Fintech startups are leading a movement towards a decentralized Know Your Customer (KYC) regime, which aims to revolutionize the way financial institutions verify customer identities with the use of blockchain technology, seeking to enhance user privacy.
Commenting on this, R Vivekanand, president, BFSI products and platform, TCS said, “TCS has a solution called Quartz, leveraging blockchain and AI technologies that address financial institutions’ KYC, AML (anti-money laundering) and fraud management needs.”
Wipro Lab45’s DiceID platform’s general manager, Varun Dube said, “DiceID leverages verifiable credentials protocol which provides a solution to the challenges related to credential sharing, which helps establish trust and identity in digital transactions using a privacy respecting method.”
“Blockchain deployment has been in a proof-of-concept stage given the negative labelling around cryptocurrency which is closely linked with this technology,” said Sudin Baraokar, IT and innovation advisor. He further added, “Applications need to work with the existing systems we have. For eKYC, it needs a regulated and authority-backed entity to manage the trust as a service.”
KYC regulations that had demanded financial institutions to verify the identities of their customers have been an integral part of combating money laundering, fraud, and other illicit activities.
Previously, the KYC process was a tedious task, and time-consuming, involving extensive paperwork and manual verification procedures, which then changed to a shorter process wherein users could verify themselves via an app. Recognizing the limitations of the existing centralized model, several fintech startups are advocating for a decentralized approach toward KYC.
Big tech companies including Tata Consultancy Services, Wipro, and IBM have already set up decentralized identification platforms.
After blockchain came into the picture, companies have proposed a distributed system where customer data can be securely stored and accessed by authorized entities only.
The idea of a decentralized KYC offers much more security to the user than the traditional system, enabling individuals to maintain control over their personal information. The users wouldn’t have to repeatedly give their information to financial institutions and will be able to store their data including documents like passports, bills, identity, etc., on the blockchain. The permission will be granted to the user on a case-by-case basis which reduces the risk of data breaches or any kind of misuse.
The push for decentralized KYC is gaining momentum. Industry leaders, regulatory bodies, and financial institutions think that there is potential for this innovative approach.
