Why Is KYC So Important? Click To Learn More

Why Is KYC So Important? Click To Learn More

KYC holds immense significance in the digital ecosystem. Firstly, it enables businesses to verify the identities of their customers accurately

Rahul MUpdated: Monday, February 26, 2024, 04:32 PM IST
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The Know Your Customer (KYC) is always in news, the recent Paytm saga, also found a mention of KYC. KYC's history is over a decades old, as it came into being in 2002, when RBI introduced it into the system.

KYC holds immense significance in the digital ecosystem. Firstly, it enables businesses to verify the identities of their customers accurately, thereby fostering trust and security in transactions. Additionally, KYC regulations are mandated by regulatory authorities to prevent financial crimes such as money laundering and terrorist financing. By adhering to KYC requirements, businesses can mitigate risks associated with illegal activities and ensure compliance with regulatory standards.

As a result of this, KYC plays a crucial role in safeguarding the integrity of financial systems and protecting both businesses and consumers from potential fraud and illicit activities.

What is KYC or Know Your Customer?

KYC, or Know Your Customer, is a crucial process that individuals must undergo before opening a bank account. This process involves verifying the individual's identity, address, and other relevant details to ensure compliance with regulatory requirements and mitigate the risk of financial crimes such as money laundering and identity theft.

How is it done?

KYC typically requires in-person verification, where individuals provide valid identification documents and proof of address to the bank or financial institution. By conducting thorough KYC procedures, banks can establish the identity of their customers, assess their risk profiles, and comply with regulatory standards to maintain the integrity of the financial system.

Crucial aspects of KYC

This system allows prevention of fraud, by averting potential identity theft, money laundering, financial fraud, terrorism financing, and other financial violations.

It instills trust in the system at place, as it makes the financial framework more trustworthy and less risky. 

By extension, it protects customers by allowing financial institutions to detect suspicious activity early, protecting both the customer and the business at large.

Different types of KYC

Video KYC: In the 21st century, in the world of Video calls, this medium is deployed, where through a paperless face-to-face process individuals are verified.

Aadhaar based eKYC: Aiding the digital world, KYC here is done by sharing a mobile number linked to an Aadhar, and then matching an OTP sent to that number with user details.

Offline KYC: Finally, the good-old offline means, which involves verifying customer details in person or non-electronically. 

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