What is KYC?
KYC (Know Your Customer) is the set of checks a regulated entity runs to establish who its customer is before opening an account or offering a financial service — and to keep that picture accurate afterwards. In India the operating rules sit in the Reserve Bank of India’s Master Direction on KYC, which applies to banks, NBFCs, payment system operators and other regulated entities, and draws its statutory force from the Prevention of Money Laundering Act, 2002 and the rules under it.
KYC is often described as “collecting documents”, but that is only the visible part. The regulatory obligation is to be reasonably satisfied about a customer’s identity, address and risk profile using independent, reliable sources — which is why database-level verification against the issuing authority has largely replaced photocopies.
The four building blocks of a KYC programme
- Customer Acceptance Policy — the documented rules on who you will and will not onboard, and on what evidence.
- Customer Identification Procedure and due diligence — identifying the customer and verifying identity and address from an Officially Valid Document (OVD) or an equivalent electronic record.
- Risk categorisation and ongoing due diligence — classifying customers as low, medium or high risk, and periodically re-verifying records at a frequency tied to that risk.
- Monitoring and reporting — watching transactions against the customer’s declared profile and filing prescribed reports with the Financial Intelligence Unit – India.
How identity actually gets verified
A modern onboarding flow usually stacks several independent checks rather than relying on one document:
- An OVD — passport, driving licence, proof of possession of Aadhaar, Voter ID, NREGA job card or the National Population Register letter.
- PAN, for the tax identity and for name consistency across records.
- Aadhaar-based e-KYC or offline Aadhaar, where the entity is permitted to use it.
- Documents pulled from DigiLocker, which are issued digitally by the source authority.
- Video KYC where in-person verification is impractical.
- Registry lookups — bank account ownership, EPFO employment records, vehicle registration, utility accounts — which confirm that the identity is attached to real, active, third-party-held records.
Why KYC matters beyond compliance
The same checks that satisfy a regulator also decide how much fraud and operational cost a product carries. Verified account ownership prevents failed payouts and misdirected credits. Cross-checking identity against independent registries makes synthetic and mule accounts far harder to create. And doing it through APIs at onboarding is cheaper than reversing the damage later, which is why verification is now built into the signup flow rather than bolted on as a back-office review.
Related terms
- e-KYC (Electronic KYC)
- Video KYC (V-CIP)
- CKYC and the Central KYC Registry
- KYB (Know Your Business)
- AML (Anti-Money Laundering)
Verify it with Veriqos
Veriqos exposes the underlying identity and account checks as individual APIs, so you can assemble the verification stack your risk policy actually needs:
- Digilocker Verification API — Verify your customers’ government documents instantly through Digilocker with Veriqos’ Digilocker Verification API — real-time verification through the customer’s Digilocker account.
- Bank Account Verification API — Instantly confirm the authenticity of any bank account with Veriqos’ Bank Account Verification API — account number, holder name, and status in real time.
- Signature Match API — Veriqos Signature Validation API enables banks, insurance companies, and digital platforms to compare & verify signatures in seconds — checking similarity, flagging mismatches, and automating manual verification.
See how these checks are applied in Banks & NBFCs, Fintech & Digital Lending.
← Back to the verification glossary
This entry explains how the check works in practice. It is general information, not legal or compliance advice — confirm current requirements against the applicable regulation.