What is KYC (Know Your Customer): Meaning, Types & Importance

KYC Meaning

KYC is short for Know Your Customer. It is a process wherein the identity and address of an individual or entity are established and authenticated. This authentication or verification is done with the use of supporting documents which are also called KYC documents. It is mandatory as per law.

When is KYC Required?

The following are some examples of when you would need to furnish your KYC documents –

When you open a bank account
When you invest
When you buy a life insurance policy
When you open an account on digital wallets or online payment platforms
When you apply for a loan or a credit card
To create your eIA (electronic insurance account).

Importance of KYC

KYC is important because of the following reasons –

KYC helps authenticate the identity of an individual. This helps financial institutions weed out fraudulent transactions done under fraudulent identities.
KYC is an important aspect of the prevention of money laundering practices. Since it establishes an individual's identity, financial transactions get easily traced. This helps prevent the inflow and circulation of black money.
KYC helps in eliminating corrupt financial activities¹ such as financing of terrorism.

What are included in KYC Documents?

KYC documents primarily include the identity proof, and address proof of an individual or entity.–

[a] Officially Valid Documents (OVD) which are required to be collected as Identity Proof & Address Proof:

Aadhaar
Passport
Driving Licence
Voter's Identity Card
NREGA job card
letter issued by the National Population Register containing details of name, address

[b] Documents for Bank Details:

Copy of the cheque leaf containing Account number, Name of the Customer, IFSC Code

[c] Recent Photograph

[d] PAN/ Form 60, as applicable, for opening the Bank Account/ purchasing life insurance policy, investing in Mutual Fund etc.

What are the Types of KYC²

There are some of the different types of KYC that can be done. They are as follows –

1. eKYC or Aadhaar-based KYC:

Given the popularity and increased usage of the online medium, KYC has gone digital. There is an option of eKYC wherein your KYC details are verified through your Aadhaar Card. Provide your Aadhaar card number, and you will get an OTP on your mobile number registered with your Aadhaar. Enter the OTP, and the KYC will be done. In some cases, your biometrics can also be collected and then matched with the biometrics contained in your Aadhaar records.

2. Offline KYC or in-person verification:

This is a paper-based KYC method wherein you have to submit self-attested copies of the Official Valid documents along with the KYC form of the Financial Institution. The original documents should also be presented for verification. You have to visit the financial institution to conduct this KYC physically. Once the documents are matched and verified with the original, the KYC process will be completed.

3. Digital KYC:

Under this type of KYC, a live photograph of your face is clicked. You also have to upload the required documents, which are geotagged to confirm your address.

4. Video KYC:

Video KYC is a KYC verification process done via a video call, which involves an agent and auditor. In this, you need to present your Proof of Identity and Proof of Address over a recorded video call. These details are then manually verified by the agent.

5. Central KYC (CKYC):

This is a uniform KYC process by Government which is based on a central repository of KYC records from where the KYC records can be retrieved with the help of client details. Central KYC Records Registry is a centralized repository of KYC, created and authorised by the Central Government to receive, store, safeguard and retrieve KYC records of clients in digital form.

How to do KYC in India?

You may need to contact the concerned Financial Institutions (Insurance Company/ Bank/ Mutual Fund etc.) through which the financial transaction is being undertaken and they will complete the KYC process through any of the below process:

Aadhaar based KYC through Online or Offline Authentication
Digital KYC as per PML Rules Or
Video Based Identification Process (VBIP)
By using "KYC identifier" allotted by the CKYCR
By accepting Officially Valid documents from the customer

Get Your KYC Done Today to Manage Your Finances Efficiently:

Complying with KYC process is mandatory if you want to conduct financial transactions. Given the different modes of KYC, it has become easier and simpler to complete the process. So, complete the KYC process and manage your finances efficiently.

Conclusion

Whether you are making an investment or buying insurance, KYC is a must. Without it, your application for any of the financial services would not be processed. KYC helps financial institutions verify your identity. So, if you have not completed your KYC, you should do it immediately.

¹https://www.barclays.in/content/dam/barclays-in/documents/download-forms/kyc/Importance_of_KYC.pdf

²https://thedigitalfifth.com/demystifying-different-types-of-kyc-for-financial-institutions/

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What is KYC - Meaning, Types, And Importance