KYC: Full Form, Meaning, Types, Process

Nowadays, KYC (Know Your Customer) is an essential aspect of verification used by financial institutions, NBFCs and other online lenders. In the financial world, KYC is vital as it helps open a bank account and access other important financial products and services. This blog will discuss what KYC is, the meaning of KYC, its importance, its components, its types, and how to do KYC online.

What is KYC?

KYC's full form is Know Your Customer. It is a crucial process ensuring banks identify and verify clients' identities during account opening and periodically after that. Essentially, it ensures the information shared by the clients is genuine. Adhering to minimum KYC requirements is mandatory for account opening and maintaining a business relationship. You must meet these requirements to avoid account refusal or termination. KYC safeguards against financial crimes and enhances the integrity of banking transactions.

Importance of KYC

Now that you know the KYC's full form in banking, let's also know its importance in the banking system. KYC holds immense significance in the banking sector, acting as a cornerstone for financial integrity and security. Here's why KYC is important:

Preventing Financial Fraud: KYC acts as a robust shield against financial crimes like money laundering and fraudulent activities by ensuring the accurate identification of customers.
Enhancing Security: Rigorous KYC procedures bolster the security of banking transactions, instilling confidence among customers and regulatory authorities.
Compliance with Regulations: Meeting KYC requirements is not just a good practice; it's a legal mandate. Banks adhere to international standards and national regulations to combat financial crimes effectively.
Building Trust: KYC fosters trust between banks and clients, assuring customers that their financial institution is committed to safeguarding their interests and maintaining a secure financial environment.
Mitigating Risks: By thoroughly knowing their customers, banks can assess and reduce risks associated with potential financial fraud, identity theft, and other illicit activities.
Ensuring Accountability: KYC procedures hold individuals accountable for their financial transactions, promoting transparency and ethical conduct in banking.

KYC Process and Components

The KYC process encompasses essential components designed to ensure the security and authenticity of transactions. Let's discuss each factor below:

Identity Verification: It is a primary step which involves careful checks to verify the customer's identity, employing various documents and data to confirm their legitimacy.
Customer Due Diligence: A comprehensive examination that goes beyond mere identification, delving into the customer's background, financial activities, and potential risk factors. This in-depth analysis aids in creating a holistic understanding of the customer.
Ongoing (Automated) Monitoring: Continuous vigilance is maintained through automated systems monitoring real-time transactions. Any anomalies or suspicious activities trigger alerts, enabling swift intervention and investigation.

Types of KYC

KYC used various methods for customer verification. Let's look at the types of KYC for a more precise understanding:

Paper-based KYC: The primary method requires physical visits to submit self-attested copies of address and identity proofs at the bank or KYC Registration Agency.
Aadhaar-based eKYC: It involves remote authentication using UIDAI data, Aadhaar OTP or biometric-based verification for online identity confirmation.
Digital KYC: Modern verification method involving geotagged live photographs and Officially Valid Documents (OVDs) submitted online and cross-verified against geotagged documents. The KYC status can be checked later online as well.
Video KYC: An online, paperless verification process using an assisted or unassisted video with manual review and verification by an agent.

What Is The Step-By-Step Process For KYC Online Verification?

The eKYC verification involves a simple series of steps to ensure accuracy and security:

Choose KYC Method: Select the desired KYC method, such as Aadhaar-based eKYC or the innovative video eKYC option.
Submit Documents: Uploading necessary documents follows, where users provide essential paperwork, adhering to specified requirements.
Complete Authentication: Proceed with the authentication process, whether it involves an OTP, biometric data, or recording a verification video.
Verification Review: The final step involves a manual review conducted by KYC agents to ensure precision and compliance.

What is The Step-By-Step Process For Offline KYC Verification?

The offline KYC process is time-consuming yet assuring for many. Follow the steps below:

Visit the Branch: Go to the nearest bank branch requiring KYC verification.
Gather Documents: Carry original and photocopies of identification documents.
Fill out KYC Form: Complete the provided KYC form with accurate details.
Submit Documents: Hand in the filled form and document copies to authorised personnel.
Verification Process: Wait for the institution to verify the provided information and documents.
Acknowledgement Receipt: Receive an acknowledgement receipt upon successful verification.
Wait for Confirmation: Await confirmation from the bank.
Follow-Up: If necessary, follow up on delays or issues.
Update Records: Ensure the institution updates its records accordingly.

At Kotak Mahindra Bank, you can choose to go for online or offline KYC at your convenience.

Key Documents Required for KYC

Here are the various documents required for KYC:

For Identity Proof:
- Aadhaar card, Voter ID, Passport, or Driving License.
- PAN card with a photograph.
- Government-issued photo-bearing documents.
For Address Proof:
- Voter's card, Passport, or Driving License.
- Utility bills (electricity, gas, water) not over three months.
- Documents issued by statutory authorities, government, or elected representatives.
Additional Valid Options:
- Identity cards from professional bodies or educational institutions.

Individuals can easily streamline the KYC process by having these documents in order.

Frequently Asked Questions About KYC (Know Your Customer)

What is KYC in Banking?

In banking, KYC stands for "Know Your Customer," a mandatory process to verify and identify customers, ensuring the institution has accurate information about its clientele.

Why is KYC Important?

KYC is essential for preventing financial crimes, such as money laundering and fraud, by establishing the identity and legitimacy of customers and enhancing overall security.

What Information is Typically Required For Kyc?

KYC usually requires identity proof (Aadhaar, passport, etc.) and address proof (utility bills, government-issued documents) to verify a customer's identity.

Who is Responsible For Kyc Compliance?

Financial institutions, NBFCs, and other regulated entities are responsible for ensuring KYC compliance to maintain the integrity of their services and prevent fraudulent activities.