Banking KYC (Know Your Customer): What is it and How Does It Work


There has been a noticeable increase in financial crimes. People pose to be someone else by using fake documents. Forging identities have fueled money laundering and terrorism industries. Several countries have lost their economic glories owing to these crimes.

As a result, it has become essential for those operating in the banking and financial industries to complete customer identification processes. They should know their customers, have the right documents, and ensure measures are in place to avoid these issues.

This guide will take you through what KYC means in banking and how it works to understand this process better.

What is KYC Meaning and KYC full form in Banking?

KYC full form in Banking is ‘Know your Customer’ which translates to identifying your customer. It helps manage customer identity, know the factual details and check their financial profile.

For the banking and financial industry, having all the relevant documents is the key to knowing their customer better. It helps in several ways:

  • Prevents the occurrence of fraud.
  • Ensures all bank accounts are updated as soon as the key document is updated.
  • Manages and maintains their financial profile.
  • Builds better relationships with the client.

Regulations and protocols surround collecting KYC records for any organization. It is mandatory to follow these instructions to ensure banks have all the data necessary to recognize the client. Apart from getting the documents and processing the client’s identity, the organization should also know what work they do. It is equally important to know them in every possible way.

Required KYC Documents

Knowing your customer includes getting their identity and source of income. It will help banks to know where they work and what they do.

  • Identity documents such as a driver’s license, Aadhar card and Passport could be proof of identity.
  • There should be an address proof in this list of documents
  • Apart from this banks might need proof of where you work.

How Does KYC Work in Banking?

Here we will discuss the steps involved in ensuring customer identity. KYC is acquiring customer information that includes name, address and other basic details. It includes checking all the documents that can provide the information to help identify the customer immediately.

Banks will use both documents to identify the customer and non-document identification methods. For example, banks and institutions can use fingerprints to mark a customer’s identity. They can use other biometrics to complete the process.

The KYC is the minimum requirement for anyone who needs an account with banks and financial institutions. The KYC processes, in the beginning, were cumbersome and prolonged. There were several nuances to this method that included forms and document collection.

Traditionally, for KYC, the customers needed to visit the banks. However, with changing times, eKYC is the norm. Once the banks have approved the documents and other forms, you can access the account. However, in some cases, they can reject your claim to the bank account.

For instance:

  • If your signature on the identification document doesn’t match your signature on the form, your application can get rejected.
  • Similarly, your chances of getting rejected are higher if your documents seem suspicious or if you haven’t submitted the proper documents.

KYC works to understand if the documents submitted and the person submitting them are the same. This comparison will help banks and financial institutions approve the accounts for the right person. It will help them save a lot of issues in the future.

What is the KYC Process?

There are a total of three steps involved in the collection and verification of KYC details for KYC in banking.

  • Step #1: Collecting the Information

Banks want customers to fill out their information in forms. They can ask them to share the required data to open a bank account, access files or use the financial product. The forms will have several methods to collect data.

This step is known as the customer identification program, where banks get to know the customer’s identity.

  • Step #2: Upload Supporting Documents

To prove that the information in the form is true, you will need to upload the necessary documents. For instance, you need to verify your name with a supporting document. You will need to upload the address document to verify that you have added the right address.

  • Step #3: Verification

Once you have filled out the form and added the documents, the bank will verify them. They will check if the information provided matches with the documents. They will also verify the validity of the documents. Banks and institutions need to ensure that the documents are not fake.

They use several data validation techniques to ensure they have properly collected and verified the information. This is also known as customer due diligence, where the customer’s data is verified against government data.

Continual Screening

It is not enough for financial institutions to compare and verify the data once. They will perform this function continuously to ensure no data remains unverified. This continual measurement and monitoring of the records can help financial institutions avoid fraud and maintain healthy transactions.

The Era of eKYC

Traditionally, the bank representatives used to visit the customer’s place or make the customer visit the banks to complete the verification. However, with eKYC, things have changed. Banks can complete the verification process online via video calls. This has led to increased convenience for the banks and their customers.


Knowing your customer effectively identifies your clients and ensures you have complete information about them. The banks and financial institutions can gain more support from this protocol as it will help them evade fraud before it occurs. It is essential to follow the protocols to ensure complete data collection for thorough identification of the customers.

If you need more help with understanding KYC, visit Piramal Finance. This online platform is what you need to learn everything about relevant developments and procedures in the world of finance. For more information on financial matters or about personal loans, credit cards, and financial management, check out more blogs on their website!