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What is KYC? Full Form, Meaning & Types

Unlock the essence of KYC - its meaning, full form, and role in banking. Delve into why KYC matters, simplifying its significance for banks and individuals.

  • 3,583 Views | Updated on: Jun 11, 2024

In today’s interconnected world, where financial transactions span continents in milliseconds, ensuring the integrity and security of financial systems is paramount. This imperative has led to the widespread adoption of KYC full form Know Your Customer (KYC) protocols across various industries, particularly in banking, finance, and e-commerce.

KYC’s full form, Know Your Customer, represents a cornerstone of regulatory compliance and risk management, aiming to verify the identity of customers, assess their risk profiles, and prevent illicit activities such as money laundering, terrorism financing, and fraud.

What is KYC (Know Your Customer)?

KYC meaning, a set of processes and procedures implemented by businesses and financial institutions to verify the identity of their customers. The primary objective of KYC is to reduce the risks of fraud, money laundering, terrorist financing, and other illicit activities. By verifying the identity of customers and assessing their risk profile, businesses can establish trust, comply with regulatory requirements, and safeguard themselves against financial crimes.

What are the Types of KYC?

KYC norms serve as a critical framework in this regard, helping financial institutions verify the identity of their customers and assess associated risks. In India, KYC requirements are diverse, catering to the unique needs and circumstances of different sectors and segments of the population. Let us look at the various types of KYC prevalent in India and their significance.

1. Aadhaar-based KYC

Aadhaar-based KYC leverages the Aadhaar card, a unique identification number issued by the Unique Identification Authority of India (UIDAI), to verify individuals’ identities. Owing to the widespread adoption of Aadhaar as a primary identification document, this form of KYC is widely used across various sectors, including banking, telecommunications, and financial services.

2. E-KYC

E-KYC, or electronic KYC, involves using electronic methods to verify the identity of customers. It eliminates the need for physical documents and allows for a seamless and paperless verification process. E-KYC is facilitated through digital platforms and APIs, streamlining the onboarding process for customers and reducing administrative burdens for businesses.

3. Video KYC

Video KYC allows for remote verification of customers’ identities through live video interactions. This form of KYC is particularly relevant in today’s digital age, enabling financial institutions to onboard customers remotely while ensuring compliance with regulatory requirements. Video KYC offers convenience and flexibility, allowing customers to complete the KYC process from the comfort of their homes.

4. Full KYC vs. Partial KYC

Full KYC requires comprehensive verification of customers’ identities, including documentation and in-person verification, whereas partial KYC may involve less stringent requirements, such as basic identity verification. Full KYC is typically required for high-value transactions and certain financial products, while partial KYC may suffice for low-value transactions or limited-access accounts.

5. Centralized KYC (CKYC)

Centralized KYC (CKYC) is a centralized repository of KYC records maintained by the Central Registry of Securitization and Asset Reconstruction and Security Interest of India (CERSAI). CKYC streamlines the KYC process by allowing financial institutions to access and share KYC information electronically, reducing duplication and enhancing efficiency.

6. Sector-specific KYC

Certain sectors, such as banking, insurance, mutual funds, and securities, may have specific KYC requirements tailored to their unique characteristics and regulatory frameworks. Sector-specific KYC norms ensure compliance with sectoral regulations and address sector-specific risks and concerns.

When is KYC Required?

Across various sectors, from banking to investments and insurance, KYC requirements play a pivotal role in verifying the identity of customers and assessing associated risks. Here are some scenarios when KYC is required:

KYC For Banks

Banks are at the forefront of financial services, serving as custodians of individuals’ and businesses’ finances. KYC is mandatory for banks to open new accounts, avail themselves of loans and credit facilities, and conduct various financial transactions. Here’s when KYC is required in the banking sector:

Account Opening

Individuals or businesses must undergo KYC verification when they open new bank accounts.

Loan Application

When applying for loans, mortgages, or credit cards, banks conduct KYC checks to assess the creditworthiness and identity of borrowers.

Transactions Above Threshold

Banks may require customers to undergo additional KYC verification for certain high-value transactions.

Updating KYC Records

Banks periodically update their KYC records to ensure customer information remains accurate and up-to-date.

KYC For Investments/Life Insurance

Investments and life insurance are critical components of financial planning, helping individuals build wealth and secure their future. KYC requirements in these sectors aim to safeguard investors’ interests and ensure compliance with regulatory standards. Here is when KYC is required for investments and life insurance:

Mutual Funds/Stock Market Investments

Investors looking to invest in mutual funds or participate in the stock market must undergo KYC verification.

Insurance Policies

When individuals purchase life insurance policies or other insurance products, insurance companies conduct KYC checks to verify the identity of policyholders and assess associated risks.

Financial Planning Services

Financial planners and advisors may also require clients to undergo KYC verification before providing investment advice or financial planning services.

List of KYC Documents

KYC documents serve as essential tools in this process, providing proof of identity, address, and other relevant information. Here is a comprehensive list of commonly accepted KYC documents:

Aadhaar Card

The Unique Identification Authority of India (UIDAI) issued a unique identification number.

Passport

A travel document issued by the government that certifies the identity and nationality of the holder.

Voter ID Card

An identity card issued by the Election Commission of India that allows individuals to vote in elections.

Driving License

A government-issued document that authorizes individuals to drive vehicles on public roads.

PAN Card

A Permanent Account Number (PAN) card issued by the Income Tax Department for tax-related purposes.

Utility Bills

Recent utility bills such as electricity, water, or gas bills that show the customer’s name and address.

Bank Statement/Passbook

A bank statement or passbook with entries not older than three months that shows the customer’s address.

Ration Card

A government-issued document that certifies the identity and address of the holder.

Rent Agreement

A registered rent agreement between the landlord and tenant that confirms the tenant’s address.

Below are some other documents that are required for KYC:

Passport Size Photographs

Recent passport-size photographs of the customer.

Income Proof

Documents such as salary slips, income tax returns, or Form 16 may be required for certain financial transactions.

KYC Declaration Form

A form provided by the financial institution or service provider that requires customers to declare their identity and address details.

How to do KYC in India?

While online KYC is becoming increasingly popular, the option for offline KYC still exists. Here are the steps to follow for an offline KYC:

  • Online/ Aadhaar-based KYC
  • Offline KYC

How to do Aadhaar-based KYC or Online KYC?

Aadhaar-based KYC, also known as e-KYC, has emerged as a popular method for verifying the identity of individuals electronically. Let us understand how to complete Aadhaar-based KYC or online KYC in India:

1. Understand Aadhaar-based KYC

This method eliminates the need for physical documents and allows for a seamless and paperless verification process.

2. Choose the Service Provider

Select the service provider you wish to complete the Aadhaar-based KYC process with. This could be a bank, financial institution, telecom operator, or any other entity offering online services that require KYC compliance.

3. Visit the Service Provider’s Website or App

Access the website or mobile application of the chosen service provider and navigate to the section for completing KYC or opening a new account.

4. Select the Aadhaar-based KYC Option

Look for the option to complete KYC using Aadhaar or e-KYC. Depending on the service provider, this option may be labeled differently but typically involves selecting “Aadhaar-based KYC” or “e-KYC” from the available choices.

5. Enter Aadhaar Number

Enter your 12-digit Aadhaar number in the designated field on the service provider’s website or app. Ensure that the Aadhaar number provided is accurate and matches the details associated with your Aadhaar card.

6. Consent for KYC Authentication

Provide consent for KYC authentication by entering the OTP (One-Time Password) sent to your registered mobile number linked with Aadhaar. This OTP serves as a secure verification method to authenticate your identity.

7. Biometric Authentication (if required)

Sometimes, biometric authentication, such as fingerprint or iris scan, may be required to complete the KYC process. Follow the instructions provided by the service provider to complete biometric verification, if applicable.

8. Confirmation of KYC Completion

Once the Aadhaar-based KYC process is successfully completed, you will receive a confirmation message or notification from the service provider. This confirms that your KYC has been successfully verified electronically.

9. Update KYC Records (if required)

If there are any changes to your personal information or contact details, update your KYC records promptly. Most service providers offer online facilities for updating KYC details, ensuring accuracy and compliance.

How to do KYC Offline?

While online KYC is becoming increasingly popular, the option for offline KYC still exists. Here are the steps to follow for an offline KYC:

1. Download and Fill the KYC Form

Visit the relevant institution’s website (bank, mutual fund house, etc.) you are applying to. Locate the KYC form download section. They might also offer the form in physical branches. Download and fill out the KYC form with accurate details.

2. Visit a KYC Registration Centre (KRC) or Branch Office

Find the nearest KYC Registration Centre (KRC) associated with the institution or visit a branch office that offers KYC services. Always carry the completed KYC form and the required documents.

3. Submit Documents and Provide Biometrics (if required)

Submit your duly filled KYC form and the required identity and address proof documents. Identity proofs will include a PAN Card, Passport, Aadhaar Card, or Voter ID. Utility bills, bank account statements, Passports, and Aadhaar cards will come under address proof. Sometimes, fingerprint scans or photographs might be taken for biometric verification.

4. Receive Application Number

Upon successful document verification, you’ll likely receive an application number or reference ID for tracking the KYC process.

Step-by-Step Process For KYC Online Verification?

Traditionally conducted through physical documents and in-person meetings, KYC verification can now be completed online, offering convenience, efficiency, and enhanced accessibility.

  • You can download the KYC application form from your financial institution or insurance provider’s website.
  • After filling out the form, sign it and submit it in person to the relevant autes.
  • Remember to include attested copies of your ID, proof of residency, passport-size photo, and the KYC form.

Key Takeaways

  • KYC is a regulatory compliance and risk management, aiming to verify customer identities, assess their risk profiles, and prevent financial crimes.
  • Various types of KYC are there, including Aadhaar-based KYC, E-KYC, Video KYC, Full KYC vs. Partial KYC, Centralized KYC (CKYC), and sector-specific KYC.
  • A range of documents is accepted for KYC verification, including Aadhaar Card, Passport, Voter ID Card, Driving License, PAN Card, etc.
  • KYC can be completed online through Aadhaar-based KYC or offline through physical documents.

Conclusion

KYC plays a crucial role in safeguarding the integrity and security of the financial system. By adhering to KYC regulations and implementing robust KYC processes, businesses and financial institutions can prevent financial crimes and build customer trust. Understanding the basics of KYC is essential for ensuring compliance and facilitating smooth and secure transactions in today’s interconnected world.

FAQ on What is KYC


1

1. What does KYC mean?

KYC stands for Know Your Customer. It is a regulatory process used by businesses and financial institutions to verify the identity of their customers and assess associated risks.



2

2. How is KYC done?

KYC can be done through various methods, including submitting physical documents, Aadhaar-based verification, video KYC, and online verification through digital platforms provided by service providers.



3

3. How to verify KYC?

If necessary, KYC verification involves submitting required documents such as government-issued IDs, address proof, and biometric information. The service provider then verifies the documents to authenticate the customer’s identity.


4

4. Why is KYC verification important?

KYC verification is important for preventing financial crimes such as money laundering, fraud, and terrorist financing. It helps businesses comply with regulatory requirements, safeguard against risks, and build customer trust.


5

5. What are the 5 stages of KYC?

The five stages of KYC typically include customer identification, customer due diligence, risk assessment, monitoring of transactions, and updating KYC records as necessary to ensure compliance with regulations.


6

6. How do I check my KYC details?

Customers can check their KYC details by visiting the service provider’s website or mobile application, logging into their account, and accessing the KYC section. Alternatively, they can visit the branch or office of the service provider for assistance in checking their KYC details.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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