Reserve Bank of India (RBI) in Jan 2020 allowed video-based know-your-customer (KYC) identification process, called as Video-Based Customer Identification process(VCIP) that will provide an additional method of completing customer KYC without the customer having to physically visit finance institution if the customer gives his consent. Video KYC will be done by capturing a live photo of the customer along with the submission of documents like Aadhaar, PAN card etc. This video KYC puts a lot of responsibility on the banks and non-banks, as it requires the use of the latest technological tools, ensuring live location and interaction, training of people, storage etc. The article talks about What is Video KYC? What changes Banks and financial institution have to do?
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Video on How Video KYC is done
The following video from Tata Mutual Fund shows how video KYC will be done.
What is KYC?
KYC or Know your customer is the process of knowing a customer with a goal of detecting and avoiding fraud in financial transactions. Financial institutions such as banks and NBFC’s are legally required to do it. For example, Banks complete this KYC procedure at the time of opening of a bank account. It is also the duty of bank to keep on updating the KYC of every customer with time. In general, common documents required for KYC are given below. Our article Know Your Customer or KYC explains KYC in detail.
- Document for Identity proof.
- Document for Address proof.
- Recent photograph.
What is e-KYC?
An e-KYC is when KYC procedure is performed electronically. In India, eKYC is a process, wherein the Identity and Address of the subscriber are verified electronically through Aadhaar Authentication. It is paperless.
For example, one could use eKYC using Aadhaar and invest in Mutual Fund up to ₹ 50,000 per fund house per year. At the time of investing investor needed to give the Aadhaar number. He would then get OTP on the registered mobile phone and by giving it was good to invest.
Benefits of e-KYC
- It reduces the time to check the documents. The procedure that used to take weeks sooner could be finished in a matter of days.
- Cost-saving
- More customers
But eKYC was stopped
On 26 Sep 2018, Supreme Court declared the portion of Section 57 of the Aadhaar Act that enabled private companies to use Aadhaar for establishing the identity of an individual, “unconstitutional”.
On 12 October 2018, the Unique Identification Authority of India (UIDAI) wrote to the mutual funds industry, the registrar and transfer agents (R&T) and some online distributors, asking them to discontinue using Aadhaar-based authentication to complete the Know Your Client (KYC) norms.
Our article eKYC, KYC Online,Aadhaar and KYC, Supreme Court ruling talks about Supreme court ruling in detail.
After the Supreme Court of India discontinued eKYC using Aadhaar mobile wallets, mutual funds were finding it difficult to acquire a new customer.
Challenges for Video-Based KYC
Reserve Bank of India (RBI) in Jan 2020 allowed video-based know-your-customer (KYC) identification process, called as Video-Based Customer Identification process(VCIP) that will provide an additional method of completing customer KYC without the customer having to physically visit finance institution if the customer gives his consent. Video KYC will be done by capturing a live photo of the customer along with the submission of documents like Aadhaar, PAN card etc. This video KYC puts a lot of responsibility on the banks and non-banks, as it requires the use of the latest technological tools, ensuring live location and interaction, training of people, storage etc.
Customer will have to give his consent for video KYC.
Capturing live location : The bank has to capture and ensure that the customer is physically present in India and not outside. This can be done be geotagging, which helps in locating the exact place and time the picture or video was taken. The audio visual interaction will be triggered from the domain of the bank only and not from any third-party service provider
Ensuring real interaction: The bank official will also have to ensure that the sequence and the type of questions asked during the video interactions are varied to establish that the interactions are real-time and not pre-recorded. They will also have to ensure that the process is seamless, in real-time, secured and is end-to-end encrypted. The banks will also have to carry out liveliness check in order to guard against spoofing and other fraudulent manipulations.
Concurrent audit: The RBI makes it clear that all accounts opened through video KYC will be operational only after being subject to concurrent audit to ensure the integrity of the new process. In fact, the banks have to test the system for security, robustness and end-to-end encryption. They will have to carry out software and security audit and validation of the video KYC application
Storage and training of people
The bank will have to ensure that the video recording is stored in a safe and secure manner and bears the date and time stamp. In fact, the entire process will be handled by officials specifically trained for this purpose. The activity, along with credentials of the officials performing the video process will be preserved for future records.
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What do you feel about Video based KYC? Will you agree for Video Based KYC?
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