EKYC is an electronic document authentication measure used by financial institutions across India to verify the identity of their potential customers. EKYC is a part of the Digital India initiative undertaken by the Government of India (GOI) to streamline the verification process of individuals who are dealing in the financial market as well.
The primary aim of EKYC is to simplify the procedure of customer acquisition through the online method under advanced security protocols. It is the digital extension of the existing KYC process implemented across several financial markets.
What Does EKYC Mean?
KYC meaning is Know Your Customer. EKYC on the other hand constitutes an alternative to the prevailing KYC process carried out on the basis of physical copies of original documents. This alternative duly allows individuals to bypass the need for submission of physical identity documents which is required during the initial stages of identity establishment while forming a relationship with an institution, a relationship which mandates identity verification.
As per the Prevention of Money-Laundering Act, 2002 and Prevention of Money-Laundering (Maintenance of Records) Rules 2005, financial institutions are legally mandated to gather personal information of potential clients before conducting financial transactions. EKYC is thus the electronic process of the submission of identity proof, address proof, and other biometric details to prevent money laundering, terrorist financing, and mishandling of finances.
What Does EKYC Constitute?
EKYC contains personal details of an individual such as their names, address, date of birth, gender, and PAN and Aadhaar number. In case of paperless Aadhaar EKYC, financial service providers are also entitled to gather biometric data of a potential customer to authenticate their identity.
Financial institutions are legally required to apply for a license from the Unique Identification Authority of India (UIDAI) to provide EKYC facilities. KYC Registration Agencies (KYCRA) are also required to install a secure Aadhaar data storage vault to protect Aadhaar data from theft and phishing. Additionally, service providers also have to incorporate hardware security modules (HSM) to protect credit cards from being hacked. Individuals availing EKYC facilities have to provide consent to service providers to use their data for verification from the UIDAI database.
Why is EKYC Essential in Financial Market?
Since financial companies manage a substantial number of operations on digital platforms, EKYC assumes an important role in the financial sector at large. The objective of EKYC is to minimise instances of falsification of identity and forgery of signatures while availing financial services. Besides this primary characteristic, EKYC is important in financial market in the following ways –
- Cost effective verification process
The use of EKYC eliminates the need for large-scale management of paper-based documents provided by individuals. Companies use cloud-based data storage systems which are encrypted against illegal access, therefore reducing the cost of document storage.
EKYC also decreases the cost of bureaucratic processes involving in-person identity verification of potential customers by authorized officials.
- Non-repudiable authentication
EKYC is operated by seeking consent from individuals before using their confidential personal and biometric data. Financial institutions use secure OTP measures to validate consent of use of data collected from individuals for verification and storage.
This process actively curtails the rate of fraudulent activities while availing loans, credit cards, Demat account, and insurance plans. Individuals cannot deny their involvement in the verification process in case of a fraud.
- Compliance with the IT Act
The use of EKYC is Information Technology Act, 2000 compliant that validates the use of EKYC as a legal equivalent of paper-based documents. It is because the data transfer is often authenticated by the use of digital signature. Fraudulent individuals are therefore punishable by law in case of identity theft related to EKYC documents under Section 66C of IT Act, 2020. Individuals should also use credit card wisely and other financial products or services as well in a bid to avoid identity theft.
EKYC significantly reduces the hassles of availing financial assistance in the form of loans and credit cards by shifting to online verification of an individual’s identity. Individuals who are therefore looking for credit cards that require minimum documentation for instant approval can consider a Bajaj Finserv RBL Bank SuperCard offered by reputed NBFC Bajaj Finserv.
This financial institution also provides pre-approved offers on financial products including credit cards, business loans, personal loans, and numerous other products. These offers make the process of availing such products easy and help an individual save valuable time. You can check your pre-approved offer for a convenient approval process by just providing your basic details.
EKYC is thus a highly secure facility prevalent in the financial market for a hassle-free authentication of personal documents. This process actively eliminates the possibility of identity theft and the bureaucratic process involved with in-person identity verification. Individuals should also choose the right credit card to reap the benefits of digital transactions.