From bank accounts to new mobile connections and more: What is KYC and why is it mandatory for availing key services?
What is KYC: From opening a new bank account to purchasing a new SIM card, or availing any financial service like credit cards, bank loans, etc, KYC is the first step required by the service provider to authenticate their customer. But what exactly is KYC, and why is it mandatory to avail key services in India? Let us find out.
What is KYC and what are the required documents it needs?
In layman’s terms, KYC or Know Your Customer is a process used by a service provider or company, such as a bank or a telecom service provider, to ensure that their customer is a real entity, and the details furnished by him/her to avail a service, are not fake or fraudulent.
KYC process requires government-issued documents that the company can use to authenticate the identity, address, and other details of the customer. Depending on the service, the most commonly required documents for KYC process include the Aadhaar card, PAN card, passport, voter ID card, and/or driving license.
Most KYC processes require customers to provide copies of these documents in person or via live photo or video verification.
Why banks, financial services, digital wallets require KYC?
KYC is a mandatory process in banks, and indeed the entire financial sector, as it significantly reduces the chances of financial crimes like money laundering, fraud accounts, etc. KYC ensures that the person availing any financial services, like taking out a loan or opening a new bank account, is the same one in submitted documents.
Banks and other financial institutions can provide limited services without KYC, and may even freeze bank accounts if the process is not completed on time.
Similarly, digital wallets like Paytm, PhonePe, Google Pay, Amazon Pay, etc, have limited functionality without KYC, which is required to enjoy full access to their services.
Why new mobile connections need KYC?
Akin to financial services, telecom service provider require KYC before issuing and activating a new SIM card to ensure that the person availing the service is the same one in the documents. Today, mobile operators commonly use Aadhaar-based eKYC where a customer’s identity verified via OTP.
Various KYC methods
Apart from Aadhaar-based eKYC, customers can also opt for a physical KYC by filling up relevant forms and submitting photocopies of the required documents. Additionally, several bank services require Video KYC in which a bank agent confirms the identity and details of the customer via a live video call.
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