e-KYC – Electronic Know Your Customer process
e-KYC is an electronic way of carrying out the Know Your Customer (KYC) process. The e-KYC process is completed through an authentic real time method using Aadhaar Authentication by the customer. It is a simple paperless way of carrying out KYC in lieu of traditional document based KYC.
What is Know Your Customer (KYC) process?
“Know Your Customer” or KYC is a mandatory process to be carried out banks, digital payment companies or any other kind of financial institutions before doing business with a customer. The service provider is required to verify the identity of the individuals or persons behind entities/ firms prior before entering into any business transactions, through the KYC process, as laid down by RBI.
Why is Know Your Customer (KYC) process carried out?
KYC process is insisted to avoid the money generated from illegal activities like money laundering, bribery, terrorism or corruption entering the banking system and preventing miscreants from using banking channels for their activities. Proper identity of a customer enables the government and banks/ financial institutions to keep track of such activities or suspect/ identify them in advance. KYC process is mandated under the Prevention and Money Laundering (Maintenance of Records) Act(PMLA)
Which are the Officially Valid Documents (OVDs) for KYC process?
Officially Valid Documents (OVDs) are documents permitted by RBI for relying upon for verification of identity of a person. RBI has permitted six documents as Officially Valid Documents for the proof of identity. The six documents permitted are:
1. Passport
2. Driving licence
3. Proof of possession of Aadhaar number,
4. Voter’s Identity Card issued by the Election Commission of India,
5. Job card issued by NREGA duly signed by an officer of the State
6. Letter issued by the National Population Register containing details of name and address.
What is e-KYC process?
e-KYC is a valid process permitted by RBI for KYC verification under the PMLA, since 2013 with the objective of minimising the frauds committed based on forged documents. In this paperless method, the e-KYC service launched by UIDAI is relied upon.
Under the e-KYC process, with the explicit consent of the customer and after verification of the biometric authentication by the customer, UIDAI shares individual basic data comprising name, age, gender, address and photograph electronically with authorised users like banks. The date can be used by the banks for opening accounts. The process simplified account opening and played a major role in financial inclusion process of the government and promotion of BSBDA accounts. Spread of banking habit also encouraged promotion of digital channels for payments and digital banking.
This efficient and paperless way of carrying out KYC reduces cost, time, effort and increases data confidentiality and reliability.
It may however be noted that even after carrying out e-KYC, banks may ask for periodical updation of the KYC documents as part of ongoing and periodic due diligence required to be carried out by the banks, based on the profile and transaction history of the account holder.
Advantages offered by e-KYC
The following advantages are associated with e-KYC process:
• Cost effective and efficient way for acquiring customers
• Prevention of identity theft and forged documents for opening of accounts
• Instantaneous, safe and secure account opening
• Better convenience for customer and Bank
