A look at different methods of KYC Verification

What is KYC Verification?

KYC or Know your Customer verification is the fulcrum on which all financial products or services are sold. It is the authentication which confirms the identity of the person who is opening the account at a bank, applying for a loan, opening a demat & trading account to buy or sell shares on the stock exchange, purchasing mutual fund units, buying an insurance policy etc. 

At present there are five broad ways in which the KYC verification process can be completed –

  • KRA based verification
  • CKYC based verification
  • Aadhaar based verification
  • Digilocker based verification
  • Video KYC based verification

KRA based verification – In India, there are 5 KYC Registration agencies, namely, CVL, NDML, Karvy, CAMS, and DOTEX. Whenever a customer opens a demat or trading account with a stock broker for the first time, it is mandatory to get this verification done through one of the above agencies.Also, if a customer is opening a demat/trading account subsequently with another broker, the already available KYC information in KRA can be used, making it easy for the customer to complete the form filling.

CKYC based verification – Central KYC or CKYC is a government initiative to bring all KYC in the financial sector under one agency. CKYC is managed by CERSAI (Central Registry for Securitisation Asset Reconstruction and Security Interest of India).This covers all regulated entities in the financial sector which are required to comply with the KYC guidelines.Submission of details to CKYC and retrieving details from CKYC makes the process of account opening extremely easy across the financial sector.

Aadhaar based verification –  Aadhar which is an identification document issued to all residents by the Government of India which serves as valid proof of identity, address and age. Aadhar KYC is an online service that provides easy access to service providers to the necessary information about an individual. It can be verified either

Offline by generation of XML file

UIDAI has launched an Aadhar paperless offline eKYC service for the purpose of verification of Aadhar Number to establish identity. Instead of providing a photocopy of the document, the resident can download the KYC xml  and provide the same to agencies. The KYC details are in machine readable xml and is digitally signed by UIDAI to establish authenticity.This is considered as an OVD (officially valid document).

Online by generation of OTP

Aadhaar verification can be done online through OTP. A One Time Pin (OTP), with limited time validity, is sent to the mobile number of the Aadhaar number holder registered with the Authority, or generated by other appropriate means. The Aadhaar number holder shall provide this OTP along with his Aadhaar number during authentication and the same shall be matched with the OTP generated by the Authority.

Digilocker based verification – DigiLocker is an online service provided by Government of India under its Digital India initiative. DigiLocker provides an account in the cloud to every Aadhaar holder to access authentic documents/certificates such as driving license, vehicle registration, academic mark sheet in digital format from the original issuers of these certificates. It also provides 1GB storage space to each account to upload scanned copies of legacy documents. Users need to possess an Aadhaar number to use DigiLocker. For sign-up, the Aadhar number and the OTP sent to the registered number need to be used. SEBI has also considered Digilocker based Aadhaar document as an OVD, thereby removing the need for a Video IPV to be done.

Video KYC – Video KYC has been included by the RBI as acceptable verification of the customer. This has legitimized the video based customer authentication process. This ensures that digital verification of the customer can be done remotely which ensures faster compliance and customer onboarding.

Verification by any of the above means is mandatory as it is essential to establish the authenticity of the customer with whom financial transactions are entered into. It is preferable to move from paper based verification to online paperless modes. It is even better when the account opening platform has an inbuilt digital verification process which meets regulatory guidelines. It saves both time and cost and enables faster customer onboarding.

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