Blockchain technology has come a long way. What started as a mode to protect cryptocurrency is now taking over the entire world as a security mode. While it plays a vital role in financial systems, it is now helpful for KYC.
Different data protection regulations are being implemented to ensure better security. Blockchain is considered an ideal solution for overcoming the KYC’s data management gap. According to Aite Group, around 47% of Americans reported the loss from identity theft.
Even today, many financial institutions are dependent on API protocols for data management. However, it is said that these financial institutions need a long-term strategy that will empower them in the long run. Using blockchain technology can play a vital role in maintaining security.
What Is Blockchain?
Blockchain is a distributed ledger on the digital public networks, existing across a network for those who don’t know. It enables the secure use of cryptocurrency. However, it is now being used for financial institutions, especially online KYC or eKYC.
Blockchain in the KYC Process
KYC Processes are an integral part of every financial organization, hence it is crucial that companies move away from outdated and time-consuming methods and move toward technology-enabled solutions. Blockchain technology is the perfect solution for online KYC as it can provide ways for decentralizing personal information while giving full access to users of their own data.
A blockchain-based data management system could simplify KYC on the backend by allowing permission to access consumer data needed for KYC that has already been obtained by other banks or financial institutions. This reduces client friction during KYC and saves the bank money on developing its own onboarding process.
With data encryption, Blockchain solutions for KYC also have the potential for increased cybersecurity and preventing fraudsters from accessing personal information that can be misused. It is particularly hard to alter data on the blockchain because it is immutable and verifiable, and there are records of access and user activities, assuring compliance.
How Can Blockchain Help In Data Management For EKYC?
The future will see significant improvements, especially in terms of online KYC. It will save money on identity verification and bring a more secure model for data protection. Now let us understand how it aids KYC verification.
- Distributed User Data Collection
Once you learn how to do KYC online, you should consider opting for different ways to secure it as well. In the future, KYC-based blockchain technology will help financial institutions to secure the process of identity verification.
All the data collected through KYC will be stored online in a repository or centralized system. Therefore, when your businesses need to access client data, you can reach out to KYC providers to know your customers.
With the blockchain network, the decentralized model of data will be available. Therefore, third parties will be able to access your data only when they have permission. Furthermore, this technology will also contribute towards maintaining the security of CKYC (Central KYC). The use of this technology ensures that anyone who has data access has received approval or grant from the relevant authorities, thereby offering you great data control.
- Regulatory Uncertainty
When you do the KYC check, you should also be familiar with the regulatory uncertainty. Financial institutions are apprehensive about investing in future technology, mainly because they still don’t know if it will be secure.
Businesses should consider setting up blockchain technology in the proper manner in their organizations. This will play an essential role in ensuring secure access to data. Moreover, it also allows businesses to check the process of data management across complex networks. Besides, when all the data is present in a single platform, it won’t be easy to keep up with the compliance regulations.
- Communication And Transparency
When it comes to data or financial transactions, transparency is one of the essential factors to consider. With blockchain-based KYC platforms, businesses will monitor day-to-day transactions.
The introduction of newer platforms will let businesses overcome numerous challenges. Furthermore, blockchain is immutable, which plays a vital role in developing trust among the parties. This also helps to reduce the need for extra validation or cross-checking. EKYC means electronically knowing your customer. Since you will have digital records of your customer, you won’t have to worry about the risks of data theft or transfer.
Its distributed ledger nature also plays a vital role in making communication and reporting easy. Not only does it save money, but also time. These parties allow reliable access to data, thereby reducing the risk of mistakes. Furthermore, it will also easily detect frauds, unlike the traditional time-consuming system.
- Lack Of Existing Shared Platform
The lack of an existing shared problem is one of the businesses’ major complaints. A blockchain-based data management platform wouldn’t exist until all the major organizations recognized its importance.
Implementing a cloud-based platform for CKYC will allow companies to manage data properly. It will also help unite the data management institutions, allowing better access. Furthermore, it is likely to keep up with the changing technology to manage the system.
- Automation Of Policies
Client data collection is one of the significant day-to-day activities for businesses. Businesses collect data through different methods ranging from ticket booking to making online payments. The technique for KYC check through policy standardization can be beneficial.
It can automate the KYC workflow, standardize the industry procedure, and enhance effectiveness, thereby reducing manual involvement. Smart contracts and blockchain are likely to automate policy changes as well.
- Data Security
A data breach is one of the biggest threats to organizations. KYC is one way that hackers try to steal important data. Businesses migrate their data to the cloud, but it can also cause problems.
Blockchain provides encryption, which further contributes to data management. It helps to overcome compliance issues, thereby preventing cyberattacks. However, it is advisable to refrain from putting crucial or sensitive data into a cloud-based system without security. It offers security through verification marks and data fingerprints to maintain integrity.
Final Thoughts
Regulatory compliance across companies are changing. With an increase in the risk of data theft and breaches, companies need to manage data effectively. The standardized process of KYC can play a key role in consolidating the data across a single platform, thereby securing it. Blockchain can offer long-term solutions that will be effective for financial institutions and other institutions handling large amounts of data.
Over the years, HyperVerge has enabled numerous organizations to overcome security challenges with proper KYC implementation.