Full form of KYC: For all Indian financial institutions, banks, and other financial organizations, getting to know their customers is not just a good business practice, it is also a legal and regulatory requirement mandated by RBI. Before learning further, let us discover what does KYC stands for.
The abbreviation KYC stands for Know Your Customer.
This tutorial will briefly cover the definitions, importance, types, who need KYC, list of KYC documents and other detailed information related to KYC or Know Your Customer.
What is KYC?
“KYC or Know Your Customer is the process of a company to verify the customer’s identification and assesses possible risks to the business relationship from criminal intentions.”
KYC is a globally introduced policy widely used to govern standard banking practices and anti-money laundering activities. In India, RBI (Reserve Bank of India) has regulated the KYC process to bypass financial scams, unlike identity theft, money laundering, and unauthorized transactions. Hence, it is compulsory for the banks to achieve the KYC authentication during the bank account opening.
KYC guidelines help the banks to prevent their customers from using criminal channels, purposely or involuntarily, for money laundering exercises. KYC further supports the banks or other related financial bodies to interact with clients, secure their fiscal transactions, and supports them to manage their uncertainties carefully. It guards the customers against scammers or phishers who try to make fraudulent activity using their identification, address proof, and forged signatures. Thereby, the users of banks and related financial bodies must cooperate and provide all the required documents and information so that the financial institutions can recognize and improve client satisfaction.
What is the importance of KYC?
KYC is necessary as:
- KYC is very important in today's world because it ensures all financial bodies' business transactions are carried out safely, preventing all kinds of money laundering activities such as money laundering, criminal theft, and illegal transactions etc.
- One of the main reasons why KYC is essential is that it uses online verification and offline KYC authentication. Hence, financial institutions (typically banks) can incur any possible money laundering rings.
- KYC is essential because it has given the right to various private or government financial bodies, brokerages, banks, and other corporates to verify customers' statutory status using their financial services like trading, authorized signatures, mutual fund investment, etc.
- In addition to determining the authenticity of various companies, the KYC process needs the precise type of customer's employment and business. This information is also beneficial in verifying the authenticity of the individual or his company.
Types of KYC
One can verify the KYC with the help of two types of KYC verification processes, which are as follows:
- Aadhaar-based KYC or e-KYC
Aadhar based KYC is a verification method through which Aadhar authentication is carried out electronically with the help of an internet connection. For this electronic KYC, the user needs to upload a scanned proof of their original Aadhar card online on the KYC digital portal.
- In-Person Verification KYC
Unlike the e-KYC verification process, the in-person verification KYC is executed offline. To accomplish the KYC, the client can visit a KYC kiosk or mutual fund corporation and verify their identification using Aadhar authentication. The customers can also align a call with the KYC registration firm to appoint an executive to their residence or business address to authenticate it. Even several mutual fund corporations offer in-person authentication of mutual fund KYC via video call wherein the user is asked to showcase their Aadhar card and permanent address documents.
Both the above verification processes give the same output and equally safe and sound. The consumer can select any of them based on their convenience, accessibility and requirement.
Who Needs KYC?
KYC is a necessary exercise for financial bodies, banks, and other related industries. Businesses must follow the rules and regulations or may suffer fines or penalties from government officials. The various enterprises where there is a need to incorporate KYC is as follows:
- Real estate industry
- Banks and their several subsidiaries
- E-commerce portals
- Dispensers of expensive metals
- Insurance firms
- Clubs, Bars, Casinos, and online gaming
- Cryptocurrency, Bitcoins, or Virtual currency businesses
List of KYC documents
The customers can verify their address and identification by providing the original documents as given below:
- Aadhar card
- Ration card
- NREGA Card
- Pan (Permanent Account number) card
- Driving license
- Voter identity card
- Documents or letter of the national population register
One can provide any one of the above-given documents as proof for their personnel identification. To verify address proof, one may use a Driving License or even a voter identity card.
What is meant by e-KYC?
e- KYC stands for Electronic KYC.
e-KYC is a method through which a customer's identification and residence proof are verified digitally through Aadhar authentication. In India, the Aadhar card is the biometric entailed database where fingerprints, retinal recognition, name, date of birth, father's name of almost all citizens are recorded. Thereby, Aadhar authentication is a process that allows any Indian citizen to prove his identity either by scanning his retina or by entering his thumb on the finger reader. e-KYC is a secure and fast process that has eliminated the requirements of documents, papers, and signatures.