{"id":4768,"date":"2020-11-18T04:38:40","date_gmt":"2020-11-18T04:38:40","guid":{"rendered":"https:\/\/signdesk.com\/in\/?p=4768"},"modified":"2025-09-17T07:06:52","modified_gmt":"2025-09-17T12:36:52","slug":"kyc-verification","status":"publish","type":"post","link":"https:\/\/melento.ai\/en-in\/blog\/kyc-verification","title":{"rendered":"Enhancing Customer KYC Verification: 3 Key Steps for Maximum Effectiveness"},"content":{"rendered":"

KYC Verification<\/strong><\/a><\/span><\/h2>\n

KYC Verification<\/a> <\/strong>is an integral part of the customer onboarding process in the BFSI sector due to the widespread occurrence of money laundering & fraud within the banking & insurance industries.\u00a0<\/span><\/p>\n

KYC has become an important tool for both the regulatory and industrial sector to mitigate theft & crime but complying with the prescribed KYC workflow & regulations is also a burden for banks and insurers, sometimes resulting in several crores in fines.\u00a0<\/span><\/p>\n

KYC verification consists of several pillars but 3 are fundamental to the process.<\/span><\/p>\n

\"KYC-Verification<\/p>\n

The main components of KYC Verification<\/strong><\/span><\/h2>\n

Online fraud is a massive problem in the BFSI sector.\u00a0<\/span><\/p>\n

Insurance companies <\/span>reportedly<\/strong><\/span><\/a> lost 46,000 crores to fraud in 2018-19 and RBI <\/span>reports<\/strong><\/span><\/a> that the public sector banks and private sector banks have seen increases of 234% and 500% respectively in the number of reported fraud cases in 2019-20.\u00a0<\/span><\/span><\/p>\n

Therefore strong KYC verification is the need of the hour. Here are 3 key components in the KYC verification<\/a> process –\u00a0<\/span><\/p>\n

1. Customer identification\u00a0<\/b><\/span><\/h4>\n

Customer identification is one of the initial steps involved in KYC verification and consists of the customer providing certain preliminary information to the bank or insurer. This information usually consists of –\u00a0<\/span><\/p>\n

> Name<\/span>
\n> Date of birth<\/span>
\n> Age<\/span>
\n> Address\u00a0<\/span><\/p>\n

This information is usually obtained through documents such as Aadhaar, PAN, DL or passport and is then verified.\u00a0<\/span><\/p>\n

Third-party services can also be employed by banks provided that the third party is appropriately regulated and makes the customer\u2019s identification documents readily available.\u00a0<\/span><\/p>\n

2. Customer due diligence\u00a0<\/b><\/span><\/h4>\n

Customer due diligence is the process of making sure that the customer is indeed who they claim to be, and lies at the heart of the KYC verification<\/a> process.\u00a0<\/span><\/p>\n

The customer due diligence process can consist of establishing proof of possession of identifying documents through offline verification, online OTP-based verification, valid e-signatures or through the digital KYC<\/a> process in which the live pictures of the customer and IDs are taken and the information is verified first by the customer via OTP and then by the official conducting digital KYC<\/strong><\/a>.<\/span><\/p>\n

Recently, <\/span>video-based KYC procedures<\/strong><\/span><\/a> for due diligence have also been introduced by <\/span>RBI<\/strong><\/span><\/a>, <\/span>IRDAI<\/strong><\/span><\/a>,<\/strong> and <\/span>SEBI<\/strong><\/span><\/a>,<\/strong> in which due diligence is completed without the physical presence of either the customer or the official. Video KYC<\/a> involves automated document verification using live images of IDs, facial matching to confirm customer identity, and both online or offline Aadhaar authentication.\u00a0<\/span><\/span><\/p>\n

Banks have separate procedures of due diligence for individuals, proprietary firms,\u00a0 and legal entities. There is also a simplified CDD (Customer Due Diligence) procedure in place for NBFCs and enhanced and simplified CDD procedures for politically exposed persons, foreign students, professional intermediaries, non face-to-face customers, and foreign portfolio investors.<\/span><\/p>\n

3. Monitoring & reporting\u00a0<\/b><\/span><\/h4>\n

Monitoring the activities of accounts opened after conducting identification and CDD is crucial in preventing fraud, theft, and money laundering<\/a>.\u00a0<\/span><\/p>\n

RBI mandates that a reporting and record-keeping system be put in place according to the Prevention of Money Laundering (PML) Rules, 2005. Rule 3 of PML Rules states that a record should be kept of all cash transactions valued at 10 lakhs or more, all series of transactions valued at 10 lakhs or more, all cash transactions involving forged currency, and all suspicious transactions involving credit or debit cards, money transfers, cheques, or loans and advances.\u00a0<\/span><\/p>\n

In such cases, banks are directed to maintain a record of –\u00a0<\/span><\/p>\n

1.The nature of the transactions;<\/span><\/p>\n

2.The amount of the transaction and the currency in which it was denominated;<\/span><\/p>\n

3.The date on which the transaction was conducted; and<\/span><\/p>\n

4. The parties to the transaction.<\/span><\/p>\n

This helps banks prevent fraud & theft before it can happen, and ensures trust between customers and banks<\/span>.<\/span><\/p>\n