Digital KYC, or Digital Know Your Customer, is a modern method used by financial institutions like banks and NBFCs to confirm the identity of their customers. Its main goal is to ensure that the person seeking financial services is who they claim to be, thus preventing illegal activities like terrorist financing and money laundering.
Traditionally, verifying a customer's identity required them to physically visit the bank or NBFC office. However, this became challenging during the COVID-19 pandemic due to lockdowns and travel restrictions. This situation made it difficult for businesses to onboard new customers remotely.
To address this challenge, businesses turned to technology, leading to the emergence of digital KYC. But what exactly is digital KYC, and how does it work? Let's delve deeper into this subject.
What is Digital KYC:
Digital Know Your Customer (KYC) is a process used by companies to verify the identities of individuals online. It allows people to access various financial services without physically visiting a bank or other institution. In digital KYC, customers provide their personal details and official documents to a company representative, who then verifies this information against official records.
Types of Online or Digital KYC Verification:
Online KYC Form:
In this mode of digital KYC verification, customers are required to fill out an online KYC form and submit it to the relevant organization. However, they must append their signatures to the form, utilizing either of the following methods:
Printing the KYC form, signing it, and sending the document to the physical address of the concerned organization.
Adding a digital signature to the online KYC form and submitting it electronically, thereby offering a more convenient and entirely digital option.
Video-based Trential KYC:
Video-based KYC emerges as one of the most authentic and legally endorsed methods by regulatory bodies such as the Reserve Bank of India. This procedure involves a comprehensive audio-visual interaction, wherein a registered officer captures the live photos, videos, and valid documents of the customer. Primarily utilized for opening new bank accounts, this approach ensures stringent verification.
The customer initiates the process by signing up for a service and completing the video KYC verification.
Following this, the customer receives a link via text or email, clicking on which triggers the video KYC session.
An executive from the concerned organization conducts the video KYC, capturing the requisite details along with employing geotagging to ascertain the customer's location within India.
Upon completion, customers are promptly notified of their KYC status.
OTP-based Trential KYC:
OTP-based KYC, commonly employed for opening digital wallets or bank accounts. The OTP (One-Time Password) is typically dispatched to the mobile number registered with the Aadhaar card, facilitating seamless verification.
The customer commences by entering their primary details and navigating to the Aadhaar e-KYC tab.
Upon reaching the designated tab, the customer inputs their Aadhaar number.
Subsequently, an OTP is dispatched to the mobile number linked with the Aadhaar, which the customer enters to complete the KYC process.
Importance of Digital KYC:
Digital KYC plays a pivotal role in preventing various forms of fraudulent activities, including:
Identity Thefts: By confirming a customer's legal identity using digital KYC, financial institutions can deter hackers from exploiting forged or stolen IDs, thereby mitigating identity theft.
Financial Frauds: With digital KYC, companies can thwart fraudulent activities such as creating fake accounts, particularly prevalent in online gaming and gambling platforms, thus safeguarding users from financial exploitation.
Moreover, digital KYC facilitates:
Streamlined Onboarding: By leveraging digital KYC, businesses can offer a more advanced and hassle-free onboarding experience to their customers, thereby enhancing customer retention and reducing churn.
Global Onboarding: Digital KYC enables seamless onboarding of customers from across the globe, eliminating geographical barriers and expanding the customer base, consequently bolstering revenue streams.
In Conclusion:
Digital KYC is a critical tool for verifying identities, preventing fraudulent activities, and enabling seamless onboarding in the digital era. By leveraging various methods such as online forms, video-based verification, and OTP-based processes, businesses can enhance security, streamline operations, and expand their customer base globally. As technology continues to evolve, the importance of Digital KYC in safeguarding financial transactions and protecting user information remains paramount.
Embracing digital solutions for KYC not only ensures compliance with regulatory standards but also fosters trust and confidence among customers in the digital ecosystem.
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FAQs:
Q: Why is digital KYC important?
A: Digital KYC is instrumental in streamlining the onboarding process and preventing fraudulent activities for banks, FinTech companies, and other NBFCs.
Q: What documents are required for KYC?
A:The standard documents typically required for KYC include Passport, Voter’s Identity Card, Driving License, Aadhaar Letter/Card, NREGA Card, and PAN Card.
Q:Can I use a bank account without KYC?
A: While customers can use their bank accounts without completing KYC, they may be restricted from accessing certain features such as digital wallets.