KYC or Know Your Customer is a due diligence exercise through which banks and non-banking financial institutions establish the identity of their customers. The process includes disclosing customer details such as name, date of birth, address, contact information, etc. Along with this information, customers also must submit documentation in the form of a government-issued identification document. KYC verification is then conducted in-person to ensure that the customer is who they say they are.
The primary objective of KYC, apart from being a regulatory requirement, is that the banking and finance service industry is prone to fraud, money laundering and being used as a platform for cross-border transactions to finance illicit criminal and terrorist activities. In a bid to curb the use of banking and financial networks for illegal ventures, KYC is an important step for financial institutions before they provide their services to customers.
Types of KYC
Financial Institutions now offer eKYC as an alternative to the in-person KYC process. eKYC, also known as paperless KYC, enables the bank or financial company to verify your personal information electronically as compared to the other types of KYC. Using your Aadhaar Card number, private entities can access and verify your personal details through UIDAI and validate your details instantly.This eliminates the need for in-person verification and does away with paperwork entirely, decreasing the amount of time and money it takes to complete the KYC process altogether.
Verification for eKYC also known as Aadhaar-based KYC can be carried out in two ways:
Verification of personal details can be carried out by the service provider by requesting the customer for the OTP sent to their Aadhaar linked cell phone number. Verification can also be carried out by the use of the customer’s biometric information.
In case of offline eKYC verification, the customer can present the verifying authority with a reference id or an XML copy of their Aadhaar card without having to share a photo copy or even their Aadhaar number. The machine-readable XML format can be obtained from the UIDAI portal of the mAadhaar mobile application.
The service provider can also scan the QR code on your Aadhaar card to validate your details on the UIDAI database. Additionally, the mAadhaar mobile application also provides the relevant demographic data required.
eKYC is different from Aadhaar authentication. eKYC allows the service provider to access the UIDAI database whereas authentication establishes your credentials based on the details provided on your Aadhaar card. eKYC has been facilitated by the Government of India to reduce the time spent on in-person verification procedure, allowing the Aadhaar database to act as a universally acceptable form of electronic verification.