Using Blockchain To Resolve Know Your Customer (KYC) Process Issues
USING BLOCKCHAIN TO RESOLVE KNOW YOUR CUSTOMER(KYC) PROCESS ISSUES
Did you know that in 2020 alone, various institutions around the world were fined a total of about $10 billion? These fines were related to KYC, data privacy, and anti-money laundering. KYC processes are meant to ensure the legality of actions in organizations and individuals they do business with. This is achieved through step-up regulations. Especially getting a solid grasp on the personal identities of a customer.
However, carrying out the KYC process has proved to be very challenging. These challenges include undetected risks, time consumption, cost, and the possibility of money laundering. Also, poor record-keeping is one of the major challenges. Can the introduction of blockchain to KYC processes solve these challenges?
Blockchain comes with process optimization and cost control. Consequently, it allows for data quality checks and its governance, risks management, automation of operations, and standardization of policies.
Creating A Single Database
Blockchain is like a storage cloud yet more secure than the traditional storage cloud. Its security is advanced as it offers decentralized storage. For instance, opening a new bank account requires an individual to follow the KYC process. Repeating the process every time increases the possibility of an information leak. Recently, Facebook experienced a data leak of about 500 million users’ information. This painted a picture of the brand’s inability to protect users’ personal data.
A decentralized KYC database for the entire global banking is possible with blockchain. Adoption of this can provide universal accessibility and lower customer acquisition.
Blockchain enables the recording of each transaction's complete history. These records allow inclusive system analysis instead of just keeping track of entry and exit points. Also, verification of accessible KYC data can be done as soon as information is uploaded. Standardization of policies is thus will be achieved. Blockchain helps cover all the regulatory requirements.
Automated Alert Mechanism
Lack of an effective alert system leads to inefficiencies. Blockchain enables money laundering mechanisms to be detected easily. Additionally, blockchain technology permanently stores information, thus easy tracking of original sources. The stored information can’t be altered. How can storing information help in the alert system?
Uploaded information can be saved with associated restrictions on the blockchain. When this data is modified, an alert is received on several Financial Information (FIs) services on the network. The blockchain readers get immediate notifications when transactions occur enabling analysis for any illegal activity.
Also, the blockchain validates transactions. It supervises all the transaction phases. These phases include destination wallet, departure wallet, currency type, and the amount transacted. Regular automated check-ups can be done using a set of functions like Trulioo. If any of the phases isn’t verified, the transaction will be blocked immediately.
With blockchain transaction information is available and with its ability to assist risk classification algorithms, insufficiencies brought about by lack of alerts are solved.
In conclusion, KYC is sometimes manual and can be time-consuming. Storing KYC information on the blockchain would enable banks to deliver improved compliance outcomes. Additionally, they can improve customer experience and increase efficiency. This way they achieve security over data and compliance to regulation.
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