KYC: The Backbone of Secure Digital Transactions in 2025

In today's rapidly digitizing world, Know Your Customer (KYC) has become more than a regulatory formality — it’s the foundation of trust between institutions and users. As of 2024, over 90% of financial transactions in India involved some form of KYC authentication (RBI data). With the government pushing initiatives like Aadhaar-based eKYC, Video KYC (V-KYC), and the upcoming AI-powered Central KYC (C-KYC),

KYC is evolving from a compliance necessity into a key driver of customer experience and security. In this blog, we explore the full landscape of KYC, its types, latest updates, and why it matters more than ever in 2025.

What is KYC?

KYC (Know Your Customer) refers to the process by which businesses verify the identity and address of their customers before or during onboarding.

It was introduced to prevent financial crimes such as money laundering, fraud, and financing of illegal activities.

In India, KYC processes are mandated by regulators like:

• Reserve Bank of India (RBI)
• Securities and Exchange Board of India (SEBI)
• Insurance Regulatory and Development Authority of India (IRDAI)

Simply put, KYC ensures that institutions know who they are dealing with — protecting both themselves and their customers.

Importance of KYC in the Digital Ecosystem

As digital payments in India crossed ₹12 lakh crore monthly (UPI data, Dec 2024), the importance of KYC has become undeniable. 

Key reasons why KYC is critical:

• Fraud Prevention: Reduces identity theft, phishing, and financial frauds.
• Regulatory Compliance: Helps businesses meet national and international laws.
• Service Enablement: Fast-tracks access to credit, insurance, and investments.
• Secure Data Management: Digital KYC uses encrypted storage to prevent data breaches.

Without robust KYC practices, the digital economy would be open to serious threats like fake identities and money laundering.

Types of KYC

There are now three major types of KYC in India:

Video KYC (V-KYC) has become especially popular post-2020. RBI allowed regulated entities to use V-KYC for customer onboarding, using secure video calls where users show their ID proofs and perform liveliness checks. 

You can open a Digital Fixed Deposit, Digital Savings Account and Digital Current Account with Ujjivan Small Finance Bank in a matter of few minutes*. Just keep your PAN and Aadhar details ready for video KYC. Also, ensure that your Aadhar is linked to your registered mobile number. This is mandatory for OTP (One-Time Password) verification.

Components of KYC

KYC involves three main components:

1. Customer Identification: Collecting government-issued IDs (Aadhaar, PAN, Passport, Voter ID).
2. Customer Due Diligence (CDD): Assessing risk level based on occupation, transaction nature, etc.
3. Ongoing Monitoring: Regular surveillance of transactions to identify and prevent suspicious activities.  

Today, AI and Machine Learning are increasingly integrated into these components for enhanced security and efficiency.

Step-by-Step Process of Online KYC Verification

Here’s how Online KYC typically works:

1. Visit the institution’s app or portal.
2. Enter personal details like Name, DOB, Address, PAN/Aadhaar.
3. Aadhaar OTP authentication via UIDAI if applicable.
4. Facial verification/selfie upload if required.
5. Video call with KYC executive (for V-KYC).
6. Upload scanned documents for ID and address proof.
7. Verification by backend teams using AI-OCR.
8. Get confirmation via SMS/email.

*Disclaimer: This is a generic overview of the online KYC process. The process may vary across institutions. 

Step-by-Step Process for Offline KYC Verification

Traditional KYC steps:

1. Download or collect KYC form physically.
2. Fill details manually (Name, Address, KYC number if any).
3. Attach photocopies of ID and address proofs, self-attested.
4. Visit the nearest branch/office and submit documents.
5. In-person verification by an officer (IPV).
6. Wait for backend verification and approval.

How KYC Ensures Safe Transactions

• Identity Assurance: Prevents fake and stolen identity usage.
• Transaction Safety: Triggers alerts for irregular transactions.
• AML Compliance: Detects and deters money laundering operations.
• Fraud Risk Reduction: Protects institutions and consumers from financial crimes.
• Trust Building: Verified customers encourage platform credibility.

As per FATF (Financial Action Task Force), jurisdictions with strong KYC norms saw 40% fewer cases of digital financial fraud.

What is Re-KYC? 

Re-KYC is the periodic process of updating customer KYC information.  

Why is Re-KYC needed?  

• To reflect changes like a new address or mobile number.
• To comply with updated regulatory requirements.
• To ensure ongoing monitoring and security.

Depending on your risk category (low, medium, high), RBI mandates Re-KYC every 2, 5, or 10 years.  

Budget 2025 Update on AI-powered Central KYC

The Union Budget 2025 introduced exciting upgrades to the KYC ecosystem:

Launch of AI-powered Central KYC Registry (CKYCR 2.0), with features like:

• Single Upload, Multiple Use: Submit KYC once, reuse it across all financial institutions.
• AI-driven verification: Accelerates KYC approvals and reduces manual work.
• Blockchain-backed data: For tamper-proof and secure record-keeping.
• Dynamic Updates: Address or ID changes reflect across institutions automatically.

This update is expected to reduce onboarding time by 70% and cut compliance costs by up to 40%, revolutionizing the customer experience.