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Business News/ Money / Personal Finance/  Know Your Customer: How KYC secures foolproof financial transactions in digital era. Experts take
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Know Your Customer: How KYC secures foolproof financial transactions in digital era. Experts take

KYC is essential for businesses to verify customer identities, comply with regulations, and combat financial crimes. Leveraging AI and biometrics in KYC balances security and convenience, safeguarding citizen data privacy

KYC, or Know Your Customer, is a prerequisite process individuals must fulfill before opening a bank account. (iStock)Premium
KYC, or Know Your Customer, is a prerequisite process individuals must fulfill before opening a bank account. (iStock)

Know Your Customer (KYC) is of paramount importance within the digital ecosystem for multiple compelling reasons. Firstly, it empowers businesses to conduct accurate verification of their customers' identities. Moreover, KYC regulations are frequently prescribed by regulatory authorities as a pivotal measure to combat various financial crimes, including money laundering and terrorist financing.

What is KYC?

KYC, or Know Your Customer, is a prerequisite process individuals must fulfill before opening a bank account. This process entails verifying the individual's identity, address, and other pertinent details. It necessitates in-person verification.

Importance of KYC in the digital ecosystem

As digital transactions see exponential growth, KYC serves a crucial role in safeguarding the integrity of economic systems. “By verifying identity and assessing risk, KYC checks deter fraudsters from exploiting loopholes. Simultaneously, seamless user experiences must remain a priority - cumbersome procedures irritate customers. Thus, leveraging technologies like AI, ML, and biometrics in KYC strikes the balance between security and convenience while also securing citizen data privacy," said Ashish Aggarwal, Director, of Acube Ventures

With cyber threats on the rise, policymakers should promote innovation in paperless KYC to uphold public trust in an increasingly digital world, added Aggarwal

The RBI's persistent emphasis on a rigorous compliance framework, facilitated by a robust KYC solution, underscores the necessity for businesses to prioritize a compliance-centric approach for enduring prosperity. Recently, the RBI directed card networks such as Visa and Mastercard to halt card-based commercial payments conducted by corporations and small businesses.

“Such regulatory hurdles can be avoided by adhering to regulator's rules and guidelines through innovative KYC solutions. It becomes imperative for financial institutions and fintech players to ensure that all financial transactions taking place are within the regulatory ambit and that no fraudulent or unauthorized transactions are occurring on the digital platform while maintaining the security posture," said.

Overall, KYC plays a crucial role in upholding the integrity of the digital ecosystem, and guaranteeing the security, compliance, and credibility of online transactions and engagements.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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ABOUT THE AUTHOR
Sangeeta Ojha
A business media enthusiast. Writes on personal finance, business and banking.
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Published: 21 Feb 2024, 02:53 PM IST
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