KYC processes required by banks are repetitive, and there is little competitive advantage to be gained in a bank creating its own unique process now that digital onboarding has become the norm. Still, it’s necessary that KYC be handled by each individual institution, requiring banks to invest significantly in both the data collection process, user experience and how it’s managed in back-end systems.
Could Blockchain Help Financial Institutions Improve Know your Customer Data Management & Compliance?
While technology has enabled know your customer (KYC) proceedings to become a relatively pain-free, streamlined digital process on the front-end, the question of how to best manage consumer data collected during the KYC phase is far from answered. In the not-so-distant future, blockchain technology has the potential to enable a wide-ranging, global solution.
As people continue to share their personally identifiable information (PII) at unprecedented rates, new data protection regulations like GDPR in the EU and CCPA in California are forcing banks to get their act together in terms of how they manage consumer data. Even so, there’s still a lot of room for improvement and standardization in this space, as most financial institutions are relying on bespoke, disparate API protocols to manage, share and report on their consumer data.
Financial institutions need a long-term strategy to protect their customers’ KYC data and overall privacy. This blog explores a few of the current state challenges associated with KYC and evaluates whether blockchain is the right technology to solve them.
Current KYC Challenges & How Blockchain Could Help
While many banks are creating dashboards to enable consumers to control where and how their data is shared, that doesn’t solve the majority of underlying data management issues. What’s more, financial institutions spend an average of $48 million annually on KYC processes, creating a cost burden that is likely to grow as more regulations are introduced. Here are some areas where blockchain’s DLT could make a real impact in improving data management and reducing costs:
With the regulatory mandate of Open Banking in the EU and the overall push for open sourcing solutions across the financial services industry, the banking landscape is favorably positioned to adopt a new technology like blockchain that could prove beneficial for financial institutions. Indeed, given its potential to standardize KYC data management, consolidate data storage on a single platform for all banks, help ensure compliance with new and existing regulations, and reduce technical debt, blockchain shows a lot of promise as a long-term solution for financial institutions and other types of businesses tasked with handling large volumes of consumer data.
Despite the potential, designing and deploying these blockchain solutions is going to take a lot of time and resources, which is why there are very few low-hanging fruits and quick wins in this space.
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