The know-your-customer (KYC) due diligence process is outdated and generates costs of up to USD 500 million per year per bank. As emerge of blockchain technology, many conventional systems are now due for a change. With blockchain potentials the demonstration of revolutionary new set of currencies with proper protocols have become popular global currency system. The Blockchain's feature of smart contract has the best potential to greatly improve on existing systems and in turn, save companies with lump sums.
KYC AS WE KNOW IT TODAY AND ITS REGULATIONS
Identity can be easily established by government-issued documents such as driver‘s licenses, social security cards or passports etc. With this conventional system a major challenges are authentication of other identification sources, insecure systems, repeated instances of financial frauds and money laundering etc.It is also a prolonged procedure, huge amounts of paperwork, leads lack of transparency regarding the use of the personal data among parallel systems.
Blockchain has the advantage to automate many of manual procedure that involved in KYC and it would make universal stage that almost impossible to hack. Below is a discussion of possible adoption and advantages to KYC using blockchain.
Guidelines issued by the Reserve Bank of India for banks in the country include four key elements all of which require significant human oversight:
Customer Acceptance Policy (CAP) - This to ensure that no account should be have anonymous or factious names because to defense against fraudulent accounts.
Customer Identification Procedures - Every bank is responsible to identify their customers and verify their identity using reliable, independent source documents. . In the case of suspected fraud, banks should have a recourse to get in touch with the customers.
Monitoring of Transactions As per guidelines effective monitoring of accounts by the respective banks entails setting up daily and monthly limits for transaction range, also checking unusual activity among bank accounts. Bank also responsible to take attention on customers transactions are inconsistent and they particularly give attention.
Risk Management Banks be alert enough to lookout for emerging technologies up to date to prevent possibility of fraudulent fund transfers such as those which are utilized for funding terrorist’s events.
KYC on Blockchain
Blockchain technology permits for having of a distributed ledger that is often distributed to all users on the platform. Hence there is no single authority and it has no failure point as it has in client server model. Blockchain is immutability data storage method it would be a far more trustworthy. ID’s of individual which would be completely trustworthy if it used blockchain.
If fin-tech service industry, for an illustration, if they implements blockchain for KYC verification, they would be have ease method check users quickly and reliable, using application. Because of this advantages in blockchain database, government financial organizations and firms could depend on this data whole, its kind no need of further ID checks.
HOW CAN BLOCKCHAIN HELP WITH KYC VERIFICATION?
Coming days, blockchain enabled KYC usecases would support to bring less cost policy for any industry that depends on Identity verification process. Upon this technology it permits banks and other financial firms to depend on a great secure structured unified system of data managing. Below are benefits that KYC can be used
Automation and standardization of policy/operations
Clients information collecting would be a regular processed premise between various associations, significantly the ongoing advancement right now systemize and the consistent expanding information being gathered, presently blockchain give potential answers for use its smart contract and control work forms. Blockchain replaces manual oversight by proper usage of KYC system which would built using smart contracts and making this system standardize across the institutions. Improvement in digitization techniques will also enable the implementation of multilingual solutions, with the help of translation tools and smart contracts.
Centralization of controls and risks
Using standardized blockchain system, limiting human input in finance sector can reduce risks. User can have oversight of data and authorize directly to company access. This kind of approach reduces common mistakes or frauds. Blockchain could automate AML process and prevent risk ratings process by enabling key regulatory concerns. And this also prevents risk exposure, helps to mitigate risk. Hence bank sector can strongly consider identity security and access using this blockchain technology.
Governance and data quality
By nature blockchain data is immutable and secured by cryptography and cannot be altered unless 51% of network agreement. Current conventional system is silo-based, banks store data in servers and permits to access by internals and restricted by external access. Identity verification should be managed by each organization that is needed to achieve KYC protocols.
In case of blockchain it lets us create a ledger that can holds data in one place that universally accessed ecosystem. Access of database made easy to all who the one who authorized in system. Such ecosystem develops good governance and make ease in identify fraud early. It helps in prevention of the financial crimes and help them avoid hefty fines that are brought about as a result of compliance failures.
Communication and Transparency
KYC process on blockchain platform could control its operation from begin of registration to each day transactions, smart contract functions that would be defined to control fraudulent activities. In this approach we can also implement intimating bank people on any wrongdoing activities in the process. The trust in people for this KYC process can be come by the nature of the blockchain that has its data immutability. It eliminates manual verification process.
Since this technology is decentralized ledger, reports and communication become more efficient and saves lot of costs and time. Users connected to network could simply access reliable data, processes errors, and fraud could be detected even quicker. Comparing to traditional system this is far better because they take lot of time to identify and report and get resolve.
Comprehensive Authentication Process
For both in finding fraudulent activity and identity verification the cryptographic verification solution is essential and for data protection compliances too.
In finance institution these days the letting users have mobile banking is also challenging in terms of providing secure platform. For such concern this decentralized solution would address it for users. Blockchain’s decentralize system is secured system which provide less fraud likely. For hackers it’s almost impossible to retrieve some sensitive information when device is misplaced or stolen because they cannot change any information hence blockchain is immutable.
KYC BLOCKCHAIN – THE SCOPE OF APPLICATION
By not just limiting KYC application of blockchain powered to banks and letting it adopt wider through industries scope of application that require authenticated user identification.
The KYC registry on a blockchain could be gotten to by numerous businesses notwithstanding banks and other finance organizations. A considerable lot of these little organizations and associations require these information for various purposes, for example, confirming IDs before giving participation cards and so forth.
Assessment authorities could likewise get to it to accelerate their internal procedures. Different enterprises that require client information from such registries incorporate legal, FICO score organizations, stock trades, etc.
Technology giants like IBM have contributing their huge money in blockchain application which is undergoing by the help of other corporates HSBC, Deutsche Bank, the Treasuries of Cargill. Hence by this we can say KYC on blockchain has the potential to be a billion dollar industry.
Have indicated that blockchain innovation can supports improve KYC from various perspectives. Obviously organizations, for example, IBM have just perceived the points of interest this new innovation forms over existing frameworks.
Everything from the immutability of blockchain databases to their capacity to help improve straightforwardness in client ID will hugely help improve the procedure and diminish extortion.
Government bodies will likewise profit as hazard officials will have better access to information so the connection between the monetary divisions and controllers will be progressively straightforward. This gives the arrangement to a monstrous decrease of money related misrepresentation and violations in the long haul. Only time will tell what the true impact of blockchain technology will be. What is clear that the promise of this new technology has us all on the edge of our seats.