Ever since the global financial crisis in 2008, KYC regulations have become very strict in many countries. This gave rise to a lot of issues, ever since. It turned out to be more of a headache to customers and banks than to make the processes easier.
Problems and challenges of the traditional KYC systems:
1) Inadequate Database
Regulatory authorities in almost all the countries have been penalizing banks to the tune of hundreds of thousands of dollars. This has been done, when banks fail to adhere to regulatory norms. In addition to losing business to fulfilling KYC requirements, banks have had to pay hefty penalties. Bankers blame it on the system and “inadequate database”. Hence, some of the banks have moved towards adapting blockchain technology to solve this problem. There have neither been proper databases nor registries, which led to huge complications in the process.
2) Lack of an All-Encompassing Technology
Currently, banks neither meet nor solve KYC requirements and problems. This is due to lack of an all-encompassing technology. The onus is on banks to meet KYC requirements but the problem is in the lack of a proper system. Even in intra-bank processes, banks have difficulty in handling customer information, as is necessary to meet the requirements of each department. At the same time, if a customer operates multiple accounts in multiple banks, the discrepancies grow even wider. Hence, performing KYC processes only once should suffice, which should then be published, distributed and shared. It is these problems that blockchain technology could conveniently solve, which makes it the technology of the future.
3) Lack of Unique Identification
Currently, many countries, except for few developed countries, lack any system or technology to provide unique documented identification of each individual. Multiple documents issued by multiple authorities do not consolidate into a single verifiable identity. Blockchain technology offers the solution of a digital identity, which will be verifiable by banks and other external agencies. Verifying the unique identity of a customer has been a major challenge for banks at the database level.
4) Onboarding and Overhead Costs
Banks face plenty of difficulties in successful onboarding, profiling and monitoring of customers. Onboarding, in itself, is a cost-intensive activity, while performing KYC checks leads to unwanted costs, effort and waste of time. This prevents banks from concentrating on their core business, while stringent KYC norms can even turn away a good customer. So, currently KYC processes lead to a lot of onboarding and overhead costs, while also leading to loss of business. This is another major challenge faced by banks, which led to de-risking and avoiding business altogether.
The challenges faced by banks in regard to KYC compliance have been huge. Lack of proper systems and inefficient and ineffective technologies are to blame. This is where blockchain could play a vital role in overcoming these problems and challenges in KYC processes.
RecordsKeeper can overcome all the challenges in KYC at a very low cost.