Yesterday evening, I was talking with my friend about the rapid growth of the Fintech domain and the kind of struggle the domain is facing due to frequent changes in KYC procedure. Our conversation took a turn and we started discussing the Physical KYC procedure in India. He said, “Physical KYC means, collecting the physical copy of KYC documents, which needs to be verified to be genuine”.
I liked the way he explained the term, by defining included words “Physical” and “KYC” and explaining the same here with added details related to KYC with Spice.
So, let’s understand: What is KYC?
As per the definition from Wikipedia: “Know your customer, alternatively known as know your client or simply KYC, is the process of a business verifying the identity of its clients and assessing potential risks of illegal intentions for the business relationship. Know Your Customer (KYC) procedures are a critical function to assess and monitor customer risk and a legal requirement to comply with Anti-Money Laundering (AML) Laws.”
In simple language: It is an ideal business practice to identify your clients, especially if you are a financial institution (FI). This protects your FI from fraud and losses owing to illicit/illegal transactions. Also, this helps law enforcement agencies to identify fraud, money laundering, other signs of illicit activities, tax evasion and other similar crimes.
The objectives of KYC guidelines are to prevent financial institutions from being used, intentionally or unintentionally, by criminal elements for money laundering activities. Related procedures also enable banks to better understand their customers and their financial dealings. This helps them manage their risks prudently.
KYC is important because it helps the banker to ensure that the application and other details are real. There have been instances of fraud and siphoning off of money from accounts. By ensuring the identity of individuals, it would help to prevent fraud.
KYC becomes a mandatory and crucial part of financial procedures, as it reduces the risk of fraudulent transactions.
KYC in India
There are three kinds of KYC procedure available in India:
1. Physical KYC:
Physical KYC is the currently approved KYC procedure. This procedure includes agent’s or end customer’s KYC documents online upload of soft copy submission proceeded by validation and verification.
2. Online (Aadhaar KYC):
Online Aadhaar based KYC emerged under the paperless layer of India Stack. This process involves, providing personal information, registered mobile number along with Aadhaar Card number and verify using OTP. Next is uploading the self-attested copy of e-Aadhaar and acceptance of consent declaration terms for the eKYC.
*Following the Supreme Court judgment on Aadhaar and in order to address privacy concerns and limit data sharing, this process is no longer valid for KYC.
3. Aadhaar-based Biometric
If you have the Aadhaar Card, you can opt for Aadhaar-based KYC. You may request an official from the fund house or agency to visit you at home or office to collect the details. Submit a copy of your Aadhaar to the verification agent, and they will map your fingerprints on their scanner and link it to the Aadhaar database. By matching the fingerprint to that in the database, your details there will pop up. This means that they have validated your KYC before proceeding with your account verification.
* Following the Supreme Court judgment on Aadhaar and in order to address privacy concerns and limit data sharing, this process is no longer valid for KYC.
Documents required for KYC in India:
The Government of India has notified six documents as ‘Officially Valid Documents’ (OVDs) for the purpose of producing proof of identity. These six documents are:
Point to be noted while uploading KYC documents:
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Documents required for KYC with Spicemoney
*User need to select any one of the above-mentioned document as ID proof, then the part of ID proof with user’s profile should be upload as Photo ID proof and the part of the same ID proof contains the address, should be upload as proof of Address. PAN Card is taken separately – for agents it is mandatory. For customers, it becomes mandatory once transfer limit reaches 50K in a financial year.
How to go through the KYC procedure:
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