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KYC stands for Know Your Customer. Companies use this method to verify their customer’s identities in order to assess possible risks to their business relationship from criminal intentions. It also refers to the regulations that govern such activities. For example, the Reserve Bank of India adopted this process to avoid identity theft, money laundering, and illegal transactions.
Object of KYC
KYC helps the banks avoid financial risks, establish secure communication with clients, and carry out safe financial transactions. Nowadays it is easy to implement KYC not only on banks but also online companies.
RBI recommends implementing the KYC process during account opening. This protects the clients from fraudulent activities using their name, address, and forged signs. Thus, it is necessary that the customers provide authentic information so that the organization can recognize and improve customer satisfaction.
Following are some required documents that can serve as identification evidence and address proof:
- Passport
- Voter ID card
- Driving Licence
- PAN card
- Aadhaar Card
It is necessary that the provided identity proof contains the address of the customer. If it doesn’t then another legally valid document that contains address details of the customer like electricity bill, telephone bill, gas bill, etc can be provided.
Importance of KYC
KYC is important because:
- It helps the banker make sure that their requests and details are real and verified since there have been citings of theft and illegal transferring of funds.
- It deters fraud by maintaining the identity of the customers as KYC compliance is a must to open a bank account, or mutual funds account.
Who Needs KYC?
KYC is a must for financial institutions and related businesses in order to not face fines or penalties from authorities. Following are some examples of enterprises for whom KYC is a necessity:
- Real estate business
- Banks and their respective subsidiaries
- E-commerce
- Dealers of precious metals
- Insurance companies
- Casinos and online gaming
- Virtual currency businesses
What details does KYC include?
Following details are present in a KYC:
- Customer Name
- Date of Birth
- Father’s Name
- Mother’s Name
- Marital Status
- Address Proof
- Identity Proof
- Contact No.
- PAN Card
- Source of the Funds
What is e-KYC?
e-KYC or electronic KYC helps verify the customer’s identity and address proof electronically through Aadhaar authentication. It is a safe and fast process that doesn’t require any papers or signatures. For e-KYC, your bank needs to have your Aadhaar details. You can prove your identity by entering your thumb on the finger reader if your Aadhaar has your biometric details.