Blockchain and KYC
Investigating the use of blockchain technology in KYC
Know Your Customer (KYC) processes are central to financial institutions’ anti-money laundering efforts, yet they remain largely manual and inefficient. Could blockchain technology be used to improve efficiencies? According to certain thought leaders and technology providers, the answer is a resounding “yes”.
In a 2018 paper titled “Could blockchain be the foundation of a viable KYC utility?”, Eamonn Maguire, Global Financial Services and North America Lead, Digital Ledger Services at KPMG International and Tek Yew Chia, Head of Financial Services Advisory at KPMG in Singapore, point out that estimates put the amount spent on financial crime risk management in the banking sector at more than US$25 billion annually, most of which is due to KYC. They also cite that “up to 80 percent of the effort associated with KYC is dedicated to information gathering and processing, and only 20 percent to assessing and monitoring that information for critical insights”.
One approach to seeking to improve efficiencies is to use AI or cognitive technologies to automate existing KYC processes. Another option – one that is being successfully implemented by Tradle, a fintech listed on the KPMG Matchi platform – is to use blockchain technology.
In their paper, Maguire and Chia lay out the business case for a blockchain-enabled KYC utility for sharing information among participating financial institutions. They share a proof-of-concept prototype by KPMG Singapore – a collaboration between Bluzelle Networks, a consortium of three banks in Singapore (HSBC, OCBC, Mitsubishi UFJ Financial Group) and the Singaporean regulator – that demonstrated the utility’s functionality, security, and scalability. The platform could result in estimated cost savings of 25 to 50 percent by reducing duplication and providing a clear audit trail.
Tradle’s solution, also built on blockchain, gives clients increased privacy while helping banks to increase compliance. It drastically improves customer experience through self-service digital KYC on-boarding, which facilitates full ownership of the KYC records, leading to their reuse across products and regions.
This results in decreased operational costs with highly automated compliance process, and lower risk of regulatory compliance, as well as increased revenue due to reduced KYC friction, which leads to higher up-sell and cross-sell. Tradle offers the potential for 100% digital onboarding, KYC portability and co-validation of KYC across institutions. It also allows for real-time KYC monitoring, improving compliance processes and reducing operational risks. Tradle achieves this by giving customer the means and incentives to collect KYC data and the verifications from financial institutions.
Tradle’s solution has garnered widespread interest, winning European Blockchain Company of the Year at the 2017 European Fintech Awards, and Most Outstanding Startup at the 2017 FIN/SUM Fintech Summit in Japan.
For more information about potential blockchain KYC solutions for your organisation, get in touch with KPMG Matchi. Please contact