A Complete Guide on KYC and eKYC

Since 2004, the RBI has made it compulsory for all financial institutions to verify the identity and address of all customers who conduct financial transactions with them. 

The RBI mandated that KYC (Know Your Customer) be the sole mode of verification. 

If you still have questions like ‘what is KYC in bank’ or ‘what is KYC document’, then read on.

What is KYC?

If the question ‘what is KYC’ is confusing you, don’t worry, we will get to it right away. 

KYC stands for 'Know Your Customer,' and it is an effective way for an institution to confirm and thus verify a customer's identity. 

This process is mandatory under the Prevention of Money Laundering Act, 2002. All customers need to provide supporting documents to prove their identity and addresses. Both online and offline KYC are acceptable and need to be done only once.  

Types of KYC

KYC verification processes can be classified into two types. Both are equally good, and it depends on the customer which one they prefer. The types are - 

1. Aadhaar based KYC or eKYC

It is an online KYC, also referred to as electronic KYC. In this process, a customer’s address and identity are verified electronically through Aadhaar authentication. 

• Since this process is completed online, it is convenient for those with an internet connection

• The customer must upload a scanned copy of their original Aadhar card here

2. Offline KYC or In-Person-Verification(IPV) KYC

This process is carried out in person and a customer’s address and identity are verified through hard copies of documents.

• This process is convenient for anyone without access to an internet connection

• The customer can do so by visiting a KYC kiosk to authenticate their identity using Aadhar biometrics

• It may also involve submission of attested copies of PAN card, passport, Voters’ ID card, electricity bill, etc.

• They can also call the KYC registration agency and have an executive come to their home/office to do so

Ways of KYC Verification

There are five methods of KYC verification. Take a look at them here - 

1. Online OTP-based or Aadhaar based KYC

Following the steps outlined below, Aadhaar OTP-based KYC online verification can be completed:

• Visit the bank's or KYC Registration Agency's website

• Select 'KYC verification'

• Enter the information requested from your Aadhaar card

• Authenticate with an OTP sent to the Aadhaar-registered mobile number

• Fill out and upload the application

Following submission, your KYC application will be verified and approved by the UIDAI (Unique Identification Authority of India). 

2. Offline verification or Paper-based KYC

If you want to know ‘what is KYC in bank’, in most cases it will be easier for you to complete an offline KYC at your local bank branch. The following are the steps for it -

• Download the KYC form from the bank's or KYC Registration Agency's website

• Fill out the form with your Aadhaar card and PAN information

• As proof of identity and address, provide a copy of any of the listed KYC documents

• Visit a bank, KYC Registration Agency, or investment firm

• Submit the application 

• You may be asked to provide biometric information there

After submitting the KYC application, you will be assigned an application number. This number can be used to check the status of your KYC verification.

3. Paperless Offline eKYC

This is a new initiative by the UIDAI to secure your data when it is being shared. This will help an organization verify your identity without having to collect or store your Aadhaar number. To make use of this method, your mobile number must be linked to your Aadhaar card.

You can follow these steps to generate your Paperless Offline e-KYC -

• Go to the official myAadhaar website and login using your Aadhaar number

• Enter the Captcha and click on ‘Send OTP’. Enter the OTP that you receive in your registered mobile number.

• Once you login, the list of services will open up. Choose ‘Offline KYC’

• You will be asked to create a 4-digit share code. Input the code of your choice and remember it. You will need to enter this 4-digit share code with anyone whom you want to share the Zip file. 

• Finally click on ‘Download’. A Zip file will be downloaded. 

• Go to the ‘Downloads’ section of your system. 

• Right click on the Zip file that got downloaded, and select the ‘Extract’ option. If it asks for a password, enter the 4-digit share code that you had created.

• Your Paperless Offline e-KYC is ready to be shared further

4. Central KYC or CKYC

It is a central depository of customer’s KYC documents. Some of its features are - 

• It reduces the burden of submitting KYC documents each time your need to complete your KYC

• It is a 14-digit number linked with the ID proof and your data is safely stored in an electronic format

• Records are kept of any changes in the KYC

• The documents that are submitted are verified by the issuer

5. Video KYC

This method came around due to the restrictions during the pandemic. Details about this method are mentioned below - 

• It is completed via a video call and a trained agent is involved in the process

• The customer holds up an original identity proof document on the video while stating his or her details

• The trained agent takes a photo during the call to complete the KYC process

What is eKYC?

Now, let’s take a look at eKYC in detail. Following are some important points about the electronic KYC -  

• eKYC (Electronic KYC) is a digital customer KYC verification procedure in which the details of a customer are electronically verified

• This is required for anyone who wishes to use the services of a financial institution 

• It helps provide the customer’s proof of identity and address to the service provider, eliminating the need for time-consuming in-person verification

• eKYC is primarily concerned with KYC verification via the UIDAI (Unique Identification Authority of India) database and is entirely paperless, and requires no physical documentation

• The only requirement for eKYC is that you have to have your 12-digit Aadhaar number and that your mobile number is registered and linked to your Aadhaar card

Regulations on eKYC

• In September 2018, the Supreme Court issued a landmark decision prohibiting private entities from using Aadhaar eKYC for verification. Following that, UIDAI granted Aadhaar eKYC to private establishments for authentication purposes.

• The Aadhaar and Other Laws (Amendment) Act of 2019 paved the way for online KYC verification, in which individuals voluntarily use their Aadhaar numbers to verify their identities, either through Aadhaar-based online KYC or offline eKYC.

• Thus, the new stringent rules allow KYC verification online only for private entities that have been verified by the UIDAI, preventing the misuse of your Aadhaar data.

What is Offline KYC?

The offline KYC may be In-Person Verification or Paperless KYC. Here are some details about the offline KYC - 

• Offline KYC is a procedure in which the details of a customer are verified in person or non-electronically

• You can fill in forms with all your details to complete an offline KYC

• Along with this you will need to submit attested physical copies of your address proof, ID proof, and your passport size photograph with the KYC form

• All of these will need to be submitted to the relevant authorities

Documents required for KYC

Were you searching for ‘what is KYC document’? Then the answer is here! 

Here are the documents that you will need to complete your KYC process. There are generally two types of KYC documents accepted as proof - proof of identity and proof of address.

1. Proof of Identity 

This is required to establish an individual's identity. The following documents are generally accepted as a proof of identity -

• Aadhaar card

• PAN card

• Valid Driving License

• Valid Voter ID card

• Valid Passport

• Photo ID issued by Central or State Government/University/Public Sector Undertakings/Public Financial Institutions/Commercial Banks

2. Proof of Address 

This is intended to serve as proof of an individual's place of residence. Any one of the following documents are generally accepted as a proof of identity - 

• Aadhaar card

• PAN card

• Valid Driving License

• Valid Voter ID card

• Valid Passport

• Ration card

• Agreement for lease of residential property

• Current utility bills (for eg., gas or electricity bills of past 3 months)

In some cases, a document submitted may serve as both a proof of identity and address, and separate documents might not be necessary. 

Benefits of KYC

Following are the benefits of KYC:

• Aids you in efficiently accessing and assessing the client's past financial history in terms of assets and liabilities, allowing you to perform an accurate risk assessment.

• Allows you to effectively reduce your exposure to fraud by accurately verifying the client's identity claim.

• Prevents you from participating in terrorism or money laundering activities without your knowledge or consent.

• Reduces the overall risk of your lending portfolio, contributing to higher profit margins.

Conclusion

KYC is mandatory if you wish to conduct any type of financial transaction. Completing your KYC in time helps you keep your bank account (or any other account)safe. To prevent fraud, the RBI mandated that all transactions be carried out only after a careful assessment of the customer's identity and address.

You can now complete your KYC process within minutes on most apps using options like paperless KYC, and video KYC.  So, don’t delay completing your KYC!