What is KYC? Meaning, Full Form, Types, and 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 using supporting documents, which are also called KYC documents. It is mandatory as per the law.

 

When is KYC Required?

You need to furnish your KYC documents in several situations, such as when you open a bank account, make an investment, buy a life insurance policy, open an account on digital wallets or online payment platforms, apply for a loan or credit card, or create your eIA (electronic insurance account).

 

Importance of KYC

KYC is important for 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 activities, such as financing of terrorism.
   

What is included in KYC Documents?

Now that you know the full form of KYC and its meanings, let’s look at the documents.

KYC documents primarily include the identity proof and address proof of an individual or entity. Let’s have a look at the documents which can be used for KYC purposes –

 

Identity Proof Documents

You need documents containing your photograph for identity verification. Some of the documents which are accepted as identity proofs for KYC purposes include the following¹ –

• Aadhaar card
• Passport
• Driving license
• NREGA card
• Voter’s ID card
   

Address Proof Documents

Documents that contain your address can be submitted for address proof. Some of the commonly accepted documents include the following –

• Aadhaar card
• Passport
• Driving license
• NREGA card
• Voter’s ID card

If you live in another place, which is different from the address mentioned in any of the aforementioned documents, a declaration about your current address would be needed along with an address proof of your current address ¹.

 

Other requirements

Besides an identity and address proof, you also have to submit your recent coloured photographs for KYC. Your PAN card would also be needed, and if you don’t have one, you can submit Form 60.

 

What are the Types of KYC

While you know the full form of KYC, do you know how it is done?

The different types of KYC are as follows –

 

1. eKYC or Aadhaar-based KYC:

   Given the popularity and increased usage of the online medium, KYC has gone digital, and the meaning of eKYC sets in. 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 taken. 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 an 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 the 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 centralised repository of KYC, created and authorised by the Central Government to receive, store, safeguard and retrieve KYC records of clients in digital form.

   
   

6. Paperless eKYC (Offline mode):

   Under this mode, you can use your Aadhaar card to complete the KYC process without submitting any documents. To start the process, you would have to download the KYC XML from the UIDAI website and share it with institutions that require KYC verification. UIDAI sends the KYC details in a machine-readable XML. It is also digitally signed, which allows institutions to verify its authenticity and check for any tampering².

   
   

7. KYC via DigiLocker:

   DigiLocker is an online repository for all your important documents. If you have stored e-copies of your documents on DigiLocker, you can retrieve the data from there and complete your KYC formalities.

   First, download the DigiLocker app on your phone and scan and store all important documents. Thereafter, you can choose to complete the KYC process through your Aadhaar card stored on DigiLocker³.

   
   

How to do KYC in India?

You can do KYC in India online or offline. Let’s understand the steps involved under each mode -

 

Online KYC

Online KYC is the same as the meaning of eKYC. It can be done online through the financial institution’s website or mobile app. The process is as follows –

• Step 1 – Visit the website of the financial institution or download and open its mobile app
• Step 2 – Enter your registered mobile number. You will get an OTP on your number, which should be entered in the OTP field
• Step 3 – Upload a copy of your self-attested e-Aadhaar card online
• Step 4 – You might also have to upload your PAN card or Form 60
• Step 5 – You will also have to click a selfie to submit your latest photograph
• Step 6 – Accept the terms and conditions of the financial institution
• Step 7 – Click on ‘Submit’ or ‘Finish’, and the financial institution will verify your KYC online
   

Offline KYC

The offline method requires you to visit the nearest branch of the financial institution, in person, and submit your documents to complete the KYC process. The steps are as follows –

• Step 1 – Download the KYC form from the institution’s website and print it. Alternatively, you can collect the KYC form at the branch itself
• Step 2 – Fill out the form stating all the relevant details correctly
• Step 3 – Submit self-attested copies of all the KYC documents
• Step 4 – The financial institution would verify your documents, and after successful verification, the KYC process would be completed.
   

Get Your KYC Done Today to Manage Your Finances Efficiently

Complying with the 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, understand what KYC is and complete the process to manage your finances efficiently.

 

KYC Process and Components

The KYC meaning includes processes which ensure that all financial transactions are genuine and secure. This is achieved by different components, which are as follows -

• Identity Verification : This is the first step in the KYC process, which checks your identity. Authorised documents verify that you are a legitimate customer and not a fraudster.
• Customer Due Diligence : Customer due diligence involves other checks beyond identity verification. In this component, the background of the customer is checked thoroughly, including their occupation, income, financial activities and the potential of risks.
• Ongoing (Automated) Monitoring : KYC is not a one-off process. Financial institutions carry on continued checks on their customers to ensure that they transact within the legal framework. This check is automated and detects possible anomalies or fraudulent activities.
   

KYC Compliance

KYC compliance is a mandatory and integral part of all financial transactions. Financial institutions conduct KYC verifications and checks to –

• Identify each customer individually to prevent fraud
• Create and maintain the customer’s risk profile
• Create a process to identify customers
• Verify business entities
• Ensure AML compliance
  
  

Relationship Between AML and KYC

Anti Money Laundering (AML) aims to prevent the possibility of financial crimes by identifying the source of money. In today’s technological world, AML is important to prevent racketeering, corruption, or terrorist activities.

If you are wondering what KYC is, you need to understand that it is a subset or part of the wider AML framework. By establishing an individual’s identity and verifying it, KYC aims to prevent common financial crimes and bolster the AML guidelines.

 

Key Takeaways

• KYC is a mandatory check conducted by financial institutions when on boarding new customers
• The objective of KYC is to prevent financial crimes like corruption, terrorism, money laundering, etc.
• KYC is important whenever you want to invest, take a loan or buy a life insurance policy.
• KYC is done through the verification of your documents, which include an identity proof, age proof, PAN card and a recent photograph
• There are different types of KYC, like eKYC, Aadhaar-based KYC, paperless eKYC (offline), KYC through DigiLocker, etc.
• You can do the KYC process online or offline.
   

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.

 

FAQs

1. What does KYC mean?

   KYC stands for Know Your Customer. It means authenticating and verifying a customer’s identity before the customer is allowed to do a financial transaction.

   
   

2. How is KYC done?

   KYC can be done online or offline through various modes like Aadhar-based KYC, eKYC, CKYC, KYC through DigiLocker, etc.

   
   

3. Why is KYC verification important?

   KYC verification is important to prevent the possibility of financial crimes like money laundering, terrorism, corruption, etc.

   
   

4. What are the 5 stages of KYC?

   The 5 stages of KYC include the following⁴ –

   1. Customer identification and verification
   2. Customer due diligence
   3. Enhanced due diligence
   4. Continuous monitoring
   5. Reporting and compliance.
      
      

5. How do I check my KYC details?

   You can check your KYC details by logging into your online account with the financial services provider. For instance, if you have a life insurance policy, you can log into your account and check your KYC details. You can also visit the office of the financial institution and check your KYC details.

   
   

6. How much does KYC cost?

   KYC is a free process, and it does not cost you anything.

   
   

7. Who is responsible for KYC compliance?

   Financial institutions offering their products to the public are responsible for completing the KYC formalities and ensuring that they do not allow fraudulent activities.