Tackling Centralized KYC Issue Using Blockchain
By Laxmikant Khanvilkar
Know Your Customer (KYC) is a critical practice that businesses use to verify client identity and comply with legal requirements, rules, and regulations. This enables financial institutions to recognise high-risk customers and safeguard their operations against fraudulent activity.
Many countries have established regulatory authorities to carry-out the process. In case of India, the Reserve Bank of India (RBI), is entrusted with the task. However, RBI has identified the centralized Know Your Customer Registry (c-KYCR) as a high-risk source for data validation.
As a result, the emerging fintech industry is pushing for a decentralized, blockchain-powered, database for better quality of data.
Multiple industry experts have suggested that a centralized KYC register would be difficult to maintain given the legacy companies in the Indian financial services industry. Instead, if a blockchain-powered platform could be constructed. As such, issues such as incorrect data, out-of-date information, and so on may be resolved.
In addition, IT firms such as Tata Consultancy Services, Wipro, and IBM have already developed decentralized identification platforms.
“TCS has a solution called Quartz, leveraging blockchain and AI technologies that address financial institutions’ KYC, anti-money laundering and fraud management needs,” said R Vivekanand, president of BFSI products and platforms at TCS.
Wipro has a solution named DiceID, a decentralized platform for the verification of identity credentials. “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,” said Varun Dube, general manager, Wipro Lab45’s DiceID platform.
Verifiable Credentials are digital representations of assertions about an individual or institution that anyone can cryptographically verify.
Similar ideas have been offered for adoption by regulators such as the Securities and Exchange Board of India and the Reserve Bank of India. However, little has progressed beyond preliminary discussions.
A top executive at a major tech firm with a similar solution has informed that in India we are still at discussion stages, outside the country we are already deploying our solutions for multiple use cases.
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