KYC with banks has been a bad experience for many customers including problems like long delays, a lot of paperwork and lack of transparency in the system over their personal data.
We live in a world where government-issued identities define the identities in developed financial services and are controlled by acceptance of those entities or individuals like CRM, KYC, utilities etc.
In 2004 The Reserve Bank of India, like the rest of the world followed the lead and rolled out the need to “know your customer” and the same was followed by SEBI in 2012.
As the world is becoming virtually boundary-free, cross-border banking transactions have grown a lot. So there is a need to ensure adequate security measure is in place.
So KYC was developed and bring in use.
The need for KYC is to restrict anonymous accounts into the banking system, Customer Identification, Monitoring banking activities and risk management.
When the system came into existence at first it was working fine but after sometime when the size of the population increased and more KYC have to be done there are some disadvantages of the system like Every bank has their own specifications they adhere to and Due to lack of standardization, complying to each request in a customized wat consumes a lot of time.
So to eliminate the disadvantages and make a faster system IBM has a blockchain model for KYC.
How does the Blockchain model work
As we know that Blockchain is an immutable public ledger shared in the public domain. Every participant interacts with the blockchain using a public-private cryptographic key combination.
In its essence, since it is devoid of any single central authority, banks are taking a keen interest in its applications to solving the hassles created by the present use of the KYC process.
For KYC operations, banks can use an either a private or a public blockchain. In a private one, the bank uses it for its internal audit and regulatory compliance. In a public one, where it shares data and control with other institutions.
The first step is when a customer enters the Blockchain system, the bank(trusted party) verifies the documents. After that, once the verification has been done, banks uploads the customer data into the blockchain. Now, whenever or wherever any new data is needed to be added, the ledger could enable encrypted updates to the ledger. Digital identity can then be used as a trusted sign for future transactions.
The benefits of using a Blockchain system for KYC will be
- Improves data quality and fewer chances of committing fraud.
- Faster processing
- Manual error while performing the KYC initiation can be avoided.
- The authenticity of data depends on the Banks and to ensure data is valid is to be taken care of by them.
IBM has been working with banks around the world and has partnered with some big companies like HSBC, Deutsche Bank, and Mitsubishi UFG. In fact, in January 2018, IBM announced the successful completion of the “Proof-of-Concept Blockchain-based Shared KYC” in collaboration with leading financial institutions such as Deutsche Bank and HSBC. The implications of this technology for the financial industry are enormous, as is clear from the IBM announcement.
As per IBM BLOG: –
The enhanced customer experience and cost savings offered by blockchain for KYC are significant. However, as the announcement also makes clear, the transparency of blockchain technology also empowers governance, risk, and compliance across an organization:
“The governance of the shared KYC network will include regular certification of contributing banks to assess their compliance with the harmonized standards and provide transparency and confidence to the wider group of participating banks.”
Indian Insurers are joining hands with companies like cognizant for data sharing through Blockchain.
Indian Insurance companies are taking help of cognizant to build a platform using the Blockchain Technology. This is to assist the Insurers to collect customer and policy information for various KYC related due diligence activities.
I believe that blockchain is a game-changing technology for businesses. We will see the full potential of the technology in upcoming years. Firms like IBM are working to deliver cost savings, increased speed and reduced risk of blockchain for KYC within real-world business environments.
If you have any Query related to the topic add it in the comments section or you can contact me.
KYC using blockchain
by Anupama Jinde on Medium.com