Client Onboarding & Blockchain: A Match Made In Heaven
Blockchain technology is mostly associated with cryptocurrencies. That’s what brought attention to it and what most people think it’s synonymous to. The truth of the matter is that blockchain is a new breed of technology with limitless potential, able to redefine entire industries.
It is a network that encrypts and stores all types of data in blocks, making it diverse enough to be used across many industries.
Whilst most people associate it with financial institutions and currencies, the KYC industry has something to say about that. Today, we’ll look at how blockchain is changing the KYC process and more specifically, client onboarding.
HOW DOES CLIENT ONBOARDING ACTUALLY WORK ON THE BLOCKCHAIN?
According to Deloitte, 38% of new banking customers will abandon the onboarding process if it takes too long or requires more information than they are prepared to disclose.
At least 26% of those customers feel that “easy enrolment and login” are the most important criteria on which they decide who to bank with.
Client onboarding is a business driver. It can make or break your business and this is exactly why interested stakeholders have been looking to improve it for quite some time now.
It comes as no surprise that the European Commission has been funding blockchain projects through the European Union’s research programmes FP7 and Horizon 2020 since 2013. Up to 2020, it will fund projects that could draw on blockchain technologies for up to €340 million.
Client onboarding is one of the most challenging parts of KYC for businesses and FIs alike. Before opening an account, a prospect needs to be vetted in more than one way in order to assess their viability.
Here are some of the boxes that need to be ticked before onboarding a customer:
- Identity verification
- PEPs screening
- Sanctions screening
- Beneficial ownership or Director in a Company
Companies and FIs are currently using an amalgamation of online platforms and manual processes to check these boxes. This process is time-consuming, complex, costly, prone to error and redundancy.
What Distributed Ledger Technology (DTL) can do to change that is allow companies and businesses to upload data on the network’s blocks, where they can be updated by consensus between the participants.
By design, DTL maintains only “one version of truth” for sensitive client data. When an employee is searching for a piece of data on the blockchain, they only get the one version that actually exists.
That version is checked and verified automatically by the blockchain platform. Employees don’t need to talk to their coworkers, look for older versions of the customer profile or try and combine information from different databases.
The code itself is taking care of maintaining one truthful client profile with all the necessary information.
WHAT IS THE VALUE OF A BLOCKCHAIN-KYC PAIRING?
What that manages to accomplish is information that is transparent, auditable, immutable and cannot be changed on a whim.
Apart from the business side of things, there is the customer side of things to consider. Users are guaranteed control over data, elevated security and freedom of choice as to how their data are used.
Examples of the successful pairing between KYC and blockchain are confirming our analysis. OCBC Bank, HSBC and Mitsubishi UFJ Financial Group (MUFG), together with the Infocomm Media Development Authority (IMDA), managed to complete a proof of concept for (KYC) blockchain.
Customer’ information encrypted on the shared ledger is cross-referenced with government registries, tax authorities, credit bureaus and other sources of information to update profiles.
Another parameter that is important to consider is the one of regulation. The blockchain solution is not only streamlining the process for businesses and customers, but also for regulators.
According to KPMG’s white paper “Could blockchain be the foundation of a viable KYC utility?”, the value for regulators is immense:
“A blockchain KYC utility could also offer regulators a better understanding of how customers have been onboarded and the application of underlying KYC information. This would, in turn, enable regulators to better understand customer activity. All actions by financial institutions and customers would be fully recorded and tracked, while activity data on the platform would be fully auditable.
From a customer standpoint, a financial institution’s use of a KYC utility would enhance the customer experience and improve their overall satisfaction by making processes more timely and efficient.”
KYC and client onboarding are evolving, and blockchain technology is offering the industry a great chance to do that in a manner that is efficient, scalable and trackable.
This relationship is relatively new but is already showing signs of promise and it is something we will keep an eye on. Stay tuned for more updates.