Understanding the KYC Process

KYC or ‘Know your customer’ is a verification process, mandated by the Reserve Bank of India, for institutions to confirm and thereby verify the authenticity of customers. To verify their identity and address, they need to submit their KYC documentation before investing in a variety of financial instruments.

The KYC verification process is vital as it ensures that financial bodies are not being used to carry out any illegal activities. With KYC online verification and offline KYC authentication in place, financial authorities like banks and trading platforms can catch any potentially illegal activities.

Furthermore, many non-individual customers use financial services like trading and mutual fund investment. With KYC, banks and financial institutions among others have the right to verify the legal status of that entity which can include cross-checking their operating address and verifying the identities of their beneficial owners.

What is the KYC process?

The process for digital KYC is as follows:

1. Collection of Information: The first step in the KYC procedure is to collect personal information about the customer. They are required to fill an online KYC registration form on their preferred portal through which they wish to carry out financial transactions. Whether the information given is correct and updated will depend on the due diligence of the applicant.

2. Uploading of Evidence: After the information is collected, the applicant is required to validate the information they put in the form with relevant documents. These documents serve as evidence proving that the prior information entered by the user is authentic and not fake.

3. Verification: Once the documents have been uploaded, the template for the documents is both identified and examined against various checks. This ensures that the document has not been tampered with in any way.

Once the document is validated, data is then extracted from the documents. This can be done in two ways:

1. The data can be directly extracted through an OCR wherein the system will directly extract the applicant’s data from their documents such as their identity and address proofs. The system then checks for anomalies in the information to validate whether it is authentic.

2. There is data extraction without the OCR wherein the applicant will need to manually enter their information into the application’s portal. The system’s IDV solution will cross-check the information entered against the information present on the uploaded documents.

Offline KYC Verification Process

The offline KYC process is similar to the online procedure. However, one core difference is the requirement for physical copies of all documents and application forms.

  • Download, print, and fill out the KYC form. You can also receive an official copy of this application form from a mutual fund house, or KYC kiosk.
  • Within the form, enter your updated information which should spell checked, and must avoid missing any box. You will also be asked for Aadhar and PAN details. Ensure the numbers for both are filled correctly.
  • Once the form is filled, visit the nearest KRA with all your documents so you can submit your application in person.
  • You need to submit proof of your identity and proof of your address with your application form. Keep a xerox copy of these documents beforehand.
  • Additionally, at some mutual fund houses or kiosks, you may have to give a biometric scan which involves fingerprints, handprints, and in some cases a photograph as well.
  • Post-submission, an official application number will be assigned that will allow you to check the status of your KYC verification.

The offline KYC procedure takes around one week to be completed whereas the online KYC registration may take a shorter period. However, this can vary based on a slew of factors such as whether or not there were any errors, inconsistencies, or ambiguities in the application form. Hence, ensure that the form is correctly filled with all the latest information.

What is KYC?

Knowledge Your Customer is sometimes abbreviated as KYC. Both financial and non-financial organizations use this extensive procedure to confirm the legitimacy and identification of their clientele. Before beginning to invest in any instruments or open a bank account, every customer must complete the KYC process.

The RBI mandates that all regulated firms verify consumers' KYC information thoroughly before enabling them to complete any transactions. Payment processors, banks, money transfer agencies, and NBFCs must have sufficient customer data to monitor their financial transactions in order to complete this process.

Why is KYC so important?

  1. Ensuring Legitimacy
    Firstly, KYC helps in ensuring the legitimacy of customers. By collecting and verifying personal information like identification documents and proof of address, businesses can confirm that their clients are who they claim to be. This helps in preventing identity theft as well as frau
  2. Preventing Money Laundering
    KYC plays an essential role in preventing money laundering. By thoroughly verifying the identities of customers, financial institutions can monitor their transactions more effectively. This helps in detecting and reporting any suspicious activities that may show money laundering or other illicit financial practices.
  3. Compliance with Regulations
    KYC is essential for businesses to comply with regulatory requirements. Governments and regulatory bodies often mandate KYC procedures to stop financial crimes and ensure transparency in transactions. Failing to adhere to all these regulations can also result in severe penalties and reputational damage for businesses.
  4. Building Trust and Reputation
    Implementing robust KYC measures helps businesses build trust and maintain a positive reputation among customers and stakeholders. When customers know that a company takes their security seriously and follows stringent verification procedures, they are more likely to trust them with their sensitive information and financial transactions.

How does the KYC Process work?

KYC verification is done in two ways: offline and online. So, let’s learn how it works.

  • Offline Mode
  • You can fill out the KYC application form by downloading it from your financial institution or insurance provider
  • Sign the KYC form and turn it in in person to the appropriate authorities
  • Along with the KYC form, attach the attested copies of your ID, proof of residency, and passport-size photo.
  • Online Mode
  • Make an account on the website of the registered KYC registration agency and offer your personal information, including name, address, and date of birth.
  • Give your registered mobile number and Aadhaar card number, then use an OTP to confirm them.
  • Once the consent declaration terms for the e-KYC have been accepted, upload a self-attested copy of your e-Aadhaar.

Documents required for the KYC Process?

  1. Identification Proof
    To establish your identity, you'll need documents like a valid passport, driver's license, Aadhar card, or voter ID card. These documents should have your photograph, full name, and date of birth clearly visible.
  2. Address Proof
    You'll also need to provide proof of your current address, which can be verified through documents like utility bills (electricity, water, gas), rental agreements, bank statements and letters from your employer. Make sure the address matches the one provided during registration.
  3. Income Proof
    Some institutions may require proof of income to assess your financial status. This can include salary slips, income tax returns, or bank statements showing regular deposits.
  4. Photographs
    Typically, two recent passport-sized photographs are needed for KYC purposes. These photographs should be clear, with your face visible, and without any obstructions like sunglasses or hats.
  5. Additional Documents
    Depending on the institution's requirements and the nature of the transaction, additional documents may be requested. These could include a PAN card (for financial transactions), proof of ownership for assets, or business registration documents.
  6. Self-Declaration Form
    You may also need to fill out a self-declaration form affirming the accuracy of the information provided and your compliance with applicable laws and regulations.

All You Need To Know About KYC Process

KYC, which is also known as 'Know your customer,' is a verification procedure mandated by the RBI or Reserve Bank of India. It is done so that the institutions can confirm and verify any customer's authenticity or legitimacy. If a consumer wants to verify their address and identity, they need to go through the KYC process for verification. They must submit their KYC documentation before investing in a range of financial instruments.

The procedure is vital as it ensures that financial means are not being utilized for any kind of illegal activity. In this blog, we will take a look at everything you need to know about the KYC process.

Different Types of KYC Processes

Let us have a look at the different sorts of KYC procedure:

  • Aadhaar e-KYCThere are two different ways to carry out Aadhaar verification in two ways: Biometric and OTP-based. Individuals looking forward to OTP-based verification must ensure their mobile numbers are linked to their Aadhaar. Folks who are considering biometric-based verification must go through the biometric scanners that are UIDAI-approved to authenticate themselves.
  • Central KYC
    The Central KYC registry comes with easy KYC process steps. It is a centralized repository of KYC records administered and managed by CERSAI. Here, the individuals are only required to do a KYC check once, and they are assigned an identification number, which is always unique after the first check.
  • Digital KYC
    Digital KYC basically involves taking a live photo of the individual and the official valid documents. As stated by RBI, authorized officials must be present physically during the verification procedure and geo-tagging of the documents.
  • ReKYC
    It is a know your customer process that requires constant updates of information by the banking institution to update their users' KYC records at certain intervals.
  • Video KYC
    It involves utilizing video calls to onboard the customers. The procedure is basically two-legged. The first one is the video call where the individuals submit their documents, and the second is where they get approved or rejected.
  • Adhaar Paperless Offline e-KYC
    It usually compromises the individuals generating an XML file that is password-protected. It actually contains their data from the UIDAI website. The file is then shared with the verifying organization along with the password.
  • Physical KYC
    It is also known as Paper-based KYC. It is a procedure to submit copies of proof of identity and proof of address, which are customer-copied to the respective institution. Individuals are required to be present at the financial institution or the bank branch during the time of submission of the copies.

Documents required for the KYC process

KYC compliance is especially mandatory for individuals to set up their customer identity. One will need to submit the documents that the financial institution requires in addition to what is asked by the central KYC registry:

  • Adhaar Card
  • Driving License
  • Any document of identity with a photograph issued by the Central or State authority and the related departments.
  • The identity card that is certified by the scheduled commercial, private or public financial institutions.
  • Ration card with photograph
  • Passport
  • Voter ID card
  • PAN card
  • The documents of identity from educational institutions affiliated with professional bodies.

Wrapping Up

The KYC Process, without a doubt, has been an integral part of our life now. It acts as the bridge between the individuals and financial institutions. As we move forward, the significance of it will continue to grow.

Frequently Asked Questions Expand All

It is basically the procedure where the individual's address and identity are verified electronically through Aadhaar authentication.

CDD is needed for any company that interacts with customers and is covered by AML (Anti-money regulations) and KYC regulations.

Aadhaar card, PAN card, Voter ID card, passport, and driver's license are required for the KYC process. It is vital that you know that the documents that are asked by financial institutions might include fewer extra identification copies than what is naked from the Central KYC registry.

The KYC procedure for a bank includes face verification, biometric verification, ID card verification, and document verification.