What Is eKYC – Electronic Know Your Customer [Explained]

The full form of eKYC, which stands for Electronically Know Your Customer, underlines its digital-first approach, making it a cornerstone for sectors requiring stringent adherence to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.

What is eKYC?

Electronic Know Your Customer (eKYC) is a digital method employed by businesses to verify customer identities efficiently and securely, utilizing technologies like Optical Character Recognition (OCR) to enhance accuracy and automation.

This process significantly differs from traditional KYC by eliminating the need for physical document exchanges, thereby streamlining compliance and reducing the risk of human error.

eKYC utilizes digital data and biometric verification, supported by Aadhaar authentication in some regions, to perform identity and address verification, thus providing a secure and rapid verification process.

This system is crucial in the digital age, where financial transactions and services are increasingly conducted online, requiring robust mechanisms to prevent fraud and ensure compliance with regulatory standards.

The implementation of eKYC not only expedites the onboarding process but also enhances the customer experience by reducing the time and effort involved in manual verifications.

It supports financial inclusion by allowing more individuals to access services without traditional barriers. Moreover, eKYC helps businesses cut down on administrative costs and allocate resources more efficiently, fostering improved profitability and competitiveness. ^[3] [4]

How Does eKYC Work?

eKYC, or electronic Know Your Customer, is a streamlined method that utilizes both biometric data and government-issued IDs to verify customer identities digitally.

This process is pivotal for industries like finance and telecommunications, where secure and efficient customer onboarding is critical.

Government-Issued ID

In the digital realm, physical documents such as driver’s licenses, passports, and identity cards are essential. These documents are typically scanned or photographed for digital use. Over time, the transition to digital IDs is expected to increase, with projections suggesting that by 2024, five billion people will have electronic government-issued digital identity credentials. [5]

Biometric Identity Verification Technology

Biometric verification is a core component of eKYC, enhancing security and accuracy. This technology uses unique physical characteristics like fingerprints and facial structures for identification. During the eKYC process, users might be prompted to take a photo of their ID and a selfie. These images are then used for liveness checks to prevent fraud, such as using deepfakes or static photos.

Additionally, advanced eKYC systems incorporate features like liveness detection, which employs techniques such as texture and 3D depth analysis, heartbeat detection, and infrared imaging to ensure the authenticity of the biometric data. ^[6]

These systems are designed to be robust, continuously adapting to new spoofing techniques, thus enhancing ongoing security and user verification. ^[7]

Benefits of eKYC

Enhanced Security

eKYC solutions enhance security by employing advanced technologies like biometrics and document verification to authenticate customer identities, significantly minimizing the risk of fraudulent activities. ^[2]

Fraud Reduction

The implementation of eKYC significantly reduces the risk of fraud. By utilizing automated systems and sophisticated algorithms, eKYC verifies identities quickly and accurately, reducing the likelihood of fraudulent account openings and identity theft.

This process is essential for maintaining the security and trustworthiness of digital transactions, particularly in sectors where financial security is paramount. ^[8]

Increased Efficiency

eKYC streamlines the customer onboarding process by replacing traditional paper-based verifications with digital procedures, thereby increasing efficiency and reducing the time required for identity checks.

Automation of the KYC process not only speeds up customer onboarding but also reduces operational costs, allowing businesses to allocate resources more effectively and focus on core activities. This efficiency extends to compliance with AML and KYC regulations, ensuring faster and more accurate compliance processes. ^[9] [10]

Steps to Set Up eKYC

1. Initial Onboarding

Setting up eKYC begins with the initial onboarding process where businesses collect essential information from new clients. This stage involves gathering basic personal details and initiating the first layer of identity verification to ensure the information provided is accurate and belongs to the person claiming it. [11]

2. Digital Identity Verification

Once the initial data is collected, the next step involves digital identity verification. This phase utilizes advanced technologies such as Optical Character Recognition (OCR) and biometric verification to authenticate identities electronically. The process is designed to be seamless and secure, minimizing the need for physical document handling and expediting the verification process. ^[13]

3. Compliance with Regulations

The final step in setting up eKYC involves ensuring compliance with relevant regulations. This includes adhering to Anti-Money Laundering (AML) and Know Your Customer (KYC) guidelines.

Systems must be equipped to update regularly to incorporate changes in regulations, ensuring that the eKYC process remains compliant at all times. This step is crucial for maintaining the legality and integrity of the digital verification process. [12]

FAQs

What is required to complete eKYC?
To complete eKYC, you must provide your 12-digit Aadhaar number and undergo biometric verification, such as a fingerprint or iris scan. In the context of investments, the fund house’s relevant authority will verify your details using this information.

What are the key phases of KYC?
The KYC process consists of five critical stages: customer identification, customer due diligence, risk assessment, ongoing monitoring, and reporting of any suspicious activities. These stages are crucial for adhering to regulatory standards.

How is the eKYC verification process conducted?
The eKYC process involves digital verification of a customer’s identity and address through Aadhaar authentication by authorized organizations and agents. This digital process eliminates the need for physical documentation and includes biometric verification for enhanced security.

What does basic KYC entail?
Basic KYC (Know Your Client) knowledge involves understanding the standard procedures used in the financial services sector to verify the identity of clients and assess their risk and financial profiles. The three main components are the Customer Identification Program (CIP), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD).

References

1. https://le.fbi.gov/science-and-lab/biometrics-and-fingerprints/biometrics/next-generation-identification-ngi
2. https://www.gov.uk/anti-money-laundering-registration
3. https://www.scribd.com/document/318691619/Case-Study-eKYC-Solution-New-pdf
4. https://www.persistent.com/wp-content/uploads/2020/10/ekyc-datasheet.pdf
5. https://www.dhs.gov/real-id/real-id-faqs
6. https://www.tsa.gov/biometrics-technology
7. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10100622/
8. https://aws.amazon.com/fraud-detector/
9. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=fab26fec026bdc2959e78d55a5a10ce245f36e86
10. https://www.researchgate.net/publication/378514587_Efficient_e-KYC_Authentication_System_Redefining_Customer_Verification_in_Digital_Banking
11. https://link.springer.com/article/10.1007/s10551-017-3650-z
12. https://tr.usembassy.gov/visas/fraud-prevention-unit/
13. https://www.binance.com/en/support/faq/how-to-complete-identity-verification-for-a-personal-account-360027287111
14. https://www.emerald.com/insight/content/doi/10.1108/02652321211247435/full/html
15. https://www.academia.edu/download/53498558/Abu-Shanab___Matalqa_2015.pdf