What Is eKYC?
eKYC or Electronic Know Your Customer is the electronic process of filing documents that relate to a customer’s identification and enables an entity to know the customer. The Unique Identification Authority of India (UIDAI) offers eKYC services to UIDAI partner organisations. These services enable a customer to share his/her necessary demographic and personal information by way of Aadhaar in a secure and transparent Manner. A customer has to furnish details such as identity details, contact details, address details, DOB, gender, etc. that is available on one’s Aadhaar card. A customer can use biometric and/or OTP verification to give his or her consent.
Applicability Of eKYC
eKYC is mandatory for customers or clients of banks, financial institutions and Service Providers or as stipulated by the RBI through circulars from time to time. Two important circulars were issued in 2003 and 2004 for all banks and financial institutions to implement an eKYC policy for all their new as well as existing customers. eKYC applies to or can be used for the following (that have regulatory compliance):
- Financial Institutions (under the Prevention of Money Laundering Act, 2002)
- Post Offices
- Aadhaar, etc.
- Indian Banks or FI’s situated abroad
- Mobile Service Providers and Telecom
- Utility connections (Gas, water and electricity)
- Certain Apps that deal with financial transactions. (e.g. eKYC is required if a customer wants to transact above INR 20,000 in a single month on the app PAYTM.
Benefits Of eKYC
Benefits of eKYC to the Government, to the public and to institutions are:
- Consent Based
eKYC is consent-based in the sense an individual can share data only after he or she uses Aadhaar or any other approved authentication for verification. An individual that requires a service or utility must file for eKYC of his or her own accord and consent. This protects the individual’s right to privacy which is a fundamental right bestowed upon us by our constitution.
- Paperless System
eKYC is a paperless system that replaces the need for document management with paper-based documents. This enables a company, State or Country to reduce their carbon footprints by going eco-friendly and using a cloud-based online system. Not only does going paperless save the planet, it also helps in reducing costs associated with normal KYC compliance.
- Compliant With The IT Act
eKYC is compliant with the Information Technology Act of 2000. eKYC data transfer is enabled by digital signatures and the use of encryption making an eKYC document legally equivalent to a paper document. According to section 66C of the IT Act, 2000 any individual is punishable for identity theft with respect to eKYC as well.
Non-repudiable means a person does not have the ability to deny. The entire process of eKYC is non-repudiable to all the parties involved because it involves the use of authentication (Aadhaar and OTP/Biometric scan) by the customer, application of digital signature by the Service Provider (under UIDAI).
The eKYC service is completely automated online. This means that KYC data can be transferred in real-time without the need for any manual intervention. The paper-based KYC process can take days up to weeks to get verified, but the eKYC process takes just a few minutes to verify and issue.
- Transparency Of Transactions Or Usage
Bank employees, private agents, unregulated sim card providers, etc. may sometimes indulge in providing favours for known accomplices, family and friends by misusing their position. eKYC enables all records and data to be stored permanently online. Any misuse, illicit gain or illegal activity can be traced back to the individual or parties involved in such transactions or usage of services.
- Regulator friendly
All eKYC requests can be audited by the ministry or regulator. The Service providers provide a portal for the regulator to access and audit the same. The RBI, IRDA, PFRDA and SEBI have accepted and currently use the UIDAI’s eKYC as a valid KYC.
The following benefits of eKYC are endowed on the customer:
- Secure System
A customer’s account, data and information are secure because the entire process is online. Identity theft, fraud, loan scams, money laundering, the flow of black money, etc. are all minimized with a secure online digital system of KYC.
- Efficient Communication
Effective information can be relayed in an efficient and timely manner. Generally, with any automated system, there is no need to constantly go back and forth because most details are published automatically, unlike having to fill in a KYC form manually.
- ‘Free of Cost’ Process
Usually, customers that opt to undergo eKYC verification aren’t required to pay any additional amount for doing so. A company or institution may have to undergo automation costs of installing verification devices and systems which are beneficial in the long-run.
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