What role does digital KYC play in personal loan approvals? All you need to know
KYC is a legal mechanism for verifying a borrower's identity and address. It helps lenders establish the capacity to repay while also aiding in the prevention of fraud, money laundering, and identity theft.
KYC verification is mandatory for all personal loans in India under RBI and AML (Anti-Money Laundering) mandate. No funds can be released without providing KYC approval. It's not an optional step; lenders must collect KYC and approval.
Digital KYC (also known as e-KYC) essentially does away with paper forms. Candidates confirm identity through either PAN verification, Aadhar OTP or biometric validation.
In some situations, live video KYC may be best; in this situation, borrowers are generally asked to show documents while the agent or artificial intelligence "looks" at them in real-time to confirm.
Fin-techs and digital-first banks are moving towards this method because it is fast and has less friction. Faster processing for personal loans: Digital KYC facilitates a more efficient loan processing period, with identity verifications happening in minutes (rather than days). Advantage of being paperless: Instead of going into the branch, customers can upload their PAN and Aadhaar digitally, authenticate by OTP, and complete the verification process from home. Fraud prevention: Automated checks, biometric verification, and online check all lead to increased lender confidence in the borrower's identity and reduce human error and ensure affordability. Greater accessibility: KYC can be done by residents in economically weaker or remote areas without any travel hassle, ensuring access to credit for everyone regardless of location. Verify your legal identity and address to comply with RBI and AML guidelines.
Assess credit risk KYC helps assess income stability, reliability, and traceability.
Lenders can quickly obtain credit scores for more accurate lending decisions once identity is verified. Go through the entire application process online; there are no face to face elements. Complete the process for identity creation and verification in minutes. Quickly credit risk assessment and underwriting meaning completion for the lender, shortening the time needed for the final decision. Get paid in hours after acceptance (especially for already approved loans). Digital literacy: Video calls and e-KYC are new concepts for some individuals.
Video calls and e-KYC are new concepts for some individuals. Connectivity challenges: Video KYC requires good connectivity, and may not be as accessible in remote areas, because it requires stable internet with decent bandwidth and quality cameras.
Video KYC requires good connectivity, and may not be as accessible in remote areas, because it requires stable internet with decent bandwidth and quality cameras. Privacy of data: There is sensitive personal data here, so lenders must take great care to ensure secure encrypted handling.
In conclusion, digital KYC is mandatory and has potential to reduce fraud, so it saves lender processes and makes it easier for borrowers. Digital KYC will only increase its importance and bring greater innovative transformation as India moves toward greater standardization of KYC and interoperable digital IDs.
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Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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