Many assume it just takes an application form and basic documents to open a savings account. However, as per Reserve Bank of India (RBI) guidelines, financial institutions must verify the identity of their customers through the Know-Your-Customer (KYC) process.
The KYC process entails document verification such as Aadhaar card, PAN, utility bills, etc., to verify your identity and address. While KYC might seem tedious to some, it holds a crucial role. The KYC process protects both account holders and the bank, maintaining the integrity of the financial system. Here is how.
KYC protects against identity theft and fraud
KYC is a critical layer of protection that no financial institution can afford to ignore for its customers’ welfare. By collecting and verifying your personal information, such as your identity and address proof documents required for opening a bank account, financial institutions create a robust shield against identity theft and fraud.
The bank confirms your identity through KYC when someone claims to be you. This prevents fraudsters from using your information to access your accounts or open new ones under your identity. So, while KYC verification may make the offline and online saving account opening process a bit time-consuming, this extra step adds an essential layer of protection to your finances.
KYC enables safe access to financial services
Consider the scenario where KYC isn’t a mandatory step. Fraudsters could easily misuse financial services for illicit activities. KYC, however, allows only legitimate customers to access banking services. This practice safeguards the banking system and helps maintain the integrity and security of financial transactions.
KYC prevents money laundering
KYC is a critical tool in fighting money laundering. Money launderers often attempt to hide behind false identities and conduct transactions. The KYC process dismantles these efforts by mandating the submission of valid identification documents and other important information to open a bank account.
Financial institutions verify the customer’s identity through official documents, to confirm the legitimacy of funds deposited or transferred. This safeguards both the bank’s integrity and promotes a secure, transparent financial environment.
KYC improves security
Security is also one of the important features of savings accounts for customers. By verifying the authenticity of account holders through KYC, banks prevent unauthorised individuals from gaining access to sensitive information.
This protection extends to online transactions and digital banking, where the risk of cyber threats is prevalent. Thus, the KYC process forms a crucial layer of protection against such threats, enhancing customer trust in the banking system.
How to complete KYC?
There are two ways to complete KYC – offline and online. In the offline process, you have to submit the required documents physically to the bank. The documents usually include a passport-size photograph, proof of identity, and proof of address.
KYC can also be completed online by uploading the documents on digital banking platforms. This can be done through video KYC or Aadhaar-based KYC. These modes of KYC verification are faster and more convenient than the offline process. It eliminates the need for physically visiting the bank, reducing the hassles associated with the traditional KYC process.
KYC promotes transparency, minimises the risk of scams, and helps banks serve their customers better. So, the next time you open a savings account, remember that the KYC process is mandatory to maintain safety and security in banking and is for your benefit.