Interlinking Blockchain Technology for KYC process to ease up banking verifications: Banking regulations vary by country and change over time, but there’s one rule that remains constant across the globe, banks must conduct KYC (Know Your Customer) verifications to be in line with the law. While this process makes it harder for new clients to open accounts, it also prevents money laundering, fraud, and other illicit activitie as from occurring within the global financial system.
However, KYC policies also tend to be cumbersome and slow for business owners and customers; as a result, many potential clients are turned away by banks before they even start using their services.
What is Blockchain?
A blockchain is a continuously growing list of records called blocks. Each block contains a timestamp and a link to the previous block.
Blocks are added at regular intervals by the network nodes that validate new transactions, which adds them to the chain in chronological order.
The data on a block cannot be altered retroactively without altering all subsequent blocks, which requires the collaboration of the network majority.
Once recorded, the data in any given block cannot be altered or removed. No central database or server stores the information; instead, it is distributed across the entire network (a peer-to-peer system). Verifying transactions and identities – could greatly reduce fraud risk in the banking industry.
How can Blockchain be used for KYC?
Blockchain technology is a revolutionary way for banks and financial institutions to store data and execute transactions. One of the many applications for Blockchain is KYC, or knowing your customer. Banks and other financial institutions are required by law in many cases to know their customers, which can be time-consuming and use up resources. Banks could use blockchain technology to verify identity information without relying on third parties such as governmental organizations or credit bureaus. By verifying this information, banks could determine whether someone qualifies for certain services with them.
This verification system also has additional benefits: it is transparent, faster than traditional methods, and saves money. For example, every year, millions of people have to go through expensive and lengthy processes to prove who they are to open new bank accounts at different banks; with a shared ledger system like Blockchain, all you need is access rights from one bank to show proof online at another bank.
Benefits of using Blockchain for KYC
- One of the many benefits of using blockchain technology in a KYC process is that it is more secure than traditional methods and allows for the verification process to be streamlined. This gives banks more time and resources to dedicate to other business aspects.
- Another great benefit is that because blockchain transactions are immutable, they eliminate the risk of being hacked or having any data tampering.
- Make it cheaper for banks to verify clients.
- Verification is instantaneous, as opposed to a time-consuming process that takes days or weeks.
- Transactions on Blockchain cannot be deleted or changed once they have been recorded, making them perfect for storing sensitive information like personal information required by KYC procedures.
- Reduce fraud and identity theft by ensuring all information is accurate before the account is opened.
- Blockchains are decentralized, which means there is no single point of failure, meaning hacking attacks will require the attacker to gain control over 51% of all nodes on a network. In contrast, centralized networks have one central node, which would make attacking them easier.
- Additionally, blocks on blockchains are encrypted, which helps protect sensitive information from cybercriminals who might want to steal valuable financial information.
It’s worth noting that hackers find new ways to break through these systems as blockchains become more popular and as interest grows in cryptocurrency markets. It’s important for companies to always be aware of the latest security vulnerabilities and keep up with patches when possible. There are some concerns about scalability and how well blockchains scale in large numbers, but developers are working hard to solve this issue.
How do banks benefit from the KYC process?
By law, banks must ensure that all their clients are who they say they are. They do this through the KYC process, verifying a customer’s identity by using information such as their name, date of birth, address, and other data points.
This verification helps banks identify who they are doing business with. The information is then stored in a database and connected with other vital information like criminal records and financial history. With time, these different databases have become increasingly difficult to maintain individually, and regulators have been looking for ways to unify them under one platform for ease of access.
With blockchain technology, it is possible for each bank or any given organization to store its own information on its own blockchain network but also be able to link together networks to share data.
In other words, there would no longer be just one centralized database containing every bit of relevant information. There would instead be multiple decentralized ones that would connect to one another if necessary.
By linking these databases together and storing various bits of information (such as names, addresses, and phone numbers) on each block while linking those blocks to others containing other bits of info (criminal records), all the relevant pieces can come into view when needed.
Blockchain technology can potentially change how we do business and make transactions with one another. Blockchain could have a profound impact in easing the burden of onerous Know Your Customer (KYC) processes for banks and their customers.
Today, businesses must provide extensive personal information about their customers to comply with anti-money laundering regulations; this process can be time-consuming and expensive for both companies and individuals.
Furthermore, there’s no single central registry for this data so each institution must independently verify an individual’s identity. Blockchain’s distributed ledger system would allow data to be shared across all parties meaning that verification times would decrease significantly.