Fraudulent activities such as laundering of money and banking rackets have made financial transactions for customers and banking/finance institutions very risky. To combat the prevalence of fraud, the Reserve Bank of India, in 2002, introduced the process of KYC. The Reserve Bank of India made the KYC or Know Your Customer compulsory in 2004. KYC meaning ‘Know Your Customer’, is a verification and authentication procedure that banks, finance companies and other intermediaries undertake, to verify each customer. What this procedure ensures is the careful evaluation of each customer’s details, such as identity/address, prior to any financial transaction that the customer takes part in.
Also referred to as ‘Know Your Client’, KYC meaning lies in the validation of all customers before they can use any banking services. Institutions conduct verification at a single time, authenticating a customer’s documentation associated with their identity and their address. By doing this, each customer is assigned a code which is distinctive, and this is stored in a centralized system. The Central Registry of KYC Records holds a customer’s information and releases it to banks, financial companies, and other bodies (like IT authorities) when required, through the unique code, an ‘identifier’.
What is the meaning of KYC?
The Reserve Bank of India has mandated that all banks conduct KYC verification and validation for every existing customer under its institution. Existing customers must update their KYC periodically, every year, to ensure that details are up to date. In case of a change in the customer’s information, they must inform the institution immediately and KYC must be updated at the earliest. New customers must go through the KYC process, furnishing information to the bank or any other body requiring it, by submitting their proof of identity and address. KYC meaning translates to the submission of documents, typically your PAN Card and Aadhaar Card, along with your photograph, to verify that you are an authentic customer.
What is KYC in banking?
Out of all the financial institutions, banks are most at risk of exposure to fraud. As a result, banking institutions face adverse consequences, both monetarily and ethically. KYC in banking acts as a background checking tool, verifying a client’s authenticity before the client uses any of the bank’s services. Unless you go through a KYC procedure, you cannot open a bank account in any bank in India today. Lowering financial risks, banks and customers benefit from KYC, as it’s a win-win situation for both.
When KYC was first launched, it required customers to provide a host of documentation, in several copies, for validation processes. Lately, the KYC process has become streamlined and fast. A KYC process without unnecessary and tedious paperwork is eKYC, a purely digitized method of verification. This lets you complete the whole KYC process online through a portal of the bank or institution in question. For this to be successful, you need to possess an Aadhaar Card and a PAN card.
The benefits of KYC are many, as it establishes a customer’s identity while understanding a customer’s pattern of financial transacting. Moreover, it prohibits fraud and if you want to learn more about it, go over to Finserv MARKETS.