All About KYC: KYC Meaning, KYC Full Form, and More

You would have come across ‘KYC’ but have you ever wondered what this term means or the importance of it? Let us explore the same in detail.

If you’re wondering what the KYC meaning and KYC full form is - it literally means Know Your Customer and is a due diligence activity, i.e., a review or investigation that is conducted to verify certain facts.

KYC is a process that financial institutions conduct in order to verify the authenticity of their customers while confirming their identity and address before or during the transaction process.

The primary objective of the KYC process at banks is to prevent individuals from using the bank to carry out illegal financial activities such as money laundering.

The Reserve Bank of India (RBI) has made KYC compulsory for all financial institutions that carry out financial transactions.

Importance of KYC

KYC is an essential step to prevent illegal financial activities. This process also prevents financial bodies from being used for money laundering activities without their knowledge.

Additionally, this process is also beneficial for companies that use or work with services such as mutual fund investments, stock brokerage, etc. Thanks to KYC, banks and financial institutions can verify the legal status of the company, owners, as well as their authorized signatories.

Apart from this, one can also verify the authenticity of financial companies or individuals.

Types of KYC

There are two types of KYC verification processes -

  • Aadhaar Based KYC
  • This is a verification process that can be carried out online and is therefore hassle-free and convenient. Customers will have to upload a scanned copy of their Aadhaar card for verification. This process is also known as eKYC.

  • In-Person KYC
  • Another option for KYC verification is through in-person interaction wherein the customer will have to visit the nearest branch of the financial institution or KYC kiosk and authenticate their identity. In certain circumstances, a KYC registration executive can also visit the customer for verification.

    Lately, certain companies have offered video calling services wherein the customer is asked to display his/her original documents while on the call.

KYC Documents

A KYC document means a document of individuals or companies that can verify their identity and address. While the most commonly requested documents are the Aadhaar Card and PAN card, there are other documents that can be used for KYC verification in different financial institutions. Some of these are -

Identity Proof

Some of the documents that can serve as proof of identity are -

  • Aadhaar Card
  • PAN Card
  • Valid Indian Passport
  • Valid Voter ID
  • Valid Driver’s License

Address Proof

Some of the documents that can serve as address proof are -

  • Aadhaar Card
  • Valid Indian Passport
  • Valid Voter ID
  • Valid Driver’s License
  • Utility Bills (Electricity, Water, Gas)

Income Proof

Bank statements and salary slips are generally accepted as proof of income.

What does the Know Your Customer (KYC) Activity Consist of?

As a real due diligence activity, KYC consists of:

  • Customer identification
  • Identification of any beneficial owner
  • Verification of the customer's identity on the basis of documents, data, or information obtained from a reliable and independent source
  • Analysis and evaluation of information on the purpose and nature of the business relationship between the customer and the bank or financial institution
  • Banks and financial institutions must be able to carry out in-depth due diligence of the client in order to contain the risk of money laundering or terrorist financing. If they are unable to carry out such checks, they are required to refrain from allowing the risky transaction to take place.

What is e-KYC?

Earlier, banks required the customers to physically visit their branch and submit the required documents to complete their KYC process. However, customers can now complete the process electronically and online. This process is known as electronic Know your Customer and it is a simple, fast and paperless process.

eKYC vs. oKYC vs. CKYC

Earlier, banks required the customers to physically visit their branch and submit the required documents to complete their KYC process. However, customers can now complete the process electronically and online. This process is known as electronic Know your Customer or eKYC and it is a simple, fast, and paperless process.

Offline Know Your Customer or oKYC is Aadhaar based and unlike eKYC, this process does not access the UIDAI database directly. This does not refer to in-person verification however.

oKYC allows individuals to share their details with financial institutions that require KYC either through offline Aadhaar XML or through QR code. This process is just as quick as eKYC but offers more privacy. This process eliminates the need for photocopy of Aadhaar. To know more, click here.

CKYC or Central Know Your Customer and is a central database of all the KYC records of customers. Because of this, there is no need for customers to complete KYC each time for each institution separately.

KYC - Requirements and Use Cases

The process of KYC not only helps verify authenticity of identity and address, it also allows customers to get their transactions processed faster and access more products and services. Some examples are -

  • While availing bank services and performing transactions, KYC becomes an essential step to ensure safety and security. Whether it is to open a bank account, open and manage RD and FD, KYC is compulsory
  • This is also the case when it comes to investments and insurance. There are a number of fraudulent practices being committed when it comes to investment and insurance. KYC helps to prevent all of this and ensures ethical and safe practices

In Conclusion

KYC is an important process that ensures all financial transactions and purchases are legitimate while helping curb financial fraud, black money, and money laundering. The process is extremely simple and quick and is mandatory as per government regulations.