What Is KYC? - Full Form, Meaning & Process

Since 2004, the Reserve Bank of India has enforced strict regulations mandating financial institutions verify the identity and address of all customers conducting transactions. This process, known as KYC or Know Your Customer, is the primary mode of verification.

If you're curious about what KYC is, its meaning, full form, and process, read on.

KYC's full form, meaning, and importance

KYC stands for 'Know Your Customer,' a crucial process for institutions to confirm a customer's identity. Enforced under the Prevention of Money Laundering Act, 2002, customers must provide identity and address proof documents, which can be done online and offline, just once. KYC is essential for several reasons, including:

Banks can confirm an entity's legal status through KYC.
KYC verifies the identities of beneficial owners and authorised signatories of an entity.
KYC helps access and assess a customer's past financial history.
Institutions can perform precise risk assessments through KYC.
KYC protects customers from fraud and money laundering activities.
It decreases the risk of lending portfolios, leading to higher profit margins.

Types of KYC

KYC verification processes encompass two main types for different preferences and circumstances:

Aadhaar-based KYC or eKYC: This online process verifies and addresses a customer's identity electronically through Aadhaar authentication. Video KYC is convenient for those with internet access and requires only a scanned copy of the Aadhar card.
Offline KYC or In-Person-Verification (IPV) KYC: Conducted in person, this method verifies identity and address using hard copies of documents. It's suitable for those without internet access. It requires visiting a KYC kiosk or having an executive authenticate identity at home/office.

KYC Process

KYC processes are simple and primarily involve submitting identity and address proof documents. It can be either completed online or offline. For example, when opening a savings Account, the bank verifies your ID and address proof details through KYC. Here's a breakdown of the typical KYC process:

Step 1: Submit KYC documents

Financial institutions require you to submit officially valid documents (OVD), such as Proof of Identity (e.g., PAN, Aadhaar) and Proof of Address (e.g., Passport, Utility Bills).

Step 2: Complete KYC Compliance

Financial institutions must comply with anti-money laundering (AML) and KYC procedures to prevent money laundering. They conduct thorough document verification, including biometric verification, Aadhaar-based authentication, e-KYC, and video-based KYC. Failure to comply may result in penalties or denial of services.

Step 3: Avail Financial Services

You can access financial services once the digital saving account video KYC is complete. Institutions may periodically re-verify KYC details as part of ongoing due diligence.

Conclusion

KYC is essential for all financial transactions. It protects your accounts against fraud. The RBI's mandate ensures transactions occur only after thorough identity and address verification. Completing your KYC promptly protects your accounts. Verifying your identity will be easier now that you know what KYC is and its process. Completing KYC is quick and easy on Kotak, with options like paperless and video KYC available. Take advantage of Kotak’s online savings account KYC, and open your savings account without visiting the bank.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.