You may encounter “KYC”, but have you ever thought about the meaning of this term or its importance?
Let’s explore it in detail. If you want to know the meaning of KYC and the full form of KYC, which literally means to know your customers, this is a due diligence activity, that is, a review or investigation to verify certain facts.
KYC is a process by which financial institutions verify the authenticity of the customer while confirming the customer’s identity and address before or during the transaction.
The main goal of the bank’s KYC process is to prevent people from using the bank to engage in illegal financial activities such as money laundering. The Reserve Bank of India (RBI) has mandated KYC for all financial institutions that conduct financial transactions.
What is KYC
When answering the question “What is KYC”, the complete KYC form is “Know your customer”. This is a verification process that allows institutions to confirm and therefore verify the authenticity of their customers. This authenticity is to ensure the identity and address of the customer. In order to verify their identity and address, financial services customers need to submit their KYC documents before starting to invest in various instruments (such as time deposits, mutual funds, and bank accounts) through the portals of financial institutions.
Chartered financial institutions, banks or other organizations authorized by RBI to conduct financial transactions perform KYC procedures for all customers before granting them the right to conduct any financial transactions. Whether it is KYC online verification or you choose offline KYC, this is only a one-time process and is an integral part of opening a Demat account, business account bank account and more similar financial instruments.
Why is the KYC process important?
Since we know that KYC exists in all financial institutions in India, this is why KYC is important. One of the main reasons why KYC is important is that it is very good at ensuring that financial institutions are not used for any type of money laundering activities.
Money laundering usually occurs without the knowledge of the financial authorities whose platforms are used for such activities. Through online KYC verification and offline KYC identity verification, banks can detect any potential money laundering networks.
Another reason why KYC is important is that many non-personal customers use financial services, such as trading and investing in mutual funds. Through KYC, banks, financial institutions and brokerage companies have the right to verify the legal status of the entity.
This may include cross-checking your operating address and verifying the identity of your beneficial owner and authorized signatory. In addition to knowing whether these companies are real, the KYC process also needs to specify the nature of their employment and the business that the client conducts.
This information can also be used to verify the authenticity of individuals and/or companies. Before providing all this information, KYC verification requires that you cannot open a bank account, business account, demat account or any similar account.
What is e-KYC?
Previously, banks required customers to visit their branches in person and submit the required documents to complete the KYC process. However, customers can now complete the process electronically and online. This process is called knowing your e-customer, and it is a simple, fast and paperless process.
EKYC vs. oKYC vs. CKYC
Previously, banks required customers to visit their branches in person and submit the required documents to complete their KYC process. However, customers can now complete the process electronically and online. This process is called electronic Know your Customer or eKYC, and it is a simple, fast and paperless process.
Offline Know Your Customer or oKYC is based on Aadhaar, and unlike eKYC, this process does not directly access the UIDAI database. However, this does not mean personal verification.
OKYC allows people to share their data with financial institutions that require KYC via Aadhaar XML offline or via QR codes. This process is as fast as eKYC, but provides more privacy. This process eliminates the need for a photocopy of Aadhaar.
CKYC or Central Know Your Customer is the central database for KYC records of all customers. Because of this, customers don’t have to complete KYC for each organization individually every time.
Types of KYC
There are two types of KYC verification process. They are all equally good, if one chooses one type over the other, it is just a matter of convenience. They are as follows:
KYC based on Aadhaar:
Aadhar based KYC is a verification process that can be performed online, which is very convenient for people with Internet connections. As the name suggests, you need to upload a scanned copy of the original Aadhar card for this type of KYC. Suppose you want to invest in a mutual fund. Using Aadhar-based KYC, the opportunity to do so is up to 50,000 rupees per year.
KYC face-to-face verification:
If a person wishes to invest more in mutual funds each year, they will be prompted to conduct KYC face-to-face verification. Unlike the online verification mode detailed above, KYC personal verification is performed offline. To do this, customers can choose to visit KYC kiosks or mutual fund companies and use Aadhar biometrics to verify their identity. You can also call the KYC registration agency to send an executive to your home or office to perform this verification. Some mutual fund companies also provide personal verification of mutual fund KYC through video calls, and customers must show their original Aadhar card and address documents.
KYC documents
KYC documents are documents of individuals or companies that can verify your identity and address. Although the most needed documents are Aadhaar and PAN cards, there are other documents that can be used for KYC verification by different financial institutions. Some of the documents that can be used as proof of identity are-
Identity Proof
Some of the documents that can serve as proof of identity are –
- Aadhaar Card
- PAN Card
- Valid Indian Passport
- Valid Voter ID
- Valid Driver’s License
Address Proof
Some of the documents that can serve as address proof are –
- Aadhaar Card
- Valid Indian Passport
- Valid Voter ID
- Valid Driver’s License
- Utility Bills (Electricity, Water, Gas)
Income Proof
Bank statements and salary slips are generally accepted as proof of income.
Objective of KYC
The purpose of KYC The purpose of KYC is to prevent fraudsters, scammers and other criminals from using businesses for money laundering and many other illegal activities. KYC also helps companies better understand their customers and their financial transactions. This enables companies to effectively manage their risks. Banks and other online companies formulate KYC policies by including the following key elements:
- Customer identification process
- Customer identification policy
- Transactions tracking
- Risk management
In order to complete the KYC process, customers/customers/distributors/agents/consultants must provide banks and other companies with real information So that the bank can identify and improve customer satisfaction. The following are some basic documents required for proof of identity and address in the KYC process:
- Aadhaar card
- Voter’s ID card
- Passport
- PAN card
- Driving license
