Have you ever wondered why every time you open a new bank account or buy a new sim card, you’re asked to provide your identity proof?
Well, this is to prevent fraudulent activities and ensure that the account or SIM card is being used by the legitimate owner.
This is part of the KYC process and we’re going to look at what KYC means and the different types of KYC.
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KYC stands for Know Your Customer, and it refers to the process of verifying the identity of customers to prevent fraud and money laundering.
KYC, or Know Your Customer, is about confirming who customers are and making sure they’re suitable to use certain financial services. It’s important to prevent crimes like money laundering and fraud. To do KYC, companies gather key information from customers like their name, address, and birthdate. They verify this information using reliable sources such as IDs or databases. For higher-risk clients, extra checks may be needed based on the services and risk policies in place.
KYC (Know Your Customer) compliance regulations are essential for financial institutions and businesses to verify their customers’ identities. These rules require collecting specific information from customers, like their name, address, and identification details, and keeping this data up to date. By adhering to KYC guidelines, businesses can detect and prevent financial crimes such as fraud and money laundering more effectively. This not only enhances transparency in the financial sector but also strengthens efforts to combat illicit activities globally. KYC compliance plays a critical role in safeguarding the integrity of the financial system by ensuring that institutions have a clear understanding of who they are dealing with and can quickly identify any suspicious transactions that may occur.
Here are situations when you would need to complete a KYC process:
To open a bank account, apply for a loan, invest in mutual funds, or purchase insurance or any other financial product.
When applying for a new mobile connection or SIM card.
When beginning to use payment apps such as Paytm, Google Pay, PhonePe, etc.
If you wish to trade in stocks, bonds, securities, or open a Demat account.
When booking flight tickets.
Also Read: Travel Loan
Also known as paper-based KYC, where the individual has to be physically present in the bank or financial institution’s premises to submit copies of:
1. Proof of identity (POI)2. Proof of address (POA)
These documents could be your Aadhaar card, Passport, Driving License, Election Commision ID card, PAN card, etc. It is the most traditional way to do KYC and hence most people are familiar with this process.
As the name suggests, here an individual’s identity is verified by using their Aadhaar details. There are two ways to do this type of KYC:
In this, the user needs to share their mobile number which is linked to their Aadhar. For KYC, an OTP is sent to that number & after the OTP is matched, user details are accessed for verification.
This process involves sending UIDAI (Unique Identification Authority of India) the person’s Aadhaar number along with their fingerprints or retina image. The UIDAI then checks the data against its database to verify the individual’s identity.
This process starts with the user submitting personal information and identity documents online. The organization verifies these documents using digital tools.
The customer then visits a physical location for in-person ID verification by an authorised representative who checks physical documents against digital records and takes a live photo for facial recognition.
In this, the user has to download their Aadhaar XML file either from the UIDAI website or through the mAadhaar mobile app.
An Aadhaar XML file is a type of digital file that contains your personal information, such as your name, address, and Aadhaar number, along with other details that are linked to your Aadhaar card.
Once the individual provides the Aadhaar XML file, the organization can use the Aadhaar XML authentication service to verify the authenticity of the file and the identity of the customer.
This process eliminates the need for physical verification.
CKYC is a process in which when you submit your KYC documents and authenticate your identity, your KYC information is added to the central repository. This repository is maintained by CERSAI or Central Registry of Securitisation Asset Reconstruction and Security Interest of India.
The user is assigned a 14-digit number for this record which is called KIN or KYC identification number.
Once your data is stored there, financial institutions like banks, NBFCs, etc can use KIN to access your documents to complete your KYC.
Also Read: Why Opting For an NBFC Personal Loan is a Better Option?
The Video KYC allows financial institutions and other organizations to verify the identity of their customers remotely, using live video calls.
Here the customer is asked to provide their personal details like their name, date of birth, and address. They are also required to show their ID documents like passport or driver’s license to the video KYC agent. The agent will then verify the authenticity of the ID documents, and match the information provided by the customer with the information on the ID.
Different institutions use different types of KYC as per their convenience and regulatory requirements.
For instance, Zype uses an OTP-based online eKYC process to complete identity verification & activate their Zype credit line. Once the credit line is active users can transfer loans from their credit available credit limit to their bank account instantly. Click here to read more about Zype credit line.
Keeping the documents handy before completing your KYC can expedite the process. While the required documents can be different for different financial services and institutions, these are some common documents you may need:
Identity Proof: This includes your PAN card, Aadhaar card, Driver’s License, passport, voter ID, ration card, etc.
Address Proof: This includes documents like passport, driver’s licence, electricity bill, water/gas bill, Aadhaar card, etc.
Income Proof: This includes your bank statement, salary slip, ITR of the previous 2 years, etc.
Read More: Documents Needed for Personal Loan
Carrying out Know Your Customer (KYC) procedures is essential across sectors, especially in finance and banking. KYC, (Know Your Customer), is a regulatory requirement aimed at verifying the identity of clients to mitigate risks such as fraud and money laundering.KYC types vary but generally include identity verification, address verification, and assessing the risk associated with each customer.Common KYC documents include government-issued ID cards (like passport or driver’s license), proof of address (like utility bills or bank statements), and sometimes financial records (like income statements or tax returns).This ensures that businesses engage with legitimate individuals or organisations, minimising risks such as fraud, money laundering, etc.KYC plays a crucial role in maintaining the integrity of financial systems, protecting organisations from illicit activities, and fostering trust and confidence among stakeholders.
Whether you’re taking a personal loan or opening a new bank account, completing a KYC process will not only help the financial institution record your information but will also give you peace of mind that you’re taking services from a legitimate company.
Based on the services you’re taking, each type of KYC has its features and benefits that you should be aware of. They’re as listed below:
This is a very secure method of completing your KYC as you have to self-attest the KYC documents required by the lenders and physically submit them to the financial institution or KYC registration agency.
This type of KYC is extremely hassle-free as it doesn’t require you to physically submit the documents, enabling you to do this from anywhere. Unique Identification Authority of India (UIDAI) does this authentication remotely using their collected data.
Also Read: Personal Loan On Aadhaar Card
This process uses the Aadhaar XML document which is downloaded and shared from the official website of UIDAI.
This is a completely paperless and automated process in which the KYC process is completed using a simple and short journey.
In CKYC, the authentication takes place by storing the customer data electronically. This allows the institution to carry out any kind of duplicate checks and avoid any potential risk.
Video KYC is one of the most time-saving and efficient methods. The process involves you either recording a video through a web portal or through the app of the financial institution itself.
When the need for cash is urgent, instant loan apps play an integral role in fulfilling it quickly. This has only been made possible due to the advancement in digitalization and growth in the fintech industry. And an automated, digital and seamless KYC process has a big hand in this. The introduction of digital or video KYC in the application process helps you apply for a loan very securely without having to visit any institution. This enables you to get easy access to money instantly with peace of mind that your information will not be compromised in any way.
Whether you’re applying for a big-ticket loan or even a new sim card, a KYC process is non-negotiable for ensuring the safety of your personal information.
This simple process will not only help the financial institution collect your data but also ensure there is no fraudulent activity taking place in your account.
Whether it’s an unsecured loan or a secured loan, a KYC process is helpful for any kind of loan in order to collect the data of their customers.
Yes, an Aadhaar card is a very important document that can help you complete your KYC process.
These are the 3 components of KYC:
Any financial institution like a bank or NBFC can verify your KYC document.
You can follow a simple KYC verification process on the official platform or portal provided by the financial institution. Make sure that the institution is trusted and legitimate.
While different institutions have different processes and required documents to complete your application, you will require your identity proof (like Aadhaar card or PAN card), proof of address (utility bill or passport) and even proof of income (like bank statement) to complete your KYC.
The three types and stages of risk in KYC are the high risk, low risk and medium risk category.
The five stages of KYC include customer identification, customer due diligence, risk assessment, monitoring of transactions, and reporting of suspicious activities.
The four key elements of KYC are customer identification, customer due diligence (CDD), ongoing monitoring, and risk management.
The main objective of KYC is to verify the identity of clients, assess their risks, and ensure compliance.