Blockchain Use Case: KYC And AML

Organisations are interested in knowing their customers, which is useful in revamping their set of services. In the case of the finance sector, the operations like NEFT, IMPS, and UPIs are formed daily, it becomes vital to know the users and how frequently they are availing the services. After the past incidents, RBI circulated a statement that ‘every financial institution is required to have complete details of all its customers.’ Since then, the term KYC (Know Your Customer) came into existence. In this context, we’ll be focusing on all the aspects of KYC and AML (Anti Money Laundering) and how these are getting influenced by the intrusion of Blockchain technology in it.

What do we understand by Know Your Customer (KYC)?

While doing KYC, businesses take into account the end goal, to know the identity of customers before or during the instant they initiate business with them. Banks and organisations of varying sizes are significant supporters of KYC. KYC policies have been extending for quite a while and have become crucial all around along with issues relating to corruption, terrorist financing, and illegal tax avoidance resulting in so weighty.

KYC allows organisations to protect themselves and to guarantee the work carrying out together lawfully and also taking into account people affected by the financial crisis in one way or the other.

What do we understand by Anti-Money-Laundering (AML)?

A scam is everywhere, be it banking, payment industry or business. Thereby, there is an utmost need to bring out such a system which is fluent and could mitigate the risks associated with the process. For Preventing illegal transaction, specific laws and regulations are prescribed. They are mandated to make the transactions safe and secure, here upon the Anti-Money-Laundering (AML) comes into the picture. However, the sad reality is that the cybercriminals are discovering newer methods to steal the funds and thereby, following up the transaction system. Thus, it becomes essential to revamp the AML solution procedure.

How Is Blockchain revamping the KYC and AML procedures?

Although blockchain is exceptionally fascinating to help digital currencies to run efficiently, this is not the sole thing it m. Presently blockchain innovation is being used for various use cases ranging from distinct areas and businesses. It exchanges anything of worth online in an anchored and verified way. One of these utilise fact is KYC and AML.

Because of this, Blockchain could go about as an inconceivably secure and exact way to store individual information which is used for KYC and AML consistency. If Blockchain is utilised for KYC and AML compliance, a client could make a single “block” by feeding his or her data, which agreements for KYC and AML compliance. Consequently, this information would then be put into code and saved on the blockchain. The person is provided with a password or private key which must be input, taking into account to look at the data. There are various merits to using for KYC and AML.

The initial one is that a conventional KYC and AML Blockchain registry can be made and various banks and financial institutions can use it. The KYC and AML could quicken the onboarding procedure and significantly decrease the costing of KYC compliance. Whenever a bank is signing a new client, a bank representative can be provided with a password to get to the client’s KYC data. This makes it easy for the bank to walk the client through the more significant portion of this data every time.

Another key advantage is that a KYC and AML registry is also created for intra-bank use. This means when clients are using various bank services, that the bank could rely on the Blockchain registry to complete the KYC and AML consistency. Alternately handling the more significant portion of the compliances, again and again, each time the client has to use other administration or buy another banking produce. This can majorly quicken and lower costs for KYC and Ano penetrance, which would be majorly helpful for banks.

Blockchain has officially proven itself in the digital currency field. The banking industry spends millions of dollars on KYC costs annually, which assists banks in enhancing their primary concern and providing their clients’ easy onboarding in the process.

It’s essential for a bank to keep a note over the identity of their customers, hence Know your customer (KYC) and anti-money-laundering (AML) allows the bank officials to track the illegal transactions taking place via their banking platform and preventing ill-practices like- terror funding. In spite of these pros, blockchain holds in reviving the KYC and AML policies; there are some obstacles which are to be tackled before the blockchain technology gets into its full form to enhance the transaction procedures. Coming up next are the challenges associated with the KYC procedures and the recommended set of solutions to be put into effect.

What are issues associated with the KYC process?

Since banks deal with a large number of customers from retail or corporates, there is an utmost necessity for them to be aware of the details of the clients. However, due to the wide range of formalities under KYC, the whole process takes a long time, which makes it a tiring and complicated thing. Under a KYC, the following activities are carried out:-

· Allocation of client’s information

· Background checks to determine the authenticity of the information

· Keep a check over the changes in the personal details of the clients and thereby upgrade it accordingly.

Every bank conducts its KYC, where a lot of time is consumed, increasing the overall cost. Further, in case a customer switches an account from one bank to another, the new one conducts a KYC every time, which takes time and makes the KYC procedure complicated. However, to fasten the process, a centralised database system was adopted, which although allowed retrieving the client’s information from previous sources, but, is vulnerable to hacking attacks.

What are the solutions to it?

In a search for a newer and better KYC method, Blockchain technology was adopted. It is so far the best technology to smoothen the entire process, making it more transparent, diversified and adept. Some of the best features ut in by the blockchain are as follows:-

Facilitating the management of database digitally: To wipe off the need of conducting multiple KYCs, reducing the overall cost and smoothening up the entire procedure, Blockchain is beneficial. It saves the user information over the blocks in exchange of the token, which is provided to the user that can be used to retrieve the personal data as many times as required securely and confidentially, thereby omitting the need to conduct KYC several times. Hence, practising blockchain in the KYC procedures can lower the overall cost and enhance the overall customer experience.

One-time registration: By the use of blockchain the personal details are stored at one place, now whenever a user is asked for personal information via the banks, the user is not required to participate in new KYC procedure, instead select the bank name via the blockchain application. Now, upload the saved details, following upon which the bank checks whether the KYC is authentic or not. Once it is approved the transaction is carried out, and its associated details are saved over the blockchain ledger securely.

Working of Blockchain inspired KYC and AML.

Suppose you want to avail the transaction services of any other bank, then in that case blockchain can help in reducing the overall costs. Instead of asking you for the resubmission of your details, the bank will ask you for your KYC ID. After you confirm the verification of the personal information and provide the KYC ID, then this ID is used to verify the authenticity of your details over the blockchain similar to a public key.

Further, when we come to the Anti-Money Laundering (AML) procedure, blockchain technology keeps track of all the transactions made and spots the illegal activities. Thereby, cybercrimes, hacks and data leaks can be avoided by taking the use of this technology.


Summing up to these aspects it may be inferred by the intrusion of blockchain in the KYC/AML procedures; banks can assure more prominent security, consistency and operational effectiveness.

Expanding interoperability between organisations; a conclusion to exorbitant, tedious duplication of information gathering, information handling and information confirmation; and, at last, upgraded administrative consistency. For controllers, in the meantime, blockchain makes information on client action progressively visible and increasingly reliable. What’s more, for the hard-squeezed client, blockchain-put together KYC frameworks foreshadow decreased concerning loading up times and expanded trust in money related specialist co-ops.

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