Know Your Customer or better termed as KYC was introduced by banking organizations to prevent financial frauds, but it turned out to be an easy target for hackers to lay their hands on the individual’s personal data. The main flaw with the system was that it was initiated with the motive of data collection and no measures of security were adhered. As a result, every year organizations face billion dollar loss because of identity theft. On the other hand, blockchain technology which has showcased itself as a secure, encrypted, distributed ledger capable of delivering smart e-Wallet seems like the most reliable option for tackling KYC fraud challenge.
In the simplest terms, blockchain is a distributed ledger supported by immutability, encryption, and authentication that eliminates the middlemen concept by the peer-to-peer transaction. Integrating such data storage platform can prove handy for KYC purposes as it will eliminate breaches from an unauthorized user in the network and provide complete data sovereignty to customers. Blockchain equally benefits financial organizations by leveraging them to comply with regulations and policies in an automated manner and high security.
Data Accumulation: Traditional data storage and collection involves middlemen concept giving them the control over data. Whereas, the blockchain ledger is decentralized, allowing peer-to-peer transactions for secure data collection without any middlemen. Such a framework will empower banks to maintain end-to-end encryption communication with their client, assuring complete security and privacy of their data. Also, customers can share the same KYC profiles with multiple financial organizations to save time and redundancy.
Compliance with Regulations: As the ledger provides 100 percent accountability of data by automatically recording data transactions, institutions will have a helping hand to maintain KYC standards and comply with policies. Smart contracts can send a daily or at regular intervals report to authorities about data, reducing repetitive review time and efforts. The process will be carried out automatically by algorithms coded in computer programs.
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Data Security: Perhaps the most evident and significant one. The decentralized ledger prohibits any unauthorized entity to breach the network, still if any disruption takes place; data stored is encrypted and can only be decrypted by an authorized key. Taking the instance further, the ledger is immutable disabling any tampering with the stored and keeping complete accountability of its transactions.
In a nutshell, considering the current KYC data frauds and blockchain’s abilities, it is the most effective solution that can be put to use for combat the same.