The power of blockchain in the Financial Industry

TradeRiser
traderiser
Published in
3 min readOct 16, 2018

With Blockchain being associated with crypto currencies we at Traderiser wanted to share with you the power that Blockchain can deliver to the Financial Services industry.

“Know Your Customer” (KYC) duties is an integral process in the Financial Services industry. The market today is flooded with KYC utilities that help manage and validate the customers documents and identities, however, these utilities provide little value addition.

Blockchain technology with is concept of distributed, time-stamped ledgers, can effectively help financial institutions improve their KYC process by facilitating real time data in the between various blockchains.

A little bit about the KYC process:

KYC processes are normally repetitive, inconsistent and duplicated, leading to high overheads.

Currently KYC documents are:

  • Collected and stored internally, using a document management system
  • Shared with multiple external agencies for validation
  • Updated by the Financial Institutions in their internal repository upon successful validation and reported to the Regulator.

Incentives by private entities such as SWIFT, banking consortiums, and government bodies had led to an upsurge in the number of KYC registries. These registries act as a centralized depository that store all documents and information related to KYC compliance.

Every Financial Institution has to perform the KYC on every customer, individually and uploaded the validated information and documents to the central registry in their own country.

What are the current challenges?

Some of the challenges associated with KYC compliance are:

  • Data Integration — currently, several third party data providers and external validators offer data and interfaces to extract the required customer information. However Financial Institutions struggle to integrate this data to obtain a consolidated view for the customers which can lead to failure in illustrating regulatory requirements, resulting in huge penalties and reputational damage.
  • Expensive technology — post due diligence, Financial Institutions need to digitize data in the documents to fed into the repositories. This is an expensive exercise, as it uses advanced technology platform.
  • Evolving regulation — Increasing regulatory and compliance issues means the KYC landscape is constantly under a microscope. This makes it vital for Financial Institutions improve their data collection mechanisms.

How Blockchain can help?

Blockchain technology can be used to develop two separate models to enable intra and inter-company verification and update processes.

Intra-bank applications — Financial Institutions can use blockchain technology to deploy an intra Financial Institutions application within the same industry. This significantly reduces times and effort spent in repetitive due diligence processes. If a new service request requires additional customer information not found in the ledger, the model allows the Financial Institutions to update the ledger and get it revalidated by external agencies, which essentially translates into re-KYC.

Inter — Financial Institutions application: This model requires numerous Financial Institutions to reach consensus on the validation process to maintain trust and integrity. If banks use an inter connected blockchain platform it allows banks to enhance process efficiency, standardizing KYC processes and performing near real-time customer validations.

Centralized blockchain-based KYC: Financial Institutions can also be linked to a centralized KYC repository along the lines of the existing KYC registry system. In this arrangement, customer data and documents are stored in the distributed ledger, and the Financial Institutions that performs the KYC stores all relevant details and generate a unique KYC number. When another Financial Institution wants to perform due diligence on the same customer, it can use the unique number to access the central repository.

Conclusion:

A blockchain — based solution offers a unique set of advantages that enable the seamless and secure exchange of the information between different trusted entities.

It can drive substantial reductions in processing costs, as the infrastructure cost for building the new solution will be a mere 20% of the current KYC processing costs.

Centralizing the process will create a common customer on-boarding framework, making the entire process a lot more efficient and cost effective.

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TradeRiser
traderiser

TradeRiser is an innovative fintech company, leveraging the blockchain and artificial intelligence to answer both simple and complex trading questions.