Across Sectors</h2>Unified Lending Interface (ULI) has the potential to revolutionize lending by enabling seamless, digital, and consent-based access to financial information. By integrating with various data custodians, ULI reduces paperwork, expedites loan approvals, and enhances credit accessibility across multiple sectors. Here is a quick overview of its broad applications:<h3 class="heading-node" id="gcdl6sj6y" style="text-align: justify">Agricultural Loans – Expanding Credit Access for Farmers</h3>Use Case: Tenant farmers applying for Kisan Credit Card (KCC) loans often face challenges in securing credit due to:&nbsp;<ul class="list-node" id="5nbmnxg4n"><li>Lack of land ownership records&nbsp;</li><li>Incomplete financial documentation&nbsp;</li></ul>These barriers make it difficult for financial institutions to assess creditworthiness, leading to delays or loan rejections. How ULI Intervenes:&nbsp;<ul class="list-node" id="kpbhpb9on"><li>KYC &amp; Identity Verification: Aadhaar (UIDAI), voter registry</li><li>Farming Data: Landholdings, crop patterns, satellite image data</li><li>Data Custodians: Ministry of Agriculture, ISRO (NRSC), Revenue Department</li></ul>Impact:&nbsp;<ul class="list-node" id="ymbe1oeuz"><li>Expedited <a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">KYC</a> &amp; loan approvals&nbsp;</li><li>Accurate credit risk assessment&nbsp;</li><li>Increased formal credit access for tenant farmers&nbsp;</li></ul><h3 class="heading-node" id="xlemlct3y" style="text-align: justify">Secured Loans – Simplifying Loan Applications</h3>Use Case: A salaried professional applies for a medical loan of INR 8 lakhs but receives only INR 6 lakhs from a bank. To cover the shortfall, they approach another bank for the remaining amount.However, the process is delayed due to:&nbsp;<ul class="list-node" id="ijfen56sk"><li>KYC verification requirements&nbsp;</li><li>Proof of landholding duly certified by the revenue authorities&nbsp;</li></ul>How ULI Intervenes:&nbsp;<ul class="list-node" id="yk8y0vx6v"><li>KYC &amp; Land Records: Aadhaar (UIDAI), ABHA ID, Income Tax, GST returns&nbsp;</li><li>Data Custodians: National Health Authority, State Land Authorities&nbsp;</li></ul>Impact:&nbsp;<ul class="list-node" id="y21xim5xq"><li>Seamless verification of loan applications across banks&nbsp;</li><li>Lenders can cross-check credit requests digitally&nbsp;</li><li>Faster loan disbursal, especially for urgent financial needs</li></ul><h3 class="heading-node" id="4ahhet7d3" style="text-align: justify">Home Loans – Reducing Approval Timelines&nbsp;</h3>Use Case:&nbsp; Housing finance institutions often face paper-heavy loan processes, leading to 3-4 week approval timelines due to:&nbsp;<ul class="list-node" id="x2by0c0jw"><li>Identity verification delays&nbsp;</li><li>Extensive income &amp; property documentation requirements&nbsp;</li></ul>These inefficiencies slow down loan disbursal and create a cumbersome experience for borrowers.&nbsp; How ULI Intervenes:&nbsp;<ul class="list-node" id="vgros4b3c"><li>KYC &amp; Income Verification: UIDAI, PAN, salary slips, IT returns&nbsp;</li><li>Property Documentation: Allotment letter, buyer’s agreement, title deeds&nbsp;</li><li>Data Custodians: Aadhaar vault, RTO, Department of Registration &amp; Stamps&nbsp;</li></ul>Impact:&nbsp;<ul class="list-node" id="wwlq6fakq"><li>Significantly reduces loan processing time&nbsp;</li><li>Eliminates the need for physical document submission&nbsp;</li><li>Enhances the borrower experience with faster approvals</li></ul><h2 class="heading-node" id="76tqk74mz" style="text-align: justify">Future of ULI</h2>As we look ahead, the Unified Lending Interface (ULI) is set for significant advancements, enhancing its role in India's lending landscape. Future developments include expanding digital infrastructure, integrating emerging technologies like AI and blockchain, and facilitating co-lending arrangements. ULI may also expand to new lending categories beyond MSMEs and agriculture.&nbsp; <a class="link" href="https://m2pfintech.com/blog/comprehensive-guide-for-effective-loan-management-system/">Loan Management Systems (LMS)</a> will play a crucial role in these advancements. They will integrate seamlessly with ULI through standardized APIs, enhancing risk management by leveraging comprehensive borrower data. LMS will automate key lending steps, reducing errors and speeding up the process. This integration will help reduce operational costs, making credit more accessible to underserved populations and aligning with ULI's goal of financial inclusion. Overall, the synergy between ULI and LMS will streamline lending operations, improve efficiency, and enhance financial accessibility across India. <a class="link fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" href="https://m2pfintech.com/newsletter/" target="_blank" rel="noreferrer noopener">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" href="https://www.linkedin.com/company/m2pfintech/mycompany/" target="_blank" rel="noreferrer noopener">LinkedIn</a>&nbsp;and&nbsp;<a class="link fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" href="https://twitter.com/m2pfintech" target="_blank" rel="noreferrer noopener">Twitter</a>&nbsp;for insightful fintech bytes curated for curious minds like you.

Tag: "Digital Public Infrastructure (8)"

Product

About

Compliance

Resources