What is KYC – Why is it Important for Merchants?

byDilip PrasadLast Updated: May 14, 2024
What is KYC - Why is it Important for Merchants?

The Reserve Bank of India (RBI) has introduced a significant measure to ensure the safety and security of financial transactions in the country. All financial institutions must now comply with the Know Your Customer (KYC) process, which involves verifying the identity of their users. This process involves verifying the identity of users before they can engage in transactions with their banks.

In this blog post, we will explore the reasons behind the implementation of KYC and its significance in the current financial landscape, particularly for merchants.

What is Know Your Customer or KYC?

Know Your Customer (KYC) is a process used by banks and other financial institutions to verify and identify the identity of their customers. The Reserve Bank of India (RBI) introduced KYC in 2002 to prevent money laundering and financial fraud. For merchants, understanding KYC is important. Here are some key points to know:

What Are the Types of KYC Verification for Merchants?

To comply with KYC regulations, financial institutions require both new and existing customers to undergo the KYC verification process when opening an account. There are 3 methods for customers to complete their KYC verification:

What Are the Documents Required to Complete KYC Verification?

To complete KYC (Know Your Customer) verification, the following documents are commonly required:

  • Proof of Identity: Any one of the following documents can be submitted as proof of identity:
  • Proof of Address: Any one of the following documents can be submitted as proof of address:
    • Utility bill (electricity, water, gas, etc.) issued within the last three months
    • Bank or credit card statement issued within the last three months
    • Rent agreement or lease agreement
    • Aadhaar card
    • Voter ID card
    • Government-issued address proof
  • Photograph: A recent passport-sized photograph may be required for KYC verification. It should be clear and of good quality.

How to Complete KYC Online?

Completing KYC (Know Your Customer) online is a simple and convenient process. Follow these steps to complete the KYC procedure:

  • Visit the official website of a recognized KRA (KYC Registration Agency) or a fund house that offers online KYC services.
  • Provide your Aadhaar card details, including your unique Aadhaar number.
  • Verify your identity by entering the OTP (One-Time Password) sent to your registered mobile number linked to your Aadhaar.
  • Click on ‘Submit’ to initiate the verification process.
  • The provided details will be authenticated by the UIDAI (Unique Identification Authority of India), ensuring accuracy and validity.
  • Once the verification is completed, the KRA will approve your KYC status if all the details provided are correct and meet the requirements.
  • To check the status of your KYC, you can visit the KRA portal and enter your PAN (Permanent Account Number) details.
  • By regularly checking your KYC status, you can ensure that your information is up to date and compliant with regulatory requirements

Completing the KYC process online allows you to conveniently fulfill the requirements for various financial services, such as opening a bank account, investing in mutual funds, or trading in securities. It helps establish your identity, ensures transparency, and facilitates smooth transactions while adhering to regulatory guidelines.

How to Complete KYC Offline?

All an applicant needs to do is follow the instructions-

  • Find the nearest branch: Locate the branch or office of the financial institution where you want to complete the KYC process. You can check their website or contact their customer service for information on the nearest branch.
  • Gather required documents: Collect the necessary identification documents such as your passport, Aadhaar card, PAN card, driver’s license, or any other documents specified by the institution. Make sure to carry the original documents along with photocopies.
  • Visit the branch: Go to the branch during their working hours. It’s advisable to call ahead and schedule an appointment if possible to minimize waiting time.
  • Meet the representative: Upon arrival, inform the staff that you want to complete the KYC process. They will guide you to the appropriate desk or representative.
  • Provide personal information: Fill in the KYC application form provided by the representative. Provide accurate personal details such as your name, address, date of birth, contact information, and any other required information.
  • Submit identification documents: Provide the representative with the original and photocopies of the required identification documents. They will verify the documents and return the originals to you.
  • Face-to-face verification: The representative may conduct a face-to-face verification to match your appearance with the identification documents. They may ask you questions to ensure the accuracy of the information provided.
  • Additional information: The representative may ask for additional information such as occupation, income details, or the purpose of the account. Answer these questions honestly and accurately.
  • Review and sign: Carefully review the information filled in the application form. If everything is correct, sign the form as required.
  • Acknowledgment receipt: Collect the acknowledgement receipt or any other proof provided by the representative as evidence of completing the KYC process. Keep it safe for future reference.

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Can KYC be done at home?

Yes, it is possible to complete the KYC (Know Your Customer) process from the comfort of your home using digital channels. Many banks and financial institutions now offer online or mobile options for KYC verification, allowing customers to complete the process remotely.

What documents are required for KYC?

To complete KYC verification, individuals usually need to provide documents as proof of identity and address. Acceptable documents may include a passport, voter's identity card, driving licence, Aadhaar letter/card, NREGA card, or a letter issued by the National Population Register containing details of name and address.

What happens if KYC is not done?

If KYC is not completed, certain restrictions may be imposed on the account. This can include the suspension of debit transactions, such as withdrawing money or cheque transactions. Additionally, cards and UPI services may be blocked, and standing instructions (SI) may not be processed.

Is KYC done by the bank?

Yes, KYC is conducted by banks as part of their regulatory obligations. It is a process where banks obtain information about the identity and address of their customers.

Can KYC be done on a phone?

Yes, mobile KYC allows individuals to verify their identity using a mobile device, such as a smartphone. This can be done through various methods, including digital KYC where personal information and document copies are uploaded, or video-based KYC where customers interact with a representative through a video call for real-time verification.

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