Know your Customer (KYC) isn’t simply financial lingo anymore. It is as essential as a banking credential and often regarded as the measure of your authenticity by relevant financial institutions. KYC or Know Your Customer is a tool that financial firms, NBFCs, online banks, and even traditional offline services use for due diligence.
KYC and KYC Full Form
As mentioned, KYC’s complete form stands for Know Your Customer, which is also a self-explanatory method to get the credibility checked, authenticated, and validated. Financial firms rely on transactions that involve money and assets.
Managing these transactions without substantial proof of identity or authenticity is dangerous and outright foolhardy. This is why most banks and lending institutions have the KYC requirements to ensure that only eligible customers access concerned accounts. This way, financial activities are better regulated, and issues about money laundering take a backseat.
Most importantly, at least a few years back, RBI made KYC verification of customers essential for financial institutions, mainly if the economic activities concern monetary transactions.
Why is KYC Vital?
It becomes difficult for financial institutions to identify you as a credible customer without KYC. Plus, the lack of KYC cuts down several banking authentication lines, making it easy for unscrupulous individuals to gain access to specific customer accounts.
Plus, its absence in the financial continuum can disrupt services like stock trading, brokerages, mutual fund savings and investments, and even something as standard as bank deposits.
KYC: Types and Documents
Before delving deeper into the concept of KYC, you must understand how it works. KYC as an entity doesn’t mean a lot but signifies credibility when termed as KYC verification. If the process uses online avenues where only the scanned Aadhaar card is required for authentication, it is termed eKYC.
Physical remittance of documentation or in-person interactions is tagged as standard KYC verification.
As far as the documents are concerned, you can furnish any identity and address proof of choice, including Aadhar, passport, voter ID, Pan card, driver’s license, recent utility bill, and more. If the concerned financial firm even asks for proof of your income, salary slips and bank statements are admissible.
More about eKYC
Electronic KYC or eKYC is one of the most straightforward approaches that financial instructions recommend for initiating customer identification, account owner identification, document-based verification, and information analysis in case of loan and credit requirements.
eKYC is paperless and smoother as compared to Offline-KYC or KYC. Moreover, suppose Aadhaar is your preferred approach towards getting authenticated as a customer. In that case, eKYC can be beneficial as it allows access to the UIDAI database and helps you get an eAadhaar for online verification.
The entire verification process becomes more accessible with eKYC as the online documentation must be uploaded onto the concerned platform.
Firstly, you need not lose sleep over the eKYC meaning, as it simply means getting authenticated online with an electronically generated KYC document. However, different financial institutions have different perspectives towards KYC, and the same should be conveyed to the customer for seamless verification.