Nepal Rastra Bank (NRB) has made a mandatory Know Your Customer (KYC) requirement for digital wallet companies since Shrawan 2081 for carrying out financial transactions through mobile wallets. Such provision is made to combat financial crimes and fraud that are possibly channelized through e-wallet platforms in Nepal. 

For all the Payment Service Providers (PSPs), customer identification verification is very important to comply with regulatory requirements and compliance, also to protect from potential threats, and to ensure transparency. This also helps in building trust and maintaining security in financial transactions.

The main application of KYC lies in its ability to collect data such as personal information of the wallet users (name, address, DOB, phone number, details of parents and grandparents, proof of income etc.)  verified on their certain identification documents as prescribed by Nepal Rastra Bank’s KYC guidelines, such as Citizenship/Driving License/PAN/Passport/Voter ID. All this information helps digital wallet companies confirm identities and establish customer legitimacy, along with mitigation of risks from money laundering, terrorism financing, financial frauds and other illicit activities. 

Customer Due Diligence (CDD) including the KYC verification process is a vital part of anti-money laundering (AML) to control illegal financial activities. Maintaining new and existing customers’ CDD remains central for compliance and the audit's purpose as well. Thus, digital wallet companies require ongoing monitoring of financial transactions of their customers to early detect suspicious transactions and report them to the concerned authority by taking corrective action instantly. 

Currently, eKYC is evolving as an instant and effective method for verifying customers. It is mostly used by banks; however, digital wallet companies are still in the phase of exploring. It saves both time and cost, reduces manual work, and enhances onboarding processes to drive customer satisfaction. 

Adhering to KYC and AML helps to save from legal charges and penalties and to maintain a good relationship with government and business entities. Besides, it fosters a good environment for operating businesses by preventing financial crimes. Moreover, proper dissemination of required information to various Legal Enforcement Agencies (LEAs) plays a remarkable role during the investigation of financial frauds so that the culprit can be traced timely.

Hence, an effective KYC is required not just for the compliance but beyond the compliance.