What is e-KYC : Meaning and Process

Last Updated: 24 Jan 2025

eKYC, often called paperless KYC, is the process of electronically verifying the customer’s credentials. This is mandatory for everyone to avail of the services from any financial institution. It is also called Aadhaar-based eKYC as your identity is verified electronically wherein the service provider can access the details of your Aadhaar from the Unique Identification Authority of India (UIDAI) database. Thus, this instantly provides your proof of identity and address to the service provider, eliminating the need for tedious in-person verification.

e-KYC Process

Aadhaar-based eKYC depends on the information provided by an individual to UIDAI to receive the unique 12-digit Aadhaar number. Upon receiving your Aadhaar number, it is easy to invest in fund houses as they use the eKYC Application Programming Interface (API) to get access to your Aadhar information. Through this, any licensed service provider can then verify a customer.

Types of Aadhaar e-KYC:

Aadhaar e-KYC (Electronic Know Your Customer) is a digital identity verification process that leverages India’s unique Aadhaar identification system. This system allows individuals to authenticate their identity without the need for physical documents, streamlining the verification process across various sectors, including banking, insurance, and government services. The e-KYC process can be categorized into several types, each offering distinct methods of authentication.

1. Aadhaar-based e-KYC

This method enables individuals to provide their 12-digit Aadhaar number and consent for organizations to access their information from the UIDAI (Unique Identification Authority of India) database. This eliminates the need for submitting physical documents and expedites the verification process significantly. It is widely adopted in sectors where quick identity verification is essential, such as banking and financial services.

2. OTP-based Authentication

In this method, customers must register their mobile number linked to their Aadhaar. Upon initiating the e-KYC process, a one-time password (OTP) is generated and sent to the registered mobile number. The customer enters this OTP on the service provider’s platform, allowing UIDAI to verify the Aadhaar number and share relevant personal details with the service provider. This method is fast and user-friendly, providing near-instantaneous verification.

3. Biometric Authentication

Biometric authentication involves capturing unique physiological traits such as fingerprints or iris scans using specialized devices. The captured biometric data is sent to UIDAI along with the Aadhaar number for matching against stored records. If a match is found, UIDAI securely transmits the individual’s identifying information to the service provider. This method offers high security and accuracy, making it particularly suitable for sectors requiring stringent identity checks.

4. Offline Aadhaar e-KYC

For individuals without reliable internet access, offline Aadhaar e-KYC methods are available. These include:

• Aadhaar XML File: Users can download an XML file containing their demographic details from the UIDAI portal. This file can be shared with service providers for verification without needing direct access to UIDAI’s database.
• QR Code: Each Aadhaar card features a QR code that encapsulates essential demographic information. Service providers can scan this code to retrieve the necessary data for completing the e-KYC process without accessing UIDAI directly.

5. Video KYC

Video KYC involves a live video interaction between the customer and a representative of the organization. During this session, customers present their identification documents for verification against live video feeds. This method combines convenience with a personal touch and is increasingly used in sectors like e-commerce and online marketplaces.

6. Document-based e-KYC

In this traditional approach, customers submit scanned copies or photographs of their identity and address proof documents online for verification against issuing authorities. Although less common than digital methods, document-based e-KYC remains relevant across various industries, especially in cases where biometric or OTP methods are not feasible.

Aadhar e-KYC and government regulations:

The Supreme Court in September 2018 provided a monumental judgment by barring private entities from using Aadhar eKYC for verification. Following that, UIDAI allowed Aadhaar eKYC for authentication purposes to private establishments. The Aadhaar and Other Laws (Amendment) Act 2019 paved the way for online KYC verification wherein individuals voluntarily use the Aadhaar number to verify their identities, either through Aadhaar-based online KYC verification or through offline eKYC. Thus, the new stringent rules allow KYC verification online only for private entities that have been verified by the UIDAI, preventing your Aadhaar data from being misused.

Understanding offline e-KYC:

The following offline methods can be used to verify the identity of the customer:

• QR Code Scan:

Here, the service provider can scan the QR code provided on your Aadhaar card to get access to the demographic information using a smartphone, without the requirement of accessing UIDAI’s Aadhaar database.

• Aadhaar App:

This mobile-based Open Demat Account App allows service providers to access demographic data.

• Paperless offline KYC:

Here, a customer need not provide a photocopy of the Aadhaar card, and can instead download the KYC XML from UIDAI’s web portal. This process absolves the requirement for revealing an Aadhaar number (instead, a reference ID is shared) and doesn’t require biometric verification.

Ways to Apply for KYC Online

You can easily complete your KYC online registration by applying at any of the SEBI-licensed KRA’s web portals. They include:

• CDSL Ventures Ltd (CVL)
• NSDL Database Management Limited (NDML)
• DotEx International Limited (DotEx)
• CAMS Investor Services Private Limited
• Karvy Data Management Services Limited (KDMS)

eKYC vs. KYC

Here’s a detailed look at the differences –

Criteria	KYC (Traditional)	eKYC (Electronic)
Nature of Process	Manual: Involves physical processes, such as submitting paper documents or in-person verification.	Digital: Uses online platforms, automated tools, and electronic verification methods.
Duration & Efficiency	Longer duration due to manual processing can take days or even weeks, depending on the institution.	Rapid and efficient; often completed in real-time or within minutes.
Cost Aspects	Higher operational costs due to physical infrastructure, staffing, and manual data entry.	Reduced operational costs, long-term savings due to automation, and decreased paper usage.
Verification Method	Requires original documents like passports, driver’s licenses, or utility bills for verification.	Utilizes electronic methods such as biometric authentication and digital signatures.
Convenience	Requires physical presence and can be time-consuming due to paperwork and visits.	It can be completed online or through mobile applications, enhancing convenience.
Customer Onboarding Speed	This may lead to delays in onboarding due to manual verification processes.	Allows for quick customer onboarding, streamlining the process significantly.
Accessibility	Challenges for individuals unable to visit physical locations or provide original documents.	Enhances accessibility, especially for individuals in remote areas or with mobility issues.
Data Privacy Concerns	Risks of document forgery or identity theft if not monitored properly.	Potential concerns about data privacy and security due to reliance on digital information.
Overall Impact	Reliable method but may benefit from integration with digital solutions for improved efficiency.	Offers a modern alternative that meets evolving business and customer needs in the digital age.

Advantages of the e-KYC process

1. Efficiency
   E-KYC streamlines the identification and verification process, reducing the time and resources required. Instead of lengthy paperwork and manual checks, electronic systems can swiftly authenticate customer identities, enhancing operational efficiency.
2. Cost-Effectiveness
   By automating KYC procedures, businesses can significantly reduce manual labor, paper documentation, and physical storage costs. These cost savings can be passed on to any customers or reinvested into improving products and services.
3. Enhanced Security
   Electronic KYC processes often incorporate advanced security measures such as biometric authentication and encryption techniques. This helps mitigate the risk of identity theft, fraud, and unauthorized access, safeguarding sensitive customer information.
4. Convenience
   For customers, e-KYC offers unparalleled convenience. They can complete the verification process remotely without visiting physical locations or submitting extensive paperwork. This streamlined experience enhances customer satisfaction as well as encourages engagement.
5. Compliance
   Adopting electronic KYC solutions helps businesses adhere to regulatory requirements more effectively. Automated checks ensure consistency and accuracy in verifying customer identities, reducing the risk of non-compliance penalties.
6. Scalability
   Electronic KYC systems are scalable and capable of handling large volumes of verification requests without compromising accuracy or speed. This scalability is especially beneficial for growing businesses or those operating in dynamic markets.

Limitations of e-KYC

1. Technology Constraints
   Electronic Know Your Customer (e-KYC) systems rely heavily on technology, which can encounter limitations such as system outages, slow processing times, or compatibility issues with existing infrastructure.
2. Data Accuracy and Verification
   While e-KYC automates the collection and verification of customer data, inaccuracies or discrepancies in the data provided can lead to errors in identity verification, potentially allowing fraudulent individuals to bypass the system.
3. Privacy and Security Concerns
   Storing sensitive customer information electronically raises concerns about data privacy and security. Unauthorized access, data breaches, and misuse of personal etc data are significant risks associated with e-KYC systems.
4. Regulatory
   E-KYC solutions must adhere to strict regulatory requirements, which can vary across jurisdictions. Ensuring compliance with regulations while maintaining efficiency and customer convenience can be challenging.
5. Exclusion of Certain Populations
   Not all individuals may have access to the technology required for e-KYC, potentially excluding marginalized or underserved populations who lack digital literacy or access to electronic devices.
6. Human Oversight and Judgment
   While e-KYC streamlines the customer verification process, human oversight and judgment are still essential for complex cases or exceptions that automated systems may need to address adequately.

Conclusion

Thus, eKYC is a paperless process to fulfill the mandatory KYC requirements before you begin your investment journey. KYC obligations through Aadhaar-based eKYC can be completed if you are interested in investing in stock markets. If you are interested in mutual fund investments as per SEBI regulations – OTP-based eKYC mutual fund investments are subject to the limit of only Rs 50,000 per annum. If you want more, you can avail of the process of In-Person Verification (IPV) or Biometrics-based verification.

Choosing a trusted and reliable financial partner is vital for making the most of your investments. IIFL Securities can help you meet your financial goals with the best Demat Account and diverse investment plans.

Frequently Asked Questions

Is eKYC important?

Banks, lenders, and other companies can streamline and simplify their customer verification procedures with the help of e-KYC. Without the need for physical documents, identity verification is quick and simple with the e-KYC service.

What is the cost of eKYC?

The cost of eKYC varies depending on the specific solution and provider but generally includes expenses for technology, software licensing, infrastructure, compliance, and ongoing maintenance.

Can we apply for KYC online?

Aadhaar OTP or Aadhaar-based biometric KYC are the two methods available for completing your online KYC verification. The latter is the fastest, and it will only take you a few minutes to finish the KYC process.

How do I check my eKYC online?

You can check your eKYC status online by visiting the website of the service provider or financial institution you completed the eKYC process with and logging into your account.

Is eKYC safe?

eKYC can be safe, but it requires strong security measures to protect personal or sensitive data from unauthorized access or breaches, ensuring compliance with privacy regulations.

How much longer does an eKYC take than a conventional offline process?

The eKYC might take approximately 2-3 business days with the conventional offline process.

Will the information I provide during an eKYC be secure?

Backed by biometric verification, the e KYC process is very safe. In fact, it plays a key role in the verification of online identity. It can be stated that eKYC is a smart step towards securing and expediting customer onboarding.

Can the Service Provider share Offline Paperless e-KYC documents with other businesses?

No, the service provider does not have the authority to share offline paperless e-KYC documents with other businesses. It is not a practice that is at all encouraged by the authorities as well.

Is eKyc Mandatory?

The e-KYC provision is considered vital for several reasons. However, the main reason is the strong security.

Do we need to update Kyc every year?

It depends on the high-risk customers; KYC needs to be updated every 2 years; medium-risk customers need to be updated every 8 years; low-risk customers need to be updated every 10 years.

Eligibility criteria for the e-KYC process?

To meet eligibility e-KYC standards in India, an individual must possess an authentic Aadhaar card released by the Unique Identification Authority of India. In addition, their Aadhaar number needs to be connected to a mobile phone number to allow for OTP-based confirmation. This verifies that the candidate is a resident and has registered with UIDAI. Without meeting these benchmarks, one cannot continue with the e-KYC application, as it depends heavily on Aadhaar for identity verification and abiding by regulatory demands.

How to check online e-KYC status?

To verify your online e-KYC status, go to the UIDAI website and key in your Aadhaar number along with any necessary details. The system will demonstrate your current standing, indicating whether it is pending, finished, or needs further activity. Alternatively, if you used a particular KYC Registration Agency, you can check your e-KYC status on their portal by entering your PAN specifics. Each KRA may have somewhat divergent processes, but the requirement for PAN stays consistent.

What is e-KYC?

The eKYC, meaning electronic ‘Know Your Customer‘- a digitalized process that streamlines customer verification primarily through Aadhaar authentication. eKYC allows people to verify their identity online without needing to submit physical documents. 

The e-KYC procedure generally involves providing consent, entering your Aadhaar number, and completing verification through OTP or biometric methods. This approach boosts efficiency by diminishing paperwork and minimizing fraud risks while ensuring adherence to regulatory standards.