What is KYC? KYC stands for Know your customer. In the year 2004, the Reserve Bank of India made it mandatory for all the financial institutions in the country to verify the identity and the addresses of all the customers who are transacting with them. Before investing in any financial instrument, a customer must submit all of their personal information to the financial institution. RBI requires all financial institutions to perform the KYC process on all customers before allowing them to conduct any financial transactions.
Did you know?
Verification is simple with the Aaadhar-based eKYC since it holds the same value as a copy of your Aaadhar card.
The Importance of KYC
Know Your Customer (KYC) is an essential tool to protect financial institutions and prevent illegal activity. Services like trading and investing in mutual funds are popular among non-individual customers. Customers' operating addresses can be cross-checked, and their beneficial owners and authorised signatories can be verified by banks using KYC (Know Your Customer). In addition, the KYC process requires information about an individual's or a company's occupation and the nature of their business, both of which are useful in verifying their identity.
Types of KYC
There are two types of KYC. They have been described in detail below:
- In person KYC or offline KYC
This type of KYC happens offline where the customer, before indulging in any financial activity like opening a bank account or investing in the stock market or opening a mutual fund account, needs to submit their documentation to the KYC kiosk or KYC registration agency.
- Aadhar based KYC or eKYC
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Wondering what is eKYC?
Well, this type of KYC registration happens completely online. As this verification can be completed online, anyone with access to a high-speed internet connection can take advantage of it. The customer must upload a scanned copy of their original Aadhar card to use this application. Aadhar card of an individual already contains all the biometric and other essential information of an individual, making it very easy for a person to do their registration online. There is no need to submit any documents physically.
Eligibility and Application Process
So, what does one need for the KYC registration process?
Who is Eligible for eKYC?
To be eligible for an eKYC process, an individual must have an Aadhar number which is issued by the Unique Identification Authority of India (UIDAI)
What Are the Documents Required for eKYC?
The eKYC process being a completely online process, it does not require a person to submit too many documents. You may need to submit passport size photographs and a copy of your Aadhar card or your Aadhar number. Once you authorise the use of the Aaadhar number with the eKYC merchant, your information like your full name, date of birth, gender, phone number, temporary address, permanent address, father’s name and so on will automatically be submitted.
E-KYC/Aadhaar Authentication Benefits
The benefits of KYC authentication are:
- Online e-KYC is a fast and secure way to authenticate your identity.
- Online verification saves time and money over traditional methods like paper.
- KUAs (KYC User Agency) can securely communicate with each other using this method without worrying about any information leak.
- The confidentiality and security of the data are ensured by using UIDAI's internal encrypted software.
Process of Submitting eKYC/ Aadhar Authentication
For Aadhaar-based eKYC to work, individuals must submit their personal information to UIDAI to receive their unique 12-digit Aadhaar number. The eKYC Application Programming Interface (API) allows fund houses to access your Aadhar information once you have received your Aadhaar number. To verify a customer, a licenced service provider can use this method.
On the Aadhaar-based electronic identity verification (EID) front, there are two types:
Using Biometrics
You must provide your 12-digit Aadhaar number and biometrics such as fingerprints or an iris scan to the fund house, which will complete the verification process using this method if you're interested in investing.
Using OTP
An aadhaar number is required in this case. Once you have submitted your Aadhar number with the KUA, an OTP will be sent to your registered mobile phone, completing the transaction. Please note that you go ahead and choose a reliable and a registered KUA (KYC User Agency).
How to Complete the eKYC Online?
To receive an OTP, you must first create an account on the eKYC portal of a KRA and enter your personal information, such as your Aadhaar card number. You must submit a self-attested copy of your Aadhaar card after verification. You can check your status at the KRA's web portal by providing your PAN number after all this is done.
The KYC process can also be completed offline by downloading the form online and submitting it to the relevant authorities with the required documents.
There is another type of KYC registration called the Aadhar offline registration. How does that work?
To avoid the need for residents to provide a photocopy of their Aadhaar letter, Aadhaar Paperless Offline e-KYC allows residents to download their KYC XML and hand it over to any agency that wants to verify their identity. UIDAI has digitally signed the XML containing the KYC details, making it possible for the agency to verify their authenticity and detect any tampering. It is also possible for the agency to verify a user's identity by using their own OTP/Face authentication methods.
Benefits of an Aadhar offline eKYC process
- KYC data can be shared directly by the Aadhaar cardholder without having to request access from the UIDAI repeatedly.
- Data sharing does not necessitate the use of biometrics.
- The e-KYC information is retrieved from the UIDAI database, which means that it is tamper-proof because it is based on government records.
- To protect the Aadhaar holder's personal information, the data that is shared with KUA is encrypted.
- This system protects the privacy of the account holder by only sharing data that is necessary to meet KUA and KYC requirements.
- Additional restrictions are placed on biometrics and access to sensitive personal information.
- Having eKYC means that there is no sharing of an Aadhaar number when a KUA requests KYC data from the account holder. In this case, a reference ID is generated and used to complete the process, ensuring the safety of the data.
- Aadhaar holders can choose whether or not to share their KYC information with the platform at their discretion.
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Benefits of eKYC in the modern society
It is a no-brainer that the introduction of eKYC has impacted the country greatly. However, let’s look at the exact reasons why eKYC is a gift to modern Indian society.
Automation
Electronic Know-Your-Customer (eKYC) verification is a fully automated online process. There is no need for any manual intervention to transfer KYC data in real-time. It can take days or even weeks to verify a paper-based KYC process, but an eKYC process only needs a few minutes.
Fraud Prevention
There is no getting around the fact that banks have always had to deal with revenue losses caused by fraudulent activity. With the remnants of old legacy systems, they face enormous difficulties in effectively addressing systematic digital fraud. A recent report released by the RBI states that commercial Indian banks have reported ₹ 1.85 trillion worth of fraud in the financial year 2019-2020. With eKYC in place, this number has fallen 25% from the year 2020 to 2021
Convenience
EKYC has made it extremely convenient for financial institutions and people to open bank accounts and Demat accounts seamlessly. There is no space for fraud in this process as this involves an encrypted server, making it very safe for Indians to become financially free.
Paper-free
Document management is no longer necessary, thanks to EKYC, a paperless system that eliminates this need. Banks and businesses can reduce their carbon footprint by using a cloud-based online system that is environmentally friendly. Using less paper not only helps the environment but also lowers the overall cost of KYC compliance in general. Additionally, the eKYC system safeguards customer information and prevents documents from being misplaced. It eliminates the need for banks to keep their records in the old-fashioned way, where they would become clogged with paperwork.
Conclusion
The benefits of eKYC registration are many and varied. The process itself is rather simple since all documents can be submitted electronically. Once the process is complete, individuals can go on to open Demat accounts and do financial transactions more easily and without the fear of being scammed.
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