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.
Online KYC Verification process
An online KYC process eliminates the need to visit bank branches, completing the process within several minutes from anywhere as long as you have an active internet connection. Completion of an e-KYC is quite a straightforward process; following these steps ensures a seamless experience.
- You can either create an account with a KYC registration agency or log in to your bank’s website. Most banks have a specific section that is often titled “KYC online” or “Updation of KYC”. Once you have located the respective section, you can proceed with entering your credentials. You may also be required to authenticate your login credentials with an OTP sent to your linked email address or phone number. This serves as a measure of additional protection for clients.
- After verifying your login, you have to upload the required documents. Some documents you may be required to upload are a copy of your Aadhar card, PAN card, and passport with a recent passport-size photograph. These documents are proof of your identity. You may also be required to submit either a rental agreement or utility bills for proof of your address.
- Once you have attached the required documents, click on the submit button to initiate the verification process. Once submitted, the bank will cross-verify the details you have submitted with government databases to ensure that your details and documents are valid. The time taken by banks to verify your documents varies depending on the bank you choose, but it usually takes 24 to 48 hours.
When applying for an e-KYC, do keep the points mentioned above in mind.
Here is a list of some common mistakes to avoid when applying for an e-KYC:
- Submitting blurry documents: Illegible Documents are the most common reason for a delay and rejection of applications. Therefore, before submitting images of the relevant documents, ensure they are in high resolution and the appropriate format for quick approvals.
- Filling incorrect information: Verifying your information, such as your name, address, and identification number, before submitting the application form is an important step that people miss out on, causing unnecessary delays.
As part of the KYC procedure, many banks require clients to also participate in a video verification. Here, a bank employee reviews all of your paperwork virtually. Clients must abide by the specific rules stated by the bank during the video KYC. This includes sitting in a well-lit but peaceful area and having a robust internet connection.
Why is KYC so important?
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- It ensures Client Legitimacy
KYC has become extremely crucial in the financial sector, as it verifies the client’s personal information against identification documents provided by them. It is through the KYC process that banks can confirm their clients’ identity.
- Prevents Money Laundering
KYC has proved crucial for the prevention of money laundering. By verifying client identities, banks can keep a close watch on their transactions, helping bring to light any suspicious activities that could be tied to money laundering.
- Compliance with Regulations
KYC has become an integral part of the financial sector, which expects businesses to comply with certain regulatory requirements. The government and other regulatory bodies have mandated the KYC process as an attempt to prevent financial crimes and ensure transparency in all financial transactions. Non-adherence to these regulations can cause severe penalties and reputational damage to the businesses
- Building Trust and Reputation Adoption of robust KYC measures can help businesses promote a positive image among their customers. Customers who are aware of the measures undertaken by the government to safeguard sensitive information, like stringent security measures and verification procedures, are more likely to trust the bank with sensitive information.
Documents required for the KYC Process?
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
There is no doubt that the KYC process has become an essential part of our lives. It serves as an effective link between individuals and financial institutions. And as we progress, its significance will only continue to augment.
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