Know Your Customer or KYC is a supervisory requirement that supports the present-day global economy. However, the current processes of KYC have been inefficient and outdated. Across the world, financial organizations conduct time-consuming, cost-heavy checks to verify customers’ identities and make sure they are not entwined in illegal activity like money laundering or bribery.
Not only do enterprise companies and institutions experience huge fines if they fail to comply with current regulations, but they mostly need to navigate between different regulatory borders. They also have to store and protect massive swathes of user data. Hence, professionals have started using the technologies that support the base of decentralized finance or Defi to offer solutions for problems that conventional financial institutions encounter.
Blockchain can aid in redesigning outdated KYC processes by enabling the impact outsourcing and decentralizing of personal data. At the same time, they allow the owner of the data to upkeep full control over their data. To evolve and deal with ever-increasing regulatory requirements, institutions should look to innovative technology to advance their current processes.
Practice of KYC
The whole KYC processes differ across the board. On a general level, daily processes like opening any bank account or sending payments demand you to fulfill certain criteria, and the responsibility of confirming that you do fall completely on the institutions offering services. In such times the authorities might ask the customers to provide a passport photo along with the address.
In other areas, institutions may need customers or companies to offer proper billing documents or locator forms to create their ground, residency, or even provide details of the source of funds they are using. The higher the stakes, the huger will be the scrutiny. It simply means that transactions of huge value often need in-depth checks.
There are indeed clear benefits to such processes that guard the financial services and promise the legitimacy of the economies. However, the labor-intense and resource-heavy aspects of KYC make it a concern for institutions around the globe.
The thought Behind Blockchain for KYC
Every company must verify its identity somehow, and it is specifically important for financial organizations. Verification boosts the companies to know their customer. Here, KYC protocols help the companies to ensure they know who they are dealing or doing business with. In a typical sense, it encompasses a long, protracted practice. In these, certain documents are shown, and some background checks or verification takes place.
The stress to increase KYC compliance has been emerging from regulators who are eager to stop the growing sophisticated financial crimes the world is seeing each year. But there is a powerful way to deal with all these problems. Blockchain KYC solutions can be of great help as they have a secure, public digital ledger to provide nearly instantaneous and secure identity verification. Since blockchain has an immutable nature, fraud might turn out to be a thing of the past for the record you keep there.
For example, you can use QR-based blockchain KYC in which there is a unique hash value in the secure QR code. This code is linked to the QR code on the blockchain network; hence, one can access the data of KYC only if the hash value of QR on KYC matches with the unique hash value on the blockchain network. Hence, it proves to be an efficient and future-proof solution.
Role of Blockchain for KYC
Many businesses have started embracing a digital signature’ that would keep a secure copy of all your KYC-compliant documents that they store on a blockchain. Specifically, if this is a public blockchain, it would have a decentralized nature and is both transparent and secure.
A bank or any financial organization looking to confirm customer identity will need permission to access the personal information. Here, blockchain-based KYC can play an efficient role. Since it is standardized, every financial organization globally would be able to share and view the same information.
One can do updates to personal information in the blockchain. It means any institution using the system will also be aware of any information alterations. Similarly, customers will be able to update their personal information throughout all their accounts with their digital signatures. KYC based on blockchain would mean that nobody would need to contact each institution with changes. Also, the institutions are never going to miss such changes as they do in the present time.
The Bottom Line
Blockchain for KYC is one of the most promising tools of decentralized technology. It serves a real need by reducing the KYC administrative costs as well as lost time. Not to forget, it is increasing security and transparency too. If you are still unsure how blockchain-based KYC can work for your institution and which software products for KYC are right, let us discuss it at ProofEasy.