What is e-KYC : Meaning and Process

What is e-KYC

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 provides your proof of identity and address to the service provider instantly, 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:

There are two types of Aadhaar-based e-KYC:

  • Using Biometrics:

    Here, you have to provide your 12-digit Aadhaar number along with biometrics such as fingerprints or iris scan and if you are interested in investing, then the relevant authority in the fund house will complete the verification process through this method.
  • Using OTP:

    In this case, you have to provide your Aadhaar number, and an OTP will be sent to your registered mobile phone which will then complete the whole transaction process.

Difference between Aadhaar authentication and Aadhaar e-KYC :

There are some differences between Aadhaar authentication and Aadhaar KYC. In Aadhaar e-KYC, the service provider gets access to your data from the UIDAI database, whereas Aadhaar authentication merely establishes your credentials. Simply put, it is not necessary to provide demographic details to get verified by Aadhaar authentication.

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, which have been verified by the UIDAI which prevents 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 is a mobile-based Open Demat Account App allowing 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 Aadhaar number (instead a reference ID is shared) and doesn’t require biometric verification.

Applying for KYC online?

You can easily complete your KYC online registration by making an application at the web portal of any of the SEBI-licensed KRA’s. 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)

How do I complete KYC online?

After creating your account at the eKYC portal of any KRA, you need to fill in your personal details like your Aadhaar card number along with your registered phone number on which you will receive an OTP. Post-verification, you have to submit a copy of your self-attested Aadhaar card. Once all this is completed, you can check your status by providing your PAN number at the KRA’s web portal.

KYC compliance can also be done via an offline process wherein you just need to download the KYC form online and submit the form along with the requisite documents to the relevant authorities.

How to change KYC details online?

Digital KYC records can be changed by visiting the eKYC portal of your choice, like any KRA wherein you will click on the ‘Update KYC’ link. Fill in the new details, besides uploading the scanned copy of the updated documents - to establish the proof for the changes after which you will receive an OTP on your registered mobile phone number. Post-verification, you can click on submit and the details will be changed within a week.

Conclusion:

Thus, eKYC is a paperless process to fulfil 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 and if you want more you can avail of the process of In-Person Verification (IPV) or Biometrics-based verification.

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Importance of eKYC

  1. Enhanced Customer Convenience

    eKYC streamlines the onboarding process, eliminating the need for physical documentation and lengthy paperwork. This translates to quicker account opening and service access for customers, enhancing their overall experience.

  2. Cost Efficiency

    By digitizing the verification process, businesses save on administrative costs associated with manual verification methods. This cost efficiency allows businesses to allocate resources more effectively, leading to improved profitability and competitiveness.

  3. Regulatory Compliance

    eKYC helps organizations adhere to stringent regulatory requirements by ensuring thorough customer due diligence. By automating identity verification processes, businesses can mitigate the risk of non-compliance and potential penalties.

  4. Fraud Prevention

    The digitized nature of eKYC enables real-time verification and authentication of customer identities. This helps in detecting and preventing illegal activities such as identity theft and account takeovers, safeguarding both businesses and customers.

  5. Financial Inclusion

    eKYC facilitates access to financial services for underserved populations by simplifying the verification process. This promotes financial inclusion by reducing barriers to entry and enabling individuals without traditional forms of identification to participate in the formal economy.

eKYC vs. KYC

eKYC

 

KYC

Electronic Know Your Customer (eKYC) is a digital process used to verify the identity of individuals remotely.

Know Your Customer (KYC) is a traditional method of verifying the identity of customers in person.

eKYC utilizes electronic methods such as biometric authentication, digital signatures, and government-issued IDs to validate the identity of individuals.

KYC requires physical presence and the submission of original documents like passports, driver's licenses, or utility bills for verification.

It offers convenience and efficiency as it can be completed online or through mobile applications, reducing the need for paperwork and time spent on verification processes.

KYC procedures often involve filling out paper forms and visiting physical locations, which can be time-consuming and cumbersome.

eKYC allows businesses to onboard customers quickly, streamlining the customer onboarding process and reducing operational costs.

KYC may lead to delays in customer onboarding due to the manual verification process and the need for face-to-face interactions.

It enhances accessibility, especially for individuals in remote areas or those with mobility issues, as they can verify their identity from the comfort of their homes.

KYC may pose challenges for individuals who are unable to visit physical locations or provide original documents, limiting accessibility for some customers.

However, eKYC may raise concerns about data privacy and security, as digital information could be susceptible to hacking or unauthorized access if not adequately protected.

KYC, while ensuring physical document security, may also face risks such as document forgery or identity theft if not properly implemented and monitored.

Overall, eKYC offers a modern and efficient alternative to traditional KYC processes, catering to the evolving requirements of businesses and customers in the digital age.

Traditional KYC remains a reliable method for verifying customer identities but may benefit from integration with digital solutions to improve efficiency and accessibility.

Documents Required To Open A Demat Account?

  • Proof of identity: Provide a government-issued document such as an Aadhaar card, passport, or voter ID.
  • Proof of address: Submit documents like a utility bill, driving license, or bank statement.
  • Passport-sized photographs: Usually, 2 or 3 recent photographs are required.
  • PAN card: Furnish a copy of your PAN card for tax purposes.
  • KYC form: Fill out the Know Your Customer (KYC) form provided by the brokerage firm.
  • Income proof: Some firms may require income proof for certain types of accounts.
  • Bank account details: Provide a canceled cheque or bank statement to link the demat account to your bank account.
  • Signature proof: Submit a copy of your passport, PAN card, or driver's license to verify your signature.
  • Additional documents: Depending on the brokerage firm's requirements, additional documents may be needed.

What Are the advantages of Using Electronic Know Your Customer Processes?

  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 costs associated with manual labor, paper documentation, and physical storage. 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 in mitigating 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 while eliminating the need to visit physical locations or submit 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.

What Are the Limitations of Electronic Know Your Customer?

  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.

Frequently Asked Questions Expand All

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.


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.

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.


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.


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.