Blockchain's use case in KYC and Identity Management
A blockchain is a public ledger which is digital and uses cryptography to store data that are chained together in forms of a block. Blockchain is very secure as millions of copies are stored on the internet. It makes the hacking of information impossible. Blockchain is the latest innovation in the field of technologies and is a big advantage of digitalization.
Blockchain gave the access to transfer money and perform transactions without the involvement of any third-party. Bitcoin, a premium asset of blockchain brought a revolution in the world of currencies. No one ever thought that there will be a P2P transaction mode.
Now, blockchain is on the path of other innovation, that is digital KYC. Know Your Customer or KYC is a process that is performed by banks or other financial institutes to identify their customer so that no threat can be caused to them or their monetary assets.
This is a very modern innovation in the digital world. Now, if your transactions can be recorded then why can’t your identity. The advantage is that no one can falsify to be you. Isn’t that great? It's like being immortal in the digital world. Your identity gets stored in the blockchain for till this world ends.
Blockchain has made it possible for the real owners to control data and manage their identity properly.
It makes sure that user experience hassle-free management of identity and surfing all the sites through a single channel. Blockchain even solves the problem of lack of privacy on a few online portals. The information stored is completely under the real owners. They can determine what all information is shared, with whom and for how long.
Now, let us understand the term KYC.
KYC or Know Your Customer is a process that is carried by the banks or any financial organization to prevent falsifications in the real identity of its customer. Know your customer forms are likewise utilized by organizations of all sizes to ensure their proposed operators, experts, or merchants are against bribe. Banks, safety net providers, and creditors are progressively requesting that clients give due diligence information related to anti-corruption.
Recently there has been a guideline that was given by RBI which states that a KYC policy should be formulated by all the banks. The key elements are:
1. Customer acceptance policy
2. Customer Identification policy
3. Monitoring of transactions
4. Risk management
Customer acceptance policy:
This policy refers to the guidelines that a bank follows in allowing the customer who is willing to open an account with them. No person can open the account in an anonymous or a fictional name. The identity of a customer should not have any criminal records. The account can be opened if all the documents are completely verified.
Customer Identification policy:
This policy includes the verification of a customer through the information, certain data, and documents. All the documents need to be submitted in order to the laws and norms.
Monitoring of transactions:
The transactions done by the owner of any account that is associated with a bank can be monitored. The process of monitoring a transaction is formal and it is carried out to trace a suspicious transaction if it's performed by any user.
Inadequate risk management may result in reputational and legal risks. Sound KYC strategies and methods not only contribute to the bank's general security and soundness but also saves it from becoming a helping hand in any kind of non-ethical activities like terrorist financing and money laundering.
How Blockchain solves all your problems?
As discussed earlier, blockchain is an innovation that has opened new doors for the identity management. Blockchain has successfully managed to make digital transactions easy and more convenient. In the same way, it can do wonders for managing the identity making it more secure and hassle-free.
Blockchain will verify a customer and won’t let anyone falsify an identity. You have to provide the verified documents which will make sure that the identity is real.
All the verified documents will be stored and can be regained even after 200 years! So no point that a blockchain will forget anything that you stored.
Blockchain is productive and innovative that it will monitor all the transactions and will catch a suspicious transaction at any point in time.
It is fully qualified to manage the risks so it won’t result in encouraging unethical acts. Moreover, it facilitates real-time data exchange. It uses intra and inter-bank verification which reduces processing costs.
The KYC by one bank can be used by the other bank. The only thing required is the agreement between the two banks. If there is trust, this is a good option. Now, blockchain helps to build that trust as it is safe and way more secure.
The KYC by one branch of a bank can be used by the other branch of the same bank. It is required so that the customer doesn’t have to face many difficulties. Blockchain has made it possible.
The entire process and the platform is backed-up on the cloud. It will help in regaining all the stored data making it more secure. Let us know what you think on this in the comments below!!