Learn about KYC (Know Your Customer) - meaning, process and importance

Today, completing your Know Your Customer (KYC) is an essential component of almost every activity, from using mobile wallets or opening a bank account to applying for a loan or buying a SIM card. KYC is necessary for every kind of business or service. This is because thoroughly verifying a customer’s identity is required to prevent illegal activities, identity fraud, money laundering and prevent financial or other services from being misused. Read on to know more about KYC and what it involves.

KYC importance

For the government to carefully monitor and prevent financial abuse, identity theft, money laundering and other legal activities, it is essential to confirm the applicant's identity. Hence, the Reserve Bank of India had asked all banks to implement the KYC guidelines of new accounts at the end of 2002. RBI then established the KYC norms for existing accounts in 2004. If you understand what is KYC in banking, you have to provide information regarding your address and identity via standard documents.

KYC process offline

You can complete your KYC offline or choose to do so online. For instance, if you are opening a savings account or applying for a credit card, you will need to visit the nearest branch of your preferred financial institution. You will have to submit the necessary documents there.

KYC process online

You can also complete your KYC online. Many financial institutions, lenders, and companies have digitalised the KYC process for added convenience. Thanks to this, you can now upload all the necessary documents online within minutes. Before 2012, you were required to submit a copy of your PAN card if you wanted to invest over Rs. 50,000, especially if you were investing in mutual funds. However, thanks to KYC, that isn't necessary anymore.

KYC documents list

Although Aadhaar has made KYC easier, as some institutions accept only the Aadhaar details for KYC, you can also submit other documents. What is KYC registration? Take a look at the basic and most common documents that you can submit to complete your KYC.

To verify your identity, submit any of the following documents:

• PAN card
• Aadhaar card
• Voter's ID
• Driving license
• Ration card

To verify your address, you can submit one of these documents:

• Ration card
• Electricity or LPG bill
• Bank statement
• Banks are also known to accept employer letters as verification of your address

Update your KYC for credit card

An applicant's identity is an important piece of information used by the government to monitor and prevent financial abuse and other illegal activities. Therefore, updating KYC is essential. One should provide information regarding the address and identity via common documents. Many institutions have provided customers with an option to update their KYC documents online. A customer may not be able to use the credit card without completing the KYC. This can be done by uploading or submitting documents or even using the e-KYC method.

Additional Read: What is Loan Account Number (LAN)

Updating your KYC online

Many financial institutions have provided customers with an option to update their KYC information online. This can be done by submitting and uploading different documents or using the e-KYC method.

Using Aadhaar for eKYC

With widely implemented Aadhaar card regulations, you can complete your KYC easily using the same information you provide while purchasing a new SIM card or while investing in mutual funds. An e-KYC is an electronic procedure of KYC that can be done in two ways. You can choose to update your KYC information online at the comfort of your home or can complete KYC needs and verification using a biometric device at the nearest centre.

While updating your KYC from home, you will be required to submit an Aadhaar OTP sent to the mobile number linked to your Aadhaar card. In the second type of procedure that involves biometrics, you will need to visit a centre and use your finger impression. Once the impression has been verified, your information linked to your Aadhaar card gets automatically uploaded.

This makes the KYC procedure much easier than having various financial institutions personally verify each document you submit. As a result, your KYC verification is completed faster, cutting down the wait time from approximately 7 days to as little as a few minutes.

You can also use e-KYC to invest in mutual funds, cut down on time, and start investing as soon as possible. Furthermore, you can benefit from the CKYC (Central KYC registry) started around August 2016. This system ensures that you do not have to complete the KYC procedure multiple times. Instead, you can complete the procedures with a financial institution that gets your KYC details registered with the central system. If your documents are accepted, you will receive a 14-digit KIN number, which you can use to buy insurance, open a Demat account, or buy mutual funds across financial institutions. Thus, you do not have to go through KYC procedures again the next time. While you can invest as much as you want with central KYC, you must adhere to the Rs. 50,000 limit if you have completed your KYC through e-KYC and not CKYC.

How can I check my KYC status?

Did you know you can track your KYC status online? Once you register your KYC details, you will get an SMS and/ or email update about registration. Once approved, you will get another update on the same. You can also visit the KYC registration agency’s website to track your KYC status.

While the United States of America initially started KYC, India has adopted this process to fight against corruption. So, make sure you complete this process and prevent any misuse of services.