The KYC (know your customer) process has historically been costly, mandatory, and for the most part, Inefficient. It requires financial institutions to acquire customers’ personal information, such as their name and address, along with a myriad of financial information, including bank statements or tax returns.
This process begins at the customer’s onboarding phase and can be frustrating and off-putting to potential clients.
Every bank is also required to perform its own KYC, even if another bank has just completed the same task on the same customer. Blockchain-based KYC has many advantages, one of which is being worked on by numerous companies, which includes keeping a ‘digital signature’ that keeps a secure copy of all your KYC documents stored on a blockchain.
Another advantage is, that if a ‘public blockchain’ is being used, it would have the added benefit of being both transparent … and more importantly, more secure.
A bank or other financial institution that is looking to verify customer identity would simply need to be given permission to access the personal information, making blockchain KYC incredibly efficient. It would also be standardized, so every financial institution around the world will be able to share and view the same data.
‘A bank or other financial institution that is looking to verify customer identity would simply need to be given permission to access the personal information.’
Updates to personal information can be done in the blockchain, meaning any institution using the system would also be aware of any information changes.
Customers will seamlessly be able to update their personal information across all their accounts easily through their digital signatures.
KYC using blockchain would mean that they wouldn’t need to contact each institution they hold accounts with regarding any changes, and the institutions themselves, wouldn’t find themselves missing important customer information changes as is the norm, currently. I think we generally call that a win-win!
Blockchain in KYC is one of the most promising applications of the decentralized technology, by decreasing KYC administrative costs and lost time while at the same time increases customer security and offering greater transparency.
‘Blockchain in KYC is one of the most promising applications of the decentralized technology,’
Let’s take a brief look below at how KYC came to be, as an anti-terrorism device, along with combatting money laundering.
Know Your Customer History
In 1989, G7 nations formed a group known as the ‘FATF’, set up in an attempt to control the spread of money laundering. The task force has since grown to include over 40 member states, and deals with anti-terrorism and also anti-money laundering from a global perspective (AML).
Some of the main requirements developed by the task force included:
- Preventing anonymous accounts
- Creating enhanced due diligence, commonly known as EDD
- Monitoring suspicious transaction
- Risk management
Trial KYC on blockchain
Companies are already hard at work creating blockchain KYC use cases and creating KYC blockchain systems. Those such as SelfKey and Civic are already working on new products, some of which are currently available for trial use.
These systems offering KYC on blockchain are sure to attract the attention of financial institutions that are facing an ever-increasing list of regulatory difficulties. Cryptocurrency wallets and exchanges are also facing challenging customer issues regarding KYC, AML and important anti-terrorism regulations.
Blockchain technology KYC systems can ease these difficulties, and also help to lower costs and benefits both financial institutions and customers. The way it works is by more quickly getting clearance and increasing customers’ trust, transactions can become overall more efficient on a global basis.
While private blockchains will most certainly help financial institutions with their customer information and onboarding processes … but only by building a global and trusted public blockchain, will many financial companies or particular individuals be able to access the benefits of such a system.
The argument for blockchain KYC use case
The argument for the blockchain KYC use case is gripping, and it may only be a matter of time before industry leaders will consolidate these requirements and provide a standardized method for identity verification.
KYC using blockchain represents a shift away from individual institutions doing repetitive and time-consuming, unnecessary work and will continue to build trust and stronger customer support systems.
I will leave you with a quote which I would loosely aim toward the large global corporate movers and shakers…
“When you transition, everyone kind of has to transition around you.” – Chastity Bono
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.