Blockchain & Identity
Fact: Identity issues related to KYC will improve with blockchain technology.
You can argue day and night over the privacy and security issues connected with blockchain technology, but the reality is quite straight forward; blockchain identity management solutions will not just fix KYC issues but drastically improve the overall structure of many institutions including the financial sector. (more on blockchain tech later).
Let’s take a step back, in fact, let us all take two steps back and look at the problems at hand.
KYC & Identity
Most of the personal information is static which means it hardly ever changes and yet every time a client wishes to get onboard; the bank has to conduct the KYC. It makes no difference whether the customer already has been KYC’d thrice already in the last two years. Now imagine if the identity information was stored in a central location that was independent of any institute or organization; built especially for financial sector. What kind of KYC verification issues would that solve?
But no, we as primitives will continue to hear about digital solutions available and still not be inspired enough to implement them (or just one) in our banking system or any other system for that matter.
Organizations are responsible for our identities and yet because of their lack of communication amongst one another, cannot come to a consensus about our identities. I mean, they are responsible for it and yet prefer to keep our information to themselves rather than share with another organization. It is no wonder that a bank takes between 20–30 days to complete a KYC transaction to a satisfactory level.
Oh and this is not all, because of the global efforts in place to prevent financing terrorism and anti-money laundering, banks are constantly under pressure to reduce costs. This delay also invents a new problem of duplication. Duplication of requests, efforts and in the end, transaction time remains the same.
These are only issues related to KYC.
Identity management itself creates a huge problem because it is not properly shared. There are millions of people in the world who are undocumented, and many have forged their identities and as a result, these people are either sold across borders or exploited into forced labor and, there is no end to this craziness.
Unless, of course, a Blockchain type solution is brought in.
Also read…
Blockchain in simple words is a transparent, unforgeable and heavily encrypted digital ledger. This technology is perhaps the only solution to our identity management issues.
You see, most (or all) documents operate on a paper-based system which is why they are easy to burn, steal, forge and redact. However, the technology behind blockchain identity management solutions has the potential to create unique, unforgeable and verifiable identities based on a cryptographic network which could then be used for monitoring and verification across the globe.
Wouldn’t it be fantastic and revolutionary if you could simply show a CHIP based card (like we already do) at POS transactions and permit the Institute to use the required information to carry out the task by punching in a passcode?
Suppose you wanted to enroll in an educational institute and for verification, provided your encrypted key which contained all the data. The Institute takes the key from you, and you grant them access to the information that was relevant to only them. Once they are happy with what they now know about you, you are enrolled. How seamless & efficient does this process sound?
Here is another example:
Jim, (my hypothetical hero); he applies for a mortgage at a bank he does not have any relationship with as yet. Instead of going the usual route of submitting IDs, supporting documents, authorizing credit checks and having the bank revert to him in two weeks, he simply hands over his Digital ID and authenticates it via a passcode to exchange necessary information.
Here you may end up with the privacy-versus-security-versus-portability debate.
However, think about it, to handle privacy and security, Jim, would be in a unique position to allow or refuse certain (non-relevant) information from being passed on to the bank. If Jim agrees to share more financial history for his mortgage approval than is usually required to process his application, the bank will consider giving him a better rate than they would have provided any new customer. Moreover, since Jim’s shiny CHIP card contains his medical records as well, he can just choose not to grant the bank the permission to see all of his records like when he last got a medical checkup. This way Jim is actively monitoring how his information is being accessed and used by various organizations, institutes, and government agencies.
If the blockchain technology paved the way for other identity management entities, the result would be a new era of human and cultural evolution! You, not an institute would own your identity and be responsible for it. Your government issued ID cards, phone numbers, medical records, educational degrees, Tax IDs, travel documents and so much more would all be on one single unique blockchain, shared and updated in real time.
The convenience and security that this one fascinating piece of technology offers could improve identity management issues to the extent of extinction moreover, KYC issues, will be a problem of the past.
Faisal Khan is an independent banking & payments consultant. Mr. Khan nearly 20 years of experience in the payments and technology space. His speciality is cross-border money transfers (B2B, B2C and C2C/remittances).
His official website is at www.faisalkhan.com & the blog can be accessed at https://blog.faisalkhan.com
