Importance of KYC and How to Get it Done

What is KYC verification?

KYC stands for Know Your Customer. It implies verification of customer details before onboarding them to a business.

KYC is used to authenticate a person’s identity through documents, such as photo ID, identity, residential address proof, and recent photographs.

KYC verification serves as a stringent measure against any theft or illegal activities that might happen in an organisation.

Presently, every organization is moving towards a faster and smoother KYC Compliance Check process to ensure data security and transparency in business. 

Importance of KYC Verification

With an ever-evolving technological world, any illegal activity or fraud might be done without users’ knowledge. A KYC process creates a barrier against fraudulent activities.

KYC verification serves as a preventive measure against money laundering activities or any other forgery.

In addition to this, KYC also helps track the background details of any person.

You get to know the nature of your clientele, whether an individual or an organisation.

KYC verification also ensures that your partner is not involved in black money, terror funding or Ponzi schemes.

If the organisation is found guilty of any such involvement, it can tarnish the company’s reputation. KYC services ensure that you don’t get into any financial transactions unless the verification is complete.

From a customer’s perspective, without this, customers cannot enjoy any financial profits like a bank account, salary, and investments.

There is money involved in any type of business, so it is better to be safe than sorry.

When does KYC Verification become important?

Any financial transaction or business will require knowing your customer. Following are a few such examples:

  • Opening a bank account for both saving and loan-related purpose
  • For buying insurance policies as directed by Insurance Regulatory and Development Authority India (IRDAI)
  • Getting involved in investment schemes.
  • Initiating a business where customer policy demands KYC.
  • Recruitment of employees

What are the basic requirements for KYC?

The reliable documents required for KYC are:

  • Photo identity proof – Aadhaar card, PAN card, Voter’s identity card, Passport
  • Residential address proof- Lease License Agreement, Electricity bills, Bank Passbook and statements not over three months old.
  • In case of employee recruitment, payslips, tax returns, release letters, joining letters, etc., are required.

What are the Various Methods of KYC?

Due to the transient nature of modern-day business, KYC services have evolved from paper-based to digital KYC. The different methods of KYC are listed below.

  1. Offline KYC – It requires you to fill up forms and manually attach them with supporting documents. After that, submit them to the concerned authority.
  2. Online KYC – Verification is completed using an Aadhaar card or PAN card. There are designated websites where you can furnish your details, and with the help of One Time Password (OTP), you can get your verification done.
  3. Video KYC Video KYC verification is done via an online video call where a face-to-face interview is held. Along with the document verification, your video is recorded and kept for further procedures. This is real-time verification and saves cost.
  4. Biometric KYC – This is a secured form of KYC as it is almost impossible to forge a biometric detail. It eliminates the challenges of compliance, record maintenance.

Steps Involved in Completion of KYC

The following steps complete a KYC process:

1) Customer Identification Program or CIP: 

The Customer Identification Program is the first step and serves as a proactive security measure to reduce risks. The job of CIP is to make sure that any entity performing the financial transaction is verified. It is also used in employee background verification. 

This process includes collecting documents involving Name, Date of Birth, Address, and Identity card number. These documents are subjected to a series of verification to check for any forgery or criminal records.

2) Customer Due Diligence or CDD: This step evaluates the risk of onboarding a customer or employee. In CDD, they collect the customer information in real-time and screen it against any KYC protocol. CDD gauges an individual or entity, which can ultimately reveal the involvement in any illegal activity.

3) Anti Money Laundering or AML screening: This is a continuous monitoring process. One time verification is not sufficient to stay safe against any fraud. There should be a periodic screening that involves a check on the following suspicious actions:

  • Transaction above a certified limit
  • Frequent transactions
  • Unnecessary online communication via e-mails or messages. 

To Conclude

An effective KYC is mandatory for running a secured business. With numerous business transactions, managing and screening their database serves as a proactive safety measure. In today’s world of digitisation and technology, we at AuthBridge promise to deliver these services at the highest level. We guarantee high-end, AI-driven verification and onboarding.