KYC is the abbreviation of Know Your Customer. Financial institutions such as banks and Non-Banking Finance Companies (NBFCs) have mandated KYC regulations before providing any financial service to customers. KYC is done with the purpose of establishing the identity and verifying the credentials of any customer. The eKYC process, often called paperless KYC, is the process of electronically verifying the credentials of a customer. Now you must be wondering about the process of KYC verification online. eKYC is also called Aadhaar-based eKYC as your identity is verified electronically via Aadhar-based substantiation. This means that the details of your Aadhaar, like name, address, gender, date of birth, mobile number and email address is accessed by the service provider from the database of the Unique Identification Authority of India (UIDAI). Thus, Aadhaar-based eKYC provides your proof of identity and address to the service provider instantly, dispensing the need for the tedious in-person verification.
Here you need to keep in mind that Aadhaar eKYC is contingent upon the information provided by an individual to the UIDAI for receiving the unique 12-digit Aadhaar number. If you have received your Aadhaar number, and subsequently want to invest in mutual funds, or open a Demat Account> for investing in stock markets, the fund house or the broking firm will use the eKYC Application Programming Interface (API) to get access to your Aadhar details. Through the eKYC API, any licensed service provider can then verify a customer. Remember, only UIDAI-licensed users can avail the feature of KYC verification online.
You can avail two types of Aadhaar-based eKYC for KYC verification online:
Here, you have to provide your 12-digit Aadhaar number along with biometrics such as fingerprints or iris scan. Let’s understand this with the help of an example. If you want to invest in mutual funds, the relevant person in the fund house will complete the process of mutual fund eKYC online, using your biometrics. A similar authentication process can be done by a broking firm for opening your Demat Account.
In this case, once you provide your Aadhaar number, an OTP will be sent to your registered mobile phone. You can then enter the OTP in the service provider’s device to complete the transaction.
Aadhaar authentication is different from Aadhaar eKYC. In the case of Aadhaar eKYC, the service provider gets access to the customer’s data, like name, gender, address etc from the UIDAI database, but Aadhaar authentication merely establishes your credentials. In other words, you can get yourself verified by Aadhaar authentication, without the service provider receiving your demographic details.
Addressing the privacy concerns of Indian citizens, more specifically the misuse of Aadhar data, by private entities, the Supreme Court in September 2018 provided a monumental judgment. It barred private entities from using Aadhar eKYC for verification purposes. The next month the UIDAI allowed Aadhaar eKYC for authentication purposes to private establishments, like banks only for transfer of direct benefits. But the Aadhaar and Other Laws (Amendment) Act, 2019, paved the way for online KYC verification by private entities. According to the act, individuals can voluntarily use the Aadhaar number to verify their identities, either through Aadhaar-based online KYC verification, or through offline eKYC. According to the new rules, the UIDAI has to ensure that the private entities comply with the established standards of safety, security, and privacy. Also, the UIDAI would provide license for KYC verification online, only if it was necessary and expedient. Thus, the new stringent rules allow for usage of KYC verification online only for private entities, which have been verified by the UIDAI. This prevents your Aadhaar data from being misused.
Service providers can use the following offline methods to verify the identity of a customer –
Here, the service provider can scan the QR code provided on your Aadhaar card to get access to the demographic data such as name, gender, DOB, address and so on. The code can be easily scanned on a smartphone, without the requirement of accessing UIDAI’s Aadhaar database.
This is a mobile-based app allowing service providers to access your demographic data.
Here, a customer need not provide a photocopy of the Aadhaar card, and instead download the KYC XML from UIDAI’s web portal : https://resident.uidai.gov.in Any customer’s KYC details is provided in XML, and is digitally signed by the UIDAI. This process absolves the requirement for revealing Aadhaar number (instead a reference ID is shared) and doesn’t not require biometric verification.
You can easily complete your KYC online registration by making an application at the web portal of any of the SEBI-licensed Know Your Customer Registration Agencies (KRA’s). These comprise CDSL Ventures Ltd (CVL), NSDL Database Management Limited (NDML), DotEx International Limited (DotEx), CAMS Investor Services Private Limited and Karvy Data Management Services Limited (KDMS).
Once you create your account at the eKYC portal of any KRA, you will be required to fill-in your personal details. Then you have to provide your Aadhaar card number along with your registered phone number. You will now receive an OTP. Post-verification, you have to submit a copy of your self-attested Aadhaar card. Once you complete KYC online, you can check your status by providing your PAN number at the KRA’s web portal.
After knowing how to do KYC online, you must also remember that you can be KYC compliant via an offline process also. You just need to download the KYC form online from any of the KRA’s and submit the filled-in form along with the requisite documents to the relevant authorities or person.
If you want to change your digital KYC records, like change in name, address etc., you can visit the eKYC portal of your choice, like any KRA. Here you will have to click on the ‘Update KYC’ link. Then you are required to fill-in the new details, besides uploading the scanned copy of the updated documents - to establish the proof for the changes. You will then be verified through an OTP on your registered mobile phone number. After verification, you can now click on submit. Post-submission, the details will be changed - typically within a week.
Thus, eKYC is a paperless process to fulfill the mandatory KYC requirements, before you begin your investment journey. If you want to invest in stock markets, then you can conveniently complete the KYC obligations through Aadhaar-based eKYC, and easily open a Demat Account along with a Trading Account. If you are interested in mutual fund investments, then you should remember that - 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 to invest more, you can avail the process of In Person Verification (IPV) or Biometrics-based verification. Remember to always choose a trusted and reliable financial partner for making the most from your investments. IIFL can help you meet your financial goals with the best Demat Account and diverse investment plans.