When financial products and offerings are already digital, verification should be, too. As a result of recent reforms, financial institutions are now able to conduct the complete onboarding process online. This is done using eKYC, which accelerates the processing of financial services. When it comes to digital financial services, eKYC has made it easier for people to open accounts, invest, or borrow money.
But, what is eKYC?
It is short for Electronic Know Your Customer.
Simply put, it refers to the digitised form of the classic Know Your Customer (KYC) process. It’s a method that collects personal and professional data from users in order to identify and register them online.
Aadhaar card holders have the option to use eKYC as an extra means of verifying their identity. To begin, the UIDAI database (the Unique Identification Authority of India) is used to verify the customer’s KYC data. Thus, it is also known as Aadhaar-based eKYC. This makes your identity and address information accessible to the service provider quickly. All these elements make it an entirely paperless approach that eliminates the need for lengthy in-person verification.
The only requirement for eKYC is a valid 12-digit Aadhaar number. This, plus their registered phone number, is all that the consumers ought to have to complete the KYC process.
Why is it important?
eKYC is vital for many reasons, but the most significant one is that it increases security. eKYC verification services can only be performed by a limited number of organisations and agents, due to the critical nature of consumer identity verification. Because of this, you can rest confident that your personal data will never be exploited or come into the hands of anyone looking to do harm. Additionally, it increases security against financial and identity fraud. Biometric verification as one of its elements, makes it one of the safest methods of verifying a customer’s identity.
Types of eKYC
Service providers retrieve data from UIDAI and utilise it to validate the customer’s KYC as part of the eKYC process. eKYC has been implemented in a variety of ways. They are as follows :
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Online eKYC Process
Aadhaar OTP and Aadhaar-based biometrics are two options for Electronic Know Your Customer in online applications. Both of them are extremely fast, simple, and guarantee almost immediate approval.
a. OTP-based Aadhaar authentication
Customers must first register their mobile phone number in order to use this service.
To begin the Aadhaar eKYC process , the customer must first give their consent to the process on the verification platform. A one-time password (OTP) is generated and delivered to the mobile number associated with their Aadhaar card.
This OTP authenticates the customer’s Aadhaar number. The service provider receives the customer’s details from the UIDAI’s database for verification.
This finishes OTP-based Aadhaar authentication.
b. Biometric-based authentication
Here, a scanner is used to obtain an image of the retina or fingerprints. UIDAI receives the customer’s 12-digit Aadhaar number along with the captured biometric. It is then paired with the unique Aadhaar number of the customer.
When a match is found, UIDAI securely passes the customer’s identifying information to a third-party verification service provider, which authenticates it.
As a result, the biometric Aadhaar eKYC process comes to an end.
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Offline eKYC Process
Online e-KYC necessitates fast and reliable internet access, which isn’t always possible. Because of this, UIDAI has introduced an alternative paperless offline e-KYC to authenticate the customer’s identity. It can be done through:
a. Aadhaar XML file
This can be performed by using an XML file.
In this case, the customer must complete the Offline Electronic Know Your Customer form and save their unique XML file from UIDAI’s portal. A person’s basic demographics will be stored in this document, such as their name, birth date, gender, and postal address.
Service providers can access the Aadhaar XML file and retrieve the necessary verification data.
b. QR code
Your Aadhaar card has a unique QR code that covers the necessary demographic information needed to complete eKYC. To read it, the service provider just needs a code scanner and not access to the UIDAI’s Aadhaar database. Extracted data helps to complete Aadhaar authentication.
Understanding the Process and Required Documents
- Digital Verification:
- It eliminates the need for additional identification or address verification documents through its digital process.
- Registration Method:
- Initial Step: Provide your Aadhaar number and consent to a licensed service provider to access your personal information.
- Data Provision: UIDAI then supplies your details such as name, date of birth, and address to the service provider.
- Verification Access:
- The service provider gains access to the online UIDAI database to verify your identity, address, and other demographic details.
- SEBI-Registered Intermediary:
- Document Submission: Submit only your Aadhaar number and a self-attested copy of your e-Aadhaar.
- Online Completion: Complete your KYC online through the intermediary.
- Additional Documents:
- If needed, any additional documents required will be listed on the KYC registration agency’s portal.
Who can perform Aadhaar eKYC?
Aadhaar was designed to help digitise India, but it’s also being used to enforce KYC compliance. The RBI’s CDD regulations outline guidelines for eKYC, but private unregulated companies are not allowed to employ online eKYC solutions, such as OTP and biometric Aadhaar authentication for verification. Citing concerns about the hazards associated with online eKYC, a Supreme Court ruling in 2018 led to this conclusion.
In order to use online Electronic KYC, private entities must first get authorisation from UIDAI. Additionally, they have to pay an eKYC licence cost of about 25 lakh rupees. For each eKYC verification, they must pay a charge of 20 rupees. Offline eKYC methods are however still available for use by private entities.
Check eKYC status online
The KRA you picked during the eKYC procedure dictates how you can monitor the progress of your eKYC. The KRA will have a PAN input section for each application, which will provide the current status of the application. However, the criterion for input of PAN remains the same regardless of which KRA implements these procedures. Here is a list of SEBI-registered KRAs: NSE, Karvy, CAMS, CVL, and NSDL KRA.
eKYC – Pros and cons
Key Advantages of eKYC:
- Instantaneous Verification:
- eKYC dramatically speeds up the customer verification process, cutting down the typical duration from 10-20 days to just a few minutes, while also reducing operating costs significantly.
- Enhanced Safety:
- Using biometric technology for user authentication, eKYC mitigates the risks associated with losing or damaging important documents. Robust security protocols in the Central Identities Data Repository safeguard data against fraud.
- Paperless Process:
- The eKYC method eliminates the need for paper documents for financial transactions such as loan applications or opening new bank accounts. All relevant details are efficiently stored in the Aadhaar database, streamlining the authentication process and making it much faster and user-friendly.
- Cost-Effectiveness:
- Traditional KYC processes involve considerable expenditure on personnel and materials. eKYC, by contrast, is performed digitally, resulting in significant time and cost savings for both financial institutions and their customers.
However, it has its share of drawbacks:
- An eKYC account’s balance is limited to a maximum of Rs. 1 lakh.
- There is a limit on the amount of money that can be deposited into an eKYC account each financial year, which can’t be more than Rs. 2 lakh.
- After the first year, full KYC must be performed to use a minimum KYC account.
To conclude, eKYC is a paperless, one-click approach to fulfil KYC regulations.
Yet eKYC is only a part of the huge KYC umbrella. To know more about KYC, read our in-depth piece on ‘All you need to know about KYC in India‘.