Know Your Customer, or KYC is an important foundational process followed by banks, insurance businesses, and other organizations to verify their customer's identity and address details. The process has undergone several iterations to make it more efficient and accurate.
Yet, organizations face several challenges, which become more pressing as they attempt to scale at an accelerated pace. Duplications, errors, and delays in the KYC process hamper the pace at which businesses can grow.
In this scenario, blockchain application comes with tremendous potential to disrupt all barriers. It can also have a massive impact on the profitability of businesses.
According to US-based market intelligence firm BIS Research, leveraging blockchain's distributed ledger technology (DTL) systems in KYC compliance can help financial institutions generate aggregate cost savings of between $6 to 8 billion per year.
In this blog, we explore the challenges faced by organizations in India's KYC process, as well as the potential for accurate and speedy KYC verification via the blockchain.
The Reserve Bank of India (RBI) first introduced KYC verification guidelines in 2002. The aim behind the measure was to strengthen processes to prevent the occurrence of money laundering, theft, and financing terrorism.
In 2004, RBI made it mandatory for all banks to follow the KYC verification process when onboarding new customers. Customers need to provide proof of their identity as well as their address.
Today, a wide range of organizations leverage the KYC process to ensure the onboarding of legitimate customers. With the introduction of technology into the mix, customers can also do the KYC verification online, besides physically visiting the bank or organization that mandates the KYC process.
Key challenges of existing KYC ecosystems include:
One of the key advantages of leveraging blockchain applications in KYC is that it builds a centralized approach to the verification process.
Using blockchain's DLT system, customers need to update their documents as a one-time process. The information and documents are stored on a centralized encrypted server, instead of in silos, across multiple databases of various financial institutions.
Whenever a new financial institution requires KYC verification, the customer need not undergo the entire process all over again. They merely need to grant access to the financial institution.
Whenever a customer updates their details, the new information is updated in the centralized server in real time. The data is considered extremely secure as it can only be shared with prior permission from organizations and customers.
Here's a snapshot of key outcomes for businesses and their customers when blockchain and KYC connect the dots:
Today, a spectrum of organizations engaged in record keeping, smart contracts, securities, and digital currency, are leveraging blockchain digital ledgers to automate and streamline their KYC verification process. The best way to integrate blockchain into the existing ecosystem is through partnership.
Organizations can partner with a blockchain development specialist who offers the full stack of blockchain developer-friendly APIs, accompanied by hassle-free integration. Your blockchain service provider will develop a thorough understanding of your business model and challenges and offer a relevant blockchain solution.
Organizations that integrate blockchain into their ecosystem only on will develop a competitive advantage and be able to increase their market share in the long term. Outsourcing block applications and integration to a specialist also frees up the bandwidth of businesses to focus on their core business model in a highly competitive marketplace.
