What is KYC - Different Types of KYC

It leads to customer identification, the most crucial aspect necessary for performing various other stages of the process. The global landscape of AML (Anti-Money Laundering) and CFT (countering the financing of terrorism) raises the need for understanding what the meaning of KYC is.

Indian laws are influenced by international regulations like FATF (Financial Action Task Force) and encompass preventive measures like KYC and directives like AML 4 and 5 for client identification. Let's start with understanding what does KYC mean and discover its types and procedures.

What is KYC?

KYC means 'Know Your Customer', or sometimes 'Know Your Client'. It is an effective method that a financial institution can use to confirm its customer's authenticity. For this, the customer must submit all their KYC documents before putting their money in the institution.

It is an important step that prevents financial fraud, money laundering, and other illegal activities, ensuring the security and safety of each financial transaction. Since 2004, the RBI has made it mandatory for all Indian financial institutions to verify their customers' identity before letting them transact with them. However, it is a simple one-time process that customers can perform both online and offline.
Read also: What is e-KYC : Meaning, Eligibility and Process

Importance of KYC

KYC is a standard requirement across all financial institutions. Regulatory bodies have implemented the process to protect all stakeholders, including the financial companies and the investors. While the KYC process is mandatory for every new customer, repeat customers must also renew their KYC profiles to update their files from time to time.

Still not clear what is the purpose of KYC in banking? It helps financial institutions reduce their business's financial risks, especially when huge amounts are at stake. It lets the company know their customer's income source, measure their investment potential, and obtain their complete background and financial portfolio. These are effective risk management strategies that avoid illegal activities through a financial institution. 

For customers, KYC creates a secure environment, enabling them to perform investment and financial activities safely. The onboarding experience becomes much smoother, making them possible in minutes from any device. Seamless KYC procedures make customers trust the company’s legitimacy and feel comfortable performing financial transactions through them. 

Different Types of KYC

Financial institutions carry out KYC verification in two ways. Both are self-sufficient. The customer’s final choice depends on their convenience and availability:

Aadhaar-based KYC

Financial institutions conduct Aadhaar-based KYC online. Therefore, a high-speed internet or broadband connection makes the process highly convenient. In this process, the customer scans and uploads their Aadhaar card.

For instance, if a borrower wants to get a Personal Loan, they can upload a scanned copy of their original Aadhaar card as an identity and address proof. The NBFC collects and verifies the information electronically, simplifying the process by leveraging the Aadhaar database.

In-Person based KYC

The in-person-based KYC process requires the customer to visit the financial institution's branch office for face-to-face verification. It allows direct interaction, allowing the NBFC's representative to verify the customer's identification documents and their authenticity. Although it is an efficient way of conducting thorough scrutiny, it is time-consuming and difficult to access for some. 

Required Documents for KYC

One must know what documents are required for KYC before approaching a financial institution for an Aadhaar-based or in-person-based KYC. These include the following:

• Identity Proof: Documents with a unique ID, like a voter ID card, passport, Aadhaar card, PAN card, driving license, ration card, etc.
• Address Proof: Any document like voter ID card, passport, driving license, telephone, electricity, water, gas bill, bank account statement, lease agreement, etc.
• Income Proof: These include the last two years' ITR, the previous six months' bank account statement, the last three months' salary slips, etc.

Besides these, the financial institution may ask for additional documents to confirm KYC and check the Personal Loan eligibility of a customer.

KYC Verification Process

Online KYC verification is a convenient and straightforward process for customers. They can complete the procedure with these steps:

• Visiting the financial institution’s official website 
• Reaching their online KYC services page
• Providing Aadhaar card details, including the unique Aadhaar number
• Verifying identity by entering an OTP they will receive on their registered Aadhaar-linked mobile number
• Clicking on ‘Submit’ to start the verification process

The UIDAI (Unique Identification Authority of India) will authenticate the provided details to ensure their validity and accuracy. After completing the KYC process, the financial institution will approve the customer's KYC status.

How Does the KYC Process Make it Easy to Apply for Personal Loan Online?

Completing the KYC process allows an individual to conveniently fulfil the lender’s necessary requirements for application and approval. Those planning to get a Personal Loan must go through the KYC process to establish their identity and prove their credibility.

Knowing what KYC is facilitates smooth transactions and ensures transparency while adhering to government guidelines. Those who know what are KYC documents can use the online method to complete their KYC process and get approval instantly. KYC verifies a customer's identity and makes the lender feel safer taking credit risk.

Moreover, they conduct the KYC verification process online without calling the customer to their branch office. Thus, KYC makes the entire procedure simpler, safer, and faster than otherwise.

Conclusion

KYC is a crucial process financial institutions use to verify their customers' identity. It is a necessary process to prevent money laundering and financial fraud in the Indian economy, ensuring the security of each financial transaction.

When applying for a Personal Loan through Hero FinCorp, the NBFC performs KYC verification using the applicant’s Aadhaar card and other documents. That is why obtaining Personal Loans in minutes with no branch visits or paperwork is now possible.

Check Personal Loan eligibility now to apply for a Personal Loan at Hero FinCorp and get up to Rs 5 lakh at best interest rates and flexible repayment tenures without any usage restrictions.

Frequently Asked Questions

1. Which types of loans benefit the most from KYC processes?

KYC processes are beneficial for all types of loans, including personal loans, mortgages, business loans, and credit cards.

2. Is an Aadhaar card a KYC document?

Yes, an Aadhaar card is an important document. Individuals must provide their Aadhaar card number or upload a scanned copy to complete the KYC process.

3. What are the three components of KYC?

The three components of KYC are customer due diligence, identity verification, and ongoing monitoring.

4. Who can verify KYC documents?

All financial institutions, including banks, NBFCs, etc., can verify KYC documents to validate the individual’s identity before carrying out any financial transaction. 

5. How to do KYC verification online?

To perform online KYC verification, visit a trusted platform, upload your ID documents, and follow their verification process.

6. What documents are typically required for KYC in a personal loan application?

Common documents include government-issued identification, proof of address, and proof of income.