Types of KYC: A complete guide

In today's financial ecosystem, security and compliance have become paramount concerns for institutions and customers. At the heart of this regulatory framework lies Know Your Customer (KYC).

Let's understand the different types of KYC and how to undertake each process. But first, here's a quick view of the types of KYC and their respective benefits and challenges:

Types of KYC

The various types of KYC procedures can be broadly categorised into offline and online methods.

Offline KYC methods

1. Physical KYC

Customers visit a branch to submit identity/address documents. It remains particularly valuable in:

• Remote rural areas and tier-3 cities, where digital infrastructure remains limited.
• Situations where customers prefer face-to-face interactions for financial matters.
• Cases involving elderly or digitally challenged customers.

2. Aadhaar paperless offline e-KYC

Users download a password-protected XML file from UIDAI, offering easy access for BFSI entities while keeping the Aadhaar number masked. It offers:

• Accessibility for all private BFSI (banking, financial services, and insurance) entities.
• Simplified user experience through downloadable and shareable XML files.
• Enhanced privacy as the actual Aadhaar number remains masked.

Online KYC methods

1. Aadhaar e-KYC

Utilises the Aadhaar infrastructure and can be implemented in two ways:

• OTP-based verification: Requires a mobile number linked to Aadhaar.
• Biometric-based verification: Employs UIDAI-approved biometric scanners.

2. Digital KYC

Involves capturing a live photograph of the customer alongside their officially valid documents (OVDs) in the presence of an authorised official. Its benefits include:

• Cost-effectiveness through end-to-end digital processes.
• Structured digital journey for users.
• Reduced paperwork and storage requirements.

3. Central KYC (CKYC)

CKYC system represents a centralised repository of KYC records managed by the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). It offers:

• Enhanced accessibility for financial institutions.
• Convenience for customers who avoid repeatedly providing the same information.
• Standardised verification across multiple institutions.

4. Video KYC (V-KYC)

Typically follows a two-step process that involves an initial call and a subsequent review. The advantages are substantial:

• Dramatically reduced onboarding time from days to minutes.
• Up to 90% cost reduction for institutions.
• Enhanced customer convenience through remote verification.

5. Re-KYC

Involves periodic updating of customer information at specific intervals to maintain current records and ensure ongoing compliance. It becomes particularly important when:

• Customers change their address.
• Contact details need to be updated.
• Regulatory requirements mandate periodic verification refreshes.

Types of KYC APIs

In the rapidly evolving digital financial ecosystem, application programming interfaces (APIs) have become instrumental in streamlining and enhancing the KYC process.

When we explain KYC and its types in the context of APIs, two primary categories emerge:

• Identity verification APIs
• Information validation APIs

These technological tools form the backbone of modern types of KYC in banking systems.

Identity verification APIs

These APIs enable real-time authentication and serve as the first line of digital defence in the KYC process by validating various identity proofs. The key features include:

• Digilocker verification: Accesses governmentissued documents directly from the customer’s Digilocker account.
• CKYC verification: Connects to the Central KYC Registry to fetch previously verified KYC details.
• Document verification: Authenticates OVDs such as PAN, Driving Licence, passport, and voter ID.

Note: Aadhaar paperless verification with OTP is restricted to the banking and telecommunications sectors due to regulatory requirements. However, it offers a seamless verification process for customers with Aadhaar-linked mobile numbers.

For individuals seeking financial services, digital accounts offer unprecedented convenience and accessibility. For instance, Axis Bank's ASAP Digital Savings Account exemplifies this evolution, allowing you to complete the account opening process through video KYC. You also get an instant Debit Card, access to over 250 banking services, and cashback offers from premium brands.

Information validation APIs

These APIs act as validators for the information received from identity verification APIs, providing an additional layer of authentication through biometric and behavioural analysis. Their key components include:

• Face match API: Compares live/recorded images with stored ID photos..
• Liveness check API: Confirms realtime presence through facial movements..
• OCR technology: Optical character recognition (OCR) technology streamlines onboarding by automating data capture from documents. It also helps in differentiating between genuine and potentially fraudulent applications through pattern recognition.
• Match engine: This authenticates official documents by analysing text, images, and security elements, cross-referencing the information with government databases.

Process for availing the different types of KYC

Understanding the specific processes for completing various types of KYC is essential for both customers and financial institutions. Let's get started:

Physical KYC process

1. Document collection

• Prepare original and self-attested copies of approved identity proof documents (Voter ID, Aadhaar card, passport, driving licence, or PAN card).
• Gather address proof documents (Utility bills not older than 6 months, bank statements, lease agreements, etc.)
• Compile income proof documents if required (ITR for the last 2 years, salary slips for the previous 3 months, or bank passbook with 6 months of transactions)

2. Branch visit

• Schedule an appointment with the financial institution.
• Present original documents along with their self-attested copies and complete the KYC form with accurate details.

3. Verification process

• The authorised representative verifies original documents against copies.
• Personal details are recorded in the institution's database.
• Documents are filed for record-keeping and compliance purposes.

4. Account Activation

• Upon successful verification, the account or service is activated.
• You receive confirmation of completed KYC.

Aadhaar paperless offline e-KYC process

1. XML file generation

• Visit the UIDAI website (uidai.gov.in).
• Select the option for downloading offline e-KYC.
• Enter your Aadhaar number and complete the OTP verification.
• Create a password to protect the XML file.
• Download the secured XML file containing masked Aadhaar details.

2. Sharing with the financial institution

• Upload the XML file through the institution's portal or app.
• Provide the password when prompted.
• Complete any additional forms required by the institution.

3. Verification and processing

• The institution decrypts and verifies the information.
• Additional verification steps may be required depending on the institution's policies.
• The account or service is activated upon successful verification.

Aadhaar e-KYC process

• OTP-based method

1. Provide your Aadhaar number to the financial institution.

2. Receive OTP on the mobile number linked to Aadhaar.

3. Enter the OTP for verification.

4. Upon successful authentication, the institution retrieves your details from UIDAI.

• Biometric-based method

1. Visit a location with UIDAI-approved biometric scanners.

2. Provide your Aadhaar number.

3. Complete biometric verification using fingerprint or iris scan.

4. The institution receives your verified information directly from UIDAI

Digital KYC process

1. Initial application

• Submit basic details through the institution's digital platform.
• Schedule a digital KYC session.

2. Verification session

• Connect with an authorised official through the institution's platform.
• Present original identity and address proof documents.
• The official captures your live photo and documents.
• Geo-tagging typically records the location where the verification occurs.

3. Processing and activation

• The captured information is processed and verified.
• The customer receives confirmation that their KYC is complete.
• Account or service is activated accordingly.

Video KYC (V-KYC) process

1. Pre-verification steps

• Download the institution's app or access their website.
• Register with basic details and schedule a video KYC appointment.
• Ensure adequate lighting and internet connectivity for the video call.

2. Video call session

• Join the scheduled video call with the institution's representative.
• Show original identity and address proof documents clearly on camera.
• Complete actions as requested, such as displaying a live paper with the current date.
• The representative captures screenshots of you and your documents.

3. Verification and confirmation

• The recorded video and captured images undergo a review.
• Upon approval, you will receive confirmation
• Account or service is activated with full functionality.

Central KYC (CKYC) process

1. First-time KYC

• Complete KYC with any financial institution participating in CKYC.
• The institution uploads your KYC information to the CERSAI database.
• Receive a unique KYC identification number.

2. Subsequent utilisation

• When approaching a new financial institution, provide your KYC identification number
• The institution retrieves your verified KYC details from the central repository.
• Complete any additional institution-specific requirements.
• Gain access to the new service with minimal documentation.

Re-KYC process

1. Notification

• Receive notification from the financial institution about the required Re-KYC.
• Note the deadline for completion to avoid service interruptions.

2. Document submission

• Please submit updated documents that reflect any changes to your personal information.
• This can typically be done through branch visits, digital submission, or video KYC.

3. Verification and update

• The institution verifies the new information.
• Customer records are updated in their database.
• Confirmation of successful Re-KYC is provided.

KYC Regulations

Understanding the regulatory framework governing the types of KYC in banking and other financial services in India is essential for both financial institutions implementing KYC processes and customers navigating them.

Regulatory bodies and their mandates

1. Reserve Bank of India (RBI)

• Mandating risk-based KYC approaches that vary verification intensity according to perceived risk levels.
• Establishing periodic Re-KYC requirements based on customer risk categorisation.
• Providing guidelines for simplified KYC procedures for low-risk customers and more stringent verification for high-risk profiles.
• Updating regulations to incorporate technological advancements in verification processes.

2. Unique Identification Authority of India (UIDAI)

• Authentication mechanisms like OTP and biometric verification.
• Security protocols for handling Aadhaar data.
• Restrictions on storing Aadhaar numbers and implementing tokenisation.
• Procedures for offline Aadhaar verification to enhance privacy and security.

3. Securities and Exchange Board of India (SEBI)

• Standardised KYC procedures for opening trading and demat accounts.
• Implementation of Central KYC Records Registry for the securities market.
• In-person verification requirements for certain investment activities.
• Risk assessment protocols for investors based on transaction patterns.

4. Insurance Regulatory and Development Authority of India (IRDAI)

• Verification requirements tailored to different insurance products
• Guidelines for digital onboarding of insurance customers
• Protocols for agent-facilitated KYC processes
• Regulations for simplified KYC for specific insurance products

Also Read: What is CKYC (Central KYC)?

Conclusion

The evolution of KYC processes represents a significant advancement in India's financial ecosystem. The different types of KYC methodologies ranging from Physical KYC to Video KYC and centralised repositories offer financial institutions flexibility in designing verification protocols tailored to their specific requirements and customer profiles.

While digital methods offer unprecedented convenience, traditional approaches remain valuable in contexts where digital access is limited or customers prefer in-person interactions.

Frequently Asked Questions

1. What are the 3 components of KYC?

The three fundamental components of KYC (Know Your Customer) include: customer identification programme (CIP), customer due diligence (CDD) and continuous monitoring.

2. What are the 5Cs of KYC?

The 5Cs of KYC represent a structured approach to comprehensive customer verification that financial institutions employ to ensure thorough risk assessment and regulatory compliance. These are customer, character, capital, capacity, and compliance.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.