Its Quite Normal in India to go for KYC for each of the banks and perform it again and again. This process gets very difficult as you will have to do it repeat this for each Financial institution . Not only with banks even Stock brokers and other Non banking lenders also require you to perform KYC. This process will add more headache when you have to make some update. Example lets say you lost your mobile and switched to new number , now you will probably have to go to each FI to make sure your contact details are updated so that you wont miss important messages.
As a solution to this many have proposed a system of making KYC a centralised process by which end user will only have to do KYC at once , It will be stored at one location and then all the FI's or whoever needs that information can fetch from there . But this approach raises several questions:
- If the central entity gets compromised then there can be huge data leak
- If this entity is not going to be government entity or regulated by government then it might just turn into another data broker company.
- Can this central entity be trusted as much as banks , As when the banks are doing KYC it’s their risk . So they have make sure that customer information is correct and customer is not providing at fake information. 4.Who Will pay for this entire process . Is it going to be customer or bank ?
In order to mitigate these issues there might be need for using something different which provides us with high level data security , also something which is not just controlled by one entity but the control is distributed across the network of banks as in the end they will get benefitted from this .
Blockchain comes out as a perfect candidate here. Ethereum smart contract application can provide required solution to this problem.
This can be a multistep process:
- Lets say we have Ethereum Smart contract app , where we have a network of bank which can create a record for KYC and also perform mutation. As these banks already have manpower to verify KYC document , All we need is Web app from where they can enter this verified KYC information.
- Customer performs KYC at one bank , after successful verification of KYC bank records this information in blockchain
- Now customer goes to other bank , bank can ask customer if he already has his/her KYC digitized , if Yes Bank can directly fetch it from Blockchain . As it was already verified by other bank
- When customer needs to make an update to KYC , he can go at one place reverify his updated details , Upon verification can customer can choose to propagate these details to other FI's who have used his information before ,If he wants to get it updated there also then system can hit a callback url to make sure these details updated in respective FI's DB
- Some Downside of this approach can be the upfront investment required by the several banks , if the cost is shared then cost may come down.