KYC Made Simple! Retailers Alert

Know Your Customer or KYC Collection and verification on retail is a set of protocols for verifying the identity of a customer or organization before doing business with them. The KYC process typically involves collecting specific information from potential customers, verifying the authenticity of that information, and then using that information to assess potential business risks based on the customer information. KYC verification processes are required under global Anti-Money Laundering (AML) and Anti-Terrorist Financing (TF) protocols to combat illicit activities and financial crime. KYC Collection and verification on retail verification also plays an important role in data management, workflow automation, and risk management. KYC information collected from customers can be analyzed to assess potential risks and create risk profiles.

The components of the KYC verification process are:

Customer Acceptance Policy

The first step required to perform KYC verification is to create a policy. A customer onboarding policy defines how a company or organization screens customers and what rules it must follow when signing up new customers. Customer policies specify the criteria used for verification, acceptable documentation, and other requirements to be met during KYC verification.

Customer Identification Program (CIP)

The next part of KYC Collection and verification on retail involves collecting identifying information from customers and verifying that information to ensure its authenticity. Verification modes like OCR, API, AI-based document verification, etc., are specified in the CIP.

The minimum information required for CIP is name, date of birth, address, and resident registration number. Customer identification can be done using three criteria:

Basic research

This is a required level of due diligence performed when the risk of money laundering is not low enough to justify simplified due diligence. Enhanced Due Diligence

This is done when financial institutions (FIs) request detailed information about their customers' financial transactions and activities. Politically Influential Persons (PIPs) are generally subject to closer scrutiny. Monitoring of transactions and activity

Finally, FIs should regularly monitor client transactions for unusual activity, capital transfer patterns that may indicate money laundering or any activity that warrants filing a Suspicious Activity Report (SAR).

FSAs are regularly submitted to regulatory authorities for further action. KYC verification type

KYC verification can be done in several ways, each with its advantages and disadvantages.

This is the most common type of KYC verification. Authentication type Kyc

Manual KYC

This is a familiar type of KYC verification. During manual KYC, the customer provides a paper ID and FI documents. Then, manually check, copy, and save these IDs.

Once the customer's KYC information is verified, the manual KYC is completed. This process typically takes several weeks and often results in lost documentation, data collection errors, and inefficient onboarding cycles.

eKYC

Electronic KYC or eKYC is a fast, paperless verification process that uses UIDAI's Aadhaar database to verify a customer's identity. The demographic and biometric information of each Aadhaar holder is stored in the UIDAI database and used to retrieve information for KYC verification quickly.

eKYC can be completed through OTP-based authentication, biometric authentication, or offline methods. The latter involves extracting information from the Aadhaar XML file to download or scan the QR code on the Aadhaar card.

Accounts opened only after eKYC verification are commonly referred to as semi-KYC accounts and have certain restrictions. Many FIs require customers to complete full KYC within one year of account opening. Read all about eKYC here.

KYC

Central KYC, or KYC, is a paper-based KYC verification method designed to eliminate duplication in the typical KYC process. To complete cKYC, the customer needs to submit a cKYC form, identity proof, address proof, and photocopy to FI, KRA, distributor, or AMC.

Once this information is verified by the Central Registry of India (CERSAI), it is stored in the Central Registry of KYC Records (CKYCR). It can be used for future KYC verification. This means customers with KYC will have to verify their KYC once. Read all about KYC here.

KYC video

Video-based KYC verification remains the most reliable KYC verification option. 

KYC documents are verified by capturing real-time images of these documents and extracting KYC data using OCR technology. AI-based authentication algorithms compare this data with information in the database via API to verify the customer's identity within minutes. Video KYC takes different forms depending on the industry sector and the responsible regulatory authority. For example, banks and NBFCs have to follow the V-CIP (Video-based Customer Identification Program) protocol. Insurance companies and investment firms have their versions of Video KYC.

Find out everything you need to know about video KYC here. Order a free demo.

What is the purpose of KYC verification?

If banks and financial institutions do not know exactly who owns the accounts, how the funds were transferred, and where they are going, money laundering can occur unhindered. KYC verification can help hide criminal activity and expose it to authorities. Criminal organizations often use money laundering to launder ill-gotten gains from the organized and unorganized sectors. Professional Money Laundering Organizations (PMLOs) collect and transport funds related to drug trafficking, smuggling, cybercrime, or other criminal activities by smuggling bulk cash. This money is transferred into the retail financial system and laundered through casinos, shell companies, and domestic and foreign bank accounts.

Strong KYC verification prevents money laundering at the customer identification stage or by monitoring suspicious account activity. If a company has more than $10 billion in revenue, the chances of fraud are more than half.

KYC verification is the MF's first line of defense against fraud and cybercrime. KYC Verification CIP uses powerful facial recognition technology and ML-enabled profile filters to verify who your customers are. CDD programs play an important role in mitigating risk by calculating and assigning customer risk scores and allowing FIs to monitor activity continuously.

Data management and auditing

Data collected by IFs during flights could be more structured and adequate. This prevents financial institutions from creating customer profiles for risk management and other functions.

Easy activation

This helps simplify process monitoring and analysis while increasing risk visibility and KYC.

Financial security

Supervisors require banks and financial institutions to implement rigorous KYC procedures, including enhanced due diligence, to reduce overall risk and prevent financial crime. However, these procedures often result in different segments of the population being denied access to the formal economy due to a variety of factors, including lack of access, lack of financial literacy, and lack of infrastructure. KYC verification solutions enable banks and financial institutions to onboard customers without visiting company offices. Customers do not need to fill out various forms, copy KYC documents, or carry important documents. KYC verification solutions such as the KYC Verification API enable financial institutions to onboard customers seamlessly and remotely, integrate them into the formal economy, and provide key services such as access to credit.