Changing the KYC: From Kick Your Customer to Know Your Customer?

What does KYC stand for? The answer really depends on who’s answering the question. If it’s a financial institution it stands for Know Your Customer, but if you ask customers, they are likely to say it is Kick Your Customer for the mountainous amounts of paper work–just to prove you are who you are and stay where you actually do–would have exhausted them.

That KYC sends us all over the bend is no news, but there could be a respite to the never ending KYC procedure. But before the possible respite let’s know why KYC really stands for Kill Your Customers more than Know Your Customers.

The reason why banks, passport offices, mutual funds, mobile companies and even RTOs ask us to meet KYC norms is to ensure that bogus people don’t get in the system using fake names and credentials. Of course, it is another story that while ordinary folks like us are scurrying around for this document or that, the fraudsters simply forge the relevant documents to comply with the KYC.

KYC needs two kinds of documentation-identity proof and address proof.

Most KYC requirements accept address proof from documents such as passports, voter IDs, ration cards, utility bills and bank statements. But the catch is this: getting one of these requires an address proof. It is a chicken-and-egg situation. The passport office accepts telephone bill, electricity bill, bank statements, and parents’/spouse’s passport as proof of address. But to get any one of them, you need another address proof. If that’s not enough, changing your residence is an added headache.

After all, unlike your identity which does not change, your address can change for various reasons, especially in a city. And this means, every time you change your address you have to do a KYC procedure all over again.

Now coming to the possible respite: the Reserve Bank of India yesterday published a report on Comprehensive Financial Services for Small Business and Low Income Household, which shows us some light at the end of the tunnel. “The RBI should require a strong Proof of Identity (POI) for each and every customer and a documentary proof of one national address but waive the requirement of documentary proof for the current address, for the purpose of opening a full service bank account,“the committee has recommended.

This means that as long as you have proper documentary proof for your permanent address, you would do away with the need to do KYC all over again, for banking purposes, in case you change your address in the future. In fact, the report stated that the RBI must take the lead in developing this as a convergent approach to KYC across all regulators for their respective products.

Only time will tell if this recommendation will be accepted. But if the need to do fresh KYC is done away with, KYC would really stand for Know Your Customer and not Kick Your Customer.