Today, it is possible to perform the KYC (know your customer) process of your customers using multiple channels. Owing to the rapid wave of digitisation sweeping across India’s financial services space, market regulators have stepped up to allow digital modes of verification.
Here are the different types of KYC that are being used for the customer identification process.
Physical, or paper-based KYC, refers to the process of submitting self-attested copies of proof of identity (POI) and proof of address (POA) documents. This requires customers to be physically present at the bank branches or at the premises of the financial institution (FI).
Benefits of physical KYC
Since this is how KYC has been done traditionally, both FIs and customers alike are familiar with the process. This provides a level of comfort, especially in areas where awareness about digital modes is under penetrated.
Challenges of physical KYC
It is a cost intensive process. The KYC documents have to be stored physically while also ensuring their confidentiality is not compromised. FIs need to ensure they have a physical presence at enough locations to make themselves accessible to customers.
Given that paper-based KYC is a manual process, it has a relatively higher turnaround time and could be prone to operational inefficiencies.
This type of KYC refers to the verification of a user’s identity using their Aadhaar details stored with Unique Identification Authority of India (UIDAI). It is possible to verify a user using one of two modes of Aadhaar authentication: online and offline.
OTP-based online eKYC involves an OTP being sent to the mobile number linked to a user’s Aadhaar. Once this is matched, all required details of the user can be accessed for verification. Currently, the RBI only allows banks and telecom operators to use this facility.
The other mode of online Aadhaar eKYC involves biometric authentication. A user’s retina image or finger prints are sent to UIDAI along with their Aadhaar number. Other identifying details of the matched record are returned by UIDAI for verification.
Offline verification can also be done using two ways. Paperless offline eKYC, also known as Aadhaar XML, requires users to generate a password-protected XML file that contains their Aadhaar details from UIDAI’s website. They can share this file along with its share code with any organization wanting to verify their details.
The other method of offline Aadhaar eKYC is done by scanning the QR code present on Aadhaar cards. Code scanners can be used to access and authenticate a user’s Aadhaar details.
Benefits of eKYC
It is a completely paperless mode of verification. It allows FIs to verify user details digitally and remotely.
Challenges of eKYC
Currently, only banks and telecom operators are allowed to perform OTP-based eKYC. Other entities have to rely on other modes of verifying Aadhaar, which are not as frictionless as the OTP-based.
OTP-based eKYC also requires customers to have their mobile numbers linked with their Aadhaar number. This can lead to drop-offs in cases where it is not linked.
Additionally, accounts opened with online eKYC are treated as limited or min-KYC accounts. Meaning they will have to be converted to full KYC accounts within 12 months of being opened as mandated by the RBI. This can be done either using physical KYC or a video-based KYC.
This type of KYC is often confused with what fintechs do these days, where they collect documents and verify individuals online. Digital KYC, as expressed by the RBI, requires authorized officials to be physically present with customers.
They then take a ‘live’ picture of the customer that needs to be geo-tagged, along with pictures of their officially valid documents (OVDs). Details submitted as part of their customer application form are then verified against the captured data.
Benefits of digital KYC
Like Aadhaar eKYC, digital KYC is also a paperless mode of verification. The predefined journey allows for a faster and automated onboarding process for FIs.
Challenges of digital KYC
It is not entirely digital in nature as it still requires an authorized official to be physically present with the customer. It can also introduce inefficiencies due to manual intervention in the verification process.
Video KYC refers to the process of onboarding customers over a video call. It involves two legs – the video call and the review. In the first leg, customers submit their POI and POA documents over a live video call with a representative from the RE. In the second leg, a different representative reviews the call and accordingly approves or rejects the KYC.
Benefits of video KYC
Among the different types of KYC, video KYC is a completely remote form of onboarding. Owing to its watertight process, it is one of the most secure and fraud-free methods of customer identification. It can bring down the time taken to onboard a customer from days to mere minutes and can cause upto 90% of reduction in costs for FIs.
Challenges of video KYC
It is a technology-intensive process and requires a high amount of tech investment. It may also require you to train your employees for compliance and operational efficiency requirements.
CKYC stands for central KYC. It refers to the process of downloading your customer’s documents from the central KYC registry (CKYCR), which is operated by CERSAI. CKYC was introduced by the Government of India in 2012 to deal with the pain of having to do your KYC again and again.
With CKYC, your customers only need to do their KYC once. Post this, their documents get uploaded to a central database and they are assigned a unique number called KIN (KYC identification number).
FIs can then simply use this number to access their documents digitally for any KYC process thereafter. It is one the more recently introduced types of KYC.
Benefits of CKYC
CKYC has helped make the KYC process a much more friendlier experience for customers. Since the KYC records can be accessed by multiple regulatory bodies, it has made the KYC process a time and cost-efficient one across industries.
Challenges of CKYC
The RBI requires FIs to upload a customer’s KYC documents to CKYCR within 10 days of opening an account-based relationship with them, making compliance an operational challenge.
Additionally, no checks are present at CKYC’s end to check for a document’s authenticity. So if a customer manages to open an account using stolen or tampered identity documents, the same can be downloaded from the CKYC registry by other FIs. This might lead to a series of fraudulent KYCs till the time it is identified and rectified.
If you want to deep-dive and want to know all about KYC in India, click here.
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