Types of KYC | Process, Documents and APIs

Identity fraud and unlawful activities are increasing at an alarming rate, and organizations are emphasizing stringent due diligence and KYC processes for user identification and onboarding. In India, with its large demographic and plentiful financial institutions, a reliable KYC system is essential for attaining profitability, controlling risks, and adhering to regulations.

Organizations across sectors are opting for robust KYC solutions to drive onboarding decisions and prevent repercussions associated with identity fraud.

These solutions range from account opening, lending, collections, insurance, third-party onboarding, candidate onboarding to risk management and compliance.

KYC guidelines as per the UIDAI

The UIDAI has put in place KYC (Know Your Customer) regulations to help protect against criminal and suspicious activities, and reduce the possibility of fraud. In India, the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and Insurance Regulatory and Development Authority of India (IRDAI) are responsible for overseeing the BFSI industry and have implemented specific policies to verify the identities of individuals. 

This also allows companies to understand better their customers’ financial transactions to serve them better and manage risks more effectively. The guidelines mandate the following processes:

1. Identity verification

2. Address verification

3. Biometric verification 

4. OTP verification

Some additional guidelines for KYC as per SEBI, RBI and IRDAI are:

1. Risk profiling

2. AML (Anti-Money Laundering) checks

Note: These guidelines may change from time to time, and it is advisable to check the respective websites for the most up-to-date information.

Offline KYC

Paper-based KYC

This is the most traditional way to validate a user’s identity during the onboarding process. The verification process happens in person where customers/individuals submit physical, self-attested copies of their documents — Proof of Address (POA) and Proof of Identity (POI). This process demands a physical connection with the customer for document collection and signing.

• Advantages

The process is traditional and familiar to both customers and institutions, especially in rural areas that are untouched by digitization.

• Challenges

As the process is manual, the process is cost-intensive and prone to operational delays and inefficiencies. Furthermore, there is an extra challenge of storage of the physical documents and their maintenance.

Aadhaar Paperless Offline E-KYC

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Aadhaar Offline KYC is not the same as physical KYC. This process utilizes an offline form of Aadhaar and eliminates the need to connect to the UIDAI database. An Aadhaar XML/PDF-based authentication or QR Code-based demographic authentication— Name, Address, DOB, gender, registered phone number, photograph — can be conducted without the use of biometrics.

• Advantages

Offline KYC is accessible to all kinds of private BFSI entities. It is convenient for the users/customers to download and share the Offline Aadhaar from the UIDAI website with consent to be further utilized for verification and authentication purposes.

• Challenges

In this method, a customer’s mobile phone should be linked to their Aadhaar as customers receive an OTP on their phone number.

Online KYC

Aadhaar eKYC

There are two ways to conduct Aadhaar eKYC in an online mode — OTP-based and Biometric-based. In OTP-based verification, customers/individuals first have to ensure that their mobile number is linked to their Aadhaar. On the other hand, in biometric-based verification, UIDAI-certified biometric scanners are used for authentication. Learn more about the power of Aadhaar e-KYC here.

• Advantages

This method is 100% digital, faster, cost-effective and requires no contact with a customer. Aadhaar-based eKYC helps businesses stay compliant with the safeguards set by regulatory bodies.

• Challenges

For the successful completion of this process, a dedicated technology infrastructure is required which eventually leads to a high cost when compared to other KYC solutions.

Digital KYC

In digital KYC, a live photo of the customer and Officially Valid Documents (OVDs) are captured. The process happens in the presence of an authorized official. An individual can share digital copies of Aadhaar, PAN, DL, or other ID documents for KYC directly on the institution’s portal or other mediums. The submitted details are verified against the captured data.

• Advantages

This is a paperless and cost-effective method as the end-to-end process is digital and automated. Customers can complete the verification process without having to visit a physical location. The process is faster and more efficient as it eliminates the need for manual verification, eventually reducing the risk of errors and fraud.

Increased security: Digital KYC uses advanced technology such as biometric authentication and digital signatures to ensure the authenticity of identity information and reduce the risk of identity fraud.

• Challenges

The identification process is dependent on manual intervention as the RE agent is involved. This eventually leads to subjectivity and inefficiencies.

Central KYC (CKYC)

Central KYC Registry is a centralised repository of KYC records, managed by the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). As soon as an individual submits the KYC documents, he/she is registered in the repository with a unique CKYC number. The number can be quoted instead of submitting physical KYC documents for any financial transaction and the CKYC repository all financial institutes can easily access the CKYC repository to validate customer KYC.

• Advantages

Once customer KYC details are registered with CKYC, they get a 14-digit KYC Identification Number (KIN) number that can be quoted for any kind of financial transaction – eliminating the need for submitting the KYC documents time and again. The financial institutions get the ease of accessibility and customers do not have to provide the same information multiple times – ultimately improving their conveniences.

• Challenges

Financial institutions must comply with a range of regulations when using the CKYC database, which can be complex and time-consuming. 

Video KYC

Video KYC is a completely paperless and presence-less KYC process for compliant and fraud-free authentication. During the video call, the representative will verify the customer’s identity by comparing the provided information to the information present on the government-issued ID and conducting a live facial recognition comparison. 

The process is designed to make it easy for customers to complete the KYC process from the comfort of their own home or office, without having to visit a branch in person.

• Advantages

Video KYC enables end-to-end onboarding journeys and also ensures seamless customer experience. It is considered as the most convenient and efficient way of completing the KYC process as it eliminates the need for physical documentation and face-to-face interaction. Some of the benefits of video KYC are increased customer convenience, reduced time and cost of compliance and improved security.

• Challenges

In Video KYC, the major challenge is the heavy investment in technology especially when you have not partnered with third-party enablers. This is where AuthBridge, a leading third-party enabler for authentication and verification company, plays a crucial role.

Re KYC

According to the RBI guidelines, banks may ask for Re-KYC at specific intervals to keep updating the information and records while also maintaining compliance with the regulations. For example, if the customer changes the address, registered phone number or email ID etc., that were submitted at the start of the verification process, the same should be updated in the records through the Re-KYC process.

Identity Verification APIs

Identity verification API enables document authentication and identity verification by validating credentials or identity proofs in real time. These APIs ensure that there is a real entity or valid business behind a process so that there is no room for fraudulent activities i.e. false authorizations, identity theft, money laundering, and financial crimes. You can prevent verification errors but also enable end-to-end secured KYC verification for the following: 

• Aadhaar Paperless with OTP- Only Banks & Telecommunication are allowed
• Aadhaar Verification Via Digilocker
• Officially Valid Documents- DL, PAN etc

Information Validation APIs

• Face Match API: Face Match API uses facial recognition technology to verify the identity of an individual. It utilizes a live or recorded image of the individual’s face with a reference ID to analyze and compare the biometric data such as facial features, proportions, and patterns, to make the match determination.
• Liveness Check: A Liveness Check API will ensure that an individual is physically present during the verification process and not using a fake or pre-recorded image. It detects if the person is real and not using a photograph, video or mask by analyzing the movements and changes of the person’s face or body in real-time.
• OCR: OCR technology catches document forgery and tampering, sieves fake applications from the real ones and enables ease of onboarding with automated data capturing.
• Document Forgery: This validates the authenticity of official documents, such as passports, IDs, etc. by analyzing the text, images, and other elements in the documents to detect any signs of tampering or forgery. The data is cross-checked with government databases and other authoritative sources.

Documents Required in Different Modes of KYC

According to the Indian Government guidelines, some key documents serve as ‘Officially Valid Documents (or OVDs) and are used for identity verification. If you are an Indian National, the following documents are accepted as proof of address and proof of identity.

• Passport,
• Driving Licence,
• Voters’ Identity Card
• PAN Card
• Aadhaar Card issued by UIDAI and
• Job card issued by NREGA duly signed by an officer of the State Government
• Letter issued by the National Population Register containing details of name and address.

If identity information relating to the Aadhaar number or PAN submitted by the customer does not have a current address, an individual has to submit the following documents.

• Utility bill not more than two months old (electricity, telephone, post-paid mobile phone, piped gas, water bill);
• property or Municipal tax receipt;
• pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, including address.
• A document issued by a State Government or Central Government Department, a regulatory body, a public sector undertaking, a scheduled commercial bank, a financial institution, or a listed company, granting an employee the right to officially occupy a space, typically under a leave and license agreement.
• Provided further that the customer shall submit an Aadhaar or OVD updated with the current address within a period of three months of submitting the above documents.