e-KYC norms and digital account opening

B Gopkumar

Know Your Customer (or KYC) is a mandatory customer identification process for those looking to invest in mutual funds, stocks and commodities markets.

The process includes collection and verification of identity and residential proofs and conducting background checks. While there is no doubt that the process can get a bit tedious at times, it plays a crucial role in helping various financial intermediaries determine and evaluate the risks involved in a new relationship. Markets regulator SEBI has laid down guidelines under the Prevention of Money Laundering Act 2002, which makes it binding for financial institutions and financial intermediaries to acquaint themselves with their customers. The KYC process helps prevent money laundering and other suspicious transactions. Further, the SEBI has embarked on an ambitious project to enable investors open a trading account sitting in the comfort of their homes. It has introduced electronic, or e-KYC, format that will provide an option of conducting in-person verification (IPV) through webcams. Going forward, the next big technology revolution would be opening a digital account. As against a traditional physical account, digital account can be opened in 10-15 minutes as against 10-15 days for the physical mode.

What is e-KYC

e-KYC has been developed by the Unique Identification Authority of India (UIDAI) to make the whole "Know Your Customer" process paperless. Banks and other financial intermediaries can use e-KYC to electronically verify an applicant's credentials to save time on documentation. This facility is also beneficial for customers because of its convenience. Utilising e-KYC not only helps streamline new account opening, it also enables easy linking of existing bank accounts with Aadhaar cards. From a financial intermediaries’ perspective, deployment of e-KYC helps enhance business efficiency and provides a seamless experience to Aadhaar customers who want to open a bank account. Using a secure transaction service like VISA/MasterCard to implement the e-KYC facility, banks will allow you to update your KYC details by simply using your Aadhaar card. The bank will take your fingerprints with a biometric scan and a request will be sent across to UIDAI using VISA’s or MasterCard’s secure servers. The fingerprint will be matched with the Aadhaar records and once the match is done, the UIDAI will release personal information to the bank with your consent. The banking system populates the information received automatically into bank records.

Benefits, security of e-KYC

e-KYC had already been approved as a valid authentication process by the RBI in September 2013. By incorporating e-KYC into its banking services, banks have become the first to adopt standardised paperless verification. Since this service is relatively new, questions may be raised about its efficacy and efficiency. Having said that, one needs to understand that authentication through Aadhaar card is not only secure, but it also saves you the hassle of carrying multiple documents for verification. Also, the risk of important documents getting misplaced comes down to a minimum. Second, Aadhaar card in itself is a very important documentary proof of your identity. So the information received by the bank or financial intermediary will have an added credibility to it. And thirdly, it is comparatively cost-effective since you don't have to spend money and time to go to your bank or broker's branch in person to verify your KYC documents. Instead, it is down to a few quick online steps from the comfort of your home and your computer. It is now only a matter of time that other banks and financial institutions will follow suit with distinct possibility of paperless authentication replacing the traditional KYC procedure in near future.

Digitial account opening

Technology is not only confined to banks and other financial institutions but it has also started making rapid inroads with broking community at the retail level. Several broking houses have launched digital KYC facility, an ultra-fast account opening experience through digital signature using bio-metric devices, also known as D-KYC. Here, a client's accounts are opened using a device, which is a combination of a tablet, a bio-metric device and homegrown E-KYC software. All these facets of modern day technology work in tandem for hassle-free, paperless and flawless account opening experience. In case of D-KYC, the thumb impression serves as a digital signature and the system auto inserts personal information from the Aadhaar database. With the system linked to UIDAI, it facilitates real time authentication as well as speedy, paperless and flawless account opening. The time needed to open a trading account has been reduced to 30 minutes as against the previous 7-8 working days. Further, there is a considerable reduction in number of signatures needed to be captured from customers.

However, customers must remember that their photos need to be captured from camera/device and cannot be selected from their phone gallery.

The writer is CEO, Broking & Distribution Business, Reliance Capital. The views expressed in this article are his own