KYC is an abbreviation for Know Your Customer. KYC regulations have been mandated by financial agencies like banks and NBFC’s (Non-banking Financial Companies) prior to offering any financial services to customers.
The KYC tool is used to establish the identity and verify the credentials of customers. Another related concept is eKYC. The latter, called paperless KYC, is the process of electronic verification of credentials of customers.
The eKYC is also called Aadhaar based eKYC. The reason is that your identity is subject to electronic verification through Aadhaar based substantiation. This implies that data from your Aadhaar card like name, age, address, gender, e-mail address, and mobile number is accessed by the service provider from the Unique Identification Authority of India (UIDAI) database.
Thus, Aadhaar based eKYC offers proof of identity and address to the service provider instantly, eliminating the requirement of the tedious process of in-person verification.
The eKYC process
Aadhaar based eKYC depends on the information offered by an individual to the UIDAI for gaining the unique, 12-digit Aadhaar number. In case you have gained your Aadhaar number and wish to invest in mutual funds or to open a DMAT account to invest in the stock market, the broking firm or fund house will use the eKYC API (Application Programming Interface) to gain access to your Aadhaar details. Any licensed service provider can verify a customer through eKYC API. Note that only UIDAI licensed users can avail of the feature of KYC verification online.
Types of aadhaar eKYC
You can use 2 kinds of Aadhaar based eKYC for KYC verification online:
- Based on biometrics
In this case, you have to offer a 12-digit Aadhaar number along with biometric information like iris or fingerprint scan. For instance, if you wish to invest in a mutual fund, the relevant personnel in the fund house will complete the process of mutual fund eKYC online by making use of your biometrics. A broking firm will open a Demat account for you using a similar authentication process.
- Based on OTP
As for this case, after you offer your Aadhaar number, an OTP will be sent to your registered phone number. You can then enter the OTP in the device of the service provider for completing the transaction.
Government regulations
For the sake of the privacy needs of Indian citizens through misuse of Aadhaar data, the Supreme Court passed a momentous judgement in September 2018, barring private agencies from using Aadhaar KYC for the objective of verifications.
But in October, the UIDAI permitted the use of Aadhaar KYC for purposes of authentication by private agencies like banks for transferring direct benefits. Also, in 2019, the Aadhaar and Other Laws (Amendment) Act paved the way for online KYC verification by private agencies. As per this Act, persons can voluntarily use their Aadhaar number for verifying their identity, either via Aadhaar based online KYC verification or via offline KYC.
As per new rules, the UIDAI has to ensure that private entities comply with established privacy, security, and safety standards. Also, the UIDAI may provide a license for KYC verification online only if it is expedient and necessary. Thus, the new laws are stringent about using eKYC verification online for private agencies that have been verified by the UIDAI. This prevents the misuse of private data.
What is offline eKYC?
Various service providers can use the following methods to verify the identity of a customer:
QR code scan
In this, the service provider is able to scan the QR code imprinted on your Aadhaar card to gain access to demographic data like gender, age, name, address, etc. This code can be scanned easily on a smartphone without needing to access the Aadhaar based database of UIDAI.
M-aadhaar APP
This refers to a mobile app that permits service providers to access your demographic data.
Paperless offline eKYC
In this, the person need not offer a photocopy of the Aadhaar card and instead must download the KYC XML from the portal of UIDAI. The KYC details of any customer are offered in XML and are digitally signed by the UIDAI.
This process avoids the need for revealing Aadhaar number and does not mandate the need for biometric verification. Instead, a reference number is shared.
How to apply for KYC?
The registration for KYC can be done easily through applying at the web portal of any of the SEBI licensed KRA’s (KYC Registration Agencies).
KYC can also be gained offline by downloading the KYC form from any of the KRA’s and submitting it with relevant documents to the relevant authorities.
In summary, this is a brief guide to KYC and eKYC.
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