KYC means “Know Your Customer.” It is a method by which banks collect information about the identity and address of the customers. The process assists in ensuring that the services of banks are not misused. The KYC process is done by the banks while opening accounts, and they also update the KYC details of customers from time to time.
Know Your Customer is a piece of essential information for the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, making it important to digitize/automate the current Know Your Customer processes.
What is the “Know Your Customer” (KYC) requirements for opening a bank account?
The first thing to open a bank account is that the customer needs to submit a PAN and Aadhaar/enrolment number as ‘proof of identity and proof of address’ together with a recent photograph.
The Reserve Bank of India (RBI) has introduced the Aadhaar-based Video Customer Identification Process (V-CIP), which allows banks and other lenders to complete the KYC process of customers on video remotely. Lenders can utilize a video-based digital KYC facility as an alternative to the e-KYC facility. The central bank has revised its guidelines under the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, to introduce V-CIP.
In a circular, RBI said, “…with a view to leveraging the digital channels for Customer Identification Process (CIP) by Regulated Entities (REs), the Reserve Bank has decided to permit Video-based Customer Identification Process (V-CIP) as a consent-based alternate method of establishing the customer’s identity, for customer onboarding.”
The Reserve Bank of India said that the video KYC would be consent-based, which means it is mandatory for banks to take the consent of customers for video-based KYC. Video KYC will make it convenient for banks and other regulated entities to follow the RBI’s Know Your Customer (KYC) norms by making use of digital technology.
The new definition of digital KYC
In Section 3 of its Master Direction on KYC dated February 25, 2016, the central bank has redefined “Digital KYC” It has now defined as “capturing a live photo of the customer and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorized officer of the Reporting Entity (RE) as per the provisions contained in the Act.”
The circular said that reporting entities (REs) would record video and capture photographs of the customer present for identification and collect the identification information like this:
- Reporting entities other than banks, for the purpose of identification, can only carry out offline Verification of Aadhaar.
- Banks can use either Offline Verification of Aadhaar or OTP based Aadhaar e-KYC authentication for identification purposes. Besides, services of Business Correspondents (BCs) may be used by banks for assisting the V-CIP.
- As per the circular, during the process, the customer should display a clear image of PAN card to the reporting entity (RE), except in cases where e-PAN is provided by the customer. In addition to that, the reporting entity should make sure that the photograph of the customer in the Aadhaar/PAN details matches the customer undertaking the video KYC, and the identification details in PAN/Aadhaar should match with the details given by the customer.
Why video KYC
With Video KYC, a regulated entity can open an account-based relationship with a customer without needing to meet the customer face to face. Through a video call, the customer can chat directly with a banker and provide all his identity documents and complete the account opening steps in a few minutes.
How can Video KYC help regulated entities?
Video KYC verification eliminates the need for customers to go into a branch, provide paper copies, or wait for several days to complete the account-opening process. This will dramatically reduce the cost of onboarding and change the way bank accounts are opened in the future. As per an estimate, it costs between 150–200 rupees for face to face onboarding. This can be reduced to a fraction with the help of video KYC as there is no need to meet the customer face to face.
The forms of ID that are supported within video KYC
Banks can use either Offline Verification of Aadhaar or OTP based Aadhaar e-KYC authentication. All other regulated entities are only allowed to do Aadhaar Offline verification. For offline verification, customers are advised to use Aadhaar Offline XML or Aadhaar Encrypted QR. When one is using Aadhaar Offline, the encrypted QR and shareable Aadhaar Offline files should not be more than three days old.
You must be wondering how do regulated Entities ensure that the Aadhaar Offline files are not more than three days old? Well, the right way to ensure that is to allow the customer to download the files during the live video call.
It will guarantee that the rightful owner of the Aadhaar is downloading the offline file and that the video will help in making sure that the download was done instantly, complying with the rule that the Aadhaar file should not be more than three days old.
Apart from that, the customer can’t record and upload Videos as part of Video KYC as the regulator has made it clear that “regulated entities may undertake live video customer identification process. Regulated Entity shall ensure that the process is a seamless, real-time, secured, end-to-end encrypted audiovisual interaction with the customer.” If the customer records the video interaction, it would be a violation of the current V-CIP or Video KYC process as defined by the regulator.
What exactly happens in Video KYC Process?
During the live video KYC India process, the following details are captured. It can be done in any order:
- Proof of possession of Aadhaar Number. It means that the official has a look at the original Aadhaar card before Aadhaar Offline is carried out. And the official may take a picture to ensure that the Aadhaar card is seen by the Bank official (although it is not mandatory in the master KYC circular)
- OTP based Aadhaar (only for Banks) or Aadhaar Offline (by any regulated entity). The process must be done during the live video call session through a screen share option in the video KYC solution.
- The bank official captures a picture of the customer in the live video.
- The official captures a picture of the PAN card.
- The live location of the customer is verified to ensure that the customer is physically present in India (geolocation verification).
- All the checks and questions carried out during the call need to be captured.
- Metadata and Timestamps related to the video call are captured for audit purposes.
- Any notes entered during the call are also captured.
The video KYC solution has to be deployed on-premises
The regulator stated that the link used by customers to initiate the video chat should originate from the domain of the regulated entity. It is to eliminate the need for generic video tools such as Zoom, Skype, Webex, Duo, and other popular applications. Rather, the regulator is looking for something like abcbank.com/video KYC so that malicious and phishing attacks can be prevented.
A safer way to do so is to integrate this into existing Banks’ online banking portal or mobile Apps that trigger the video call from a secure and verified domain. Furthermore, this would suggest that the entire set up is done on-premises. For cloud-based solutions or even hybrid solutions, it will be tough to get through the internal compliance and legal team’s approval.
All said and done, but how will it be verified that the Aadhaar card or the PAN relates to the customer in the Video KYC? The advanced artificial intelligence solutions help to match the image from PAN/Aadhaar to that of the customer in the video call. Also, the face image matches with the PAN and Aadhaar image with a high degree of confidence. These checks will ensure that the customer is legit and spoofing, or identity manipulation is quickly flagged for review.
Video KYC is a great way of saving on resources while doing the KYC process. Customers can complete the process seamlessly, and the bank official will be there to guide them.