Blockchain in the KYC Process

An Answer for Everything?

Know Your Customer requirements have long been a headache for corporate treasurers. Could blockchain resolve the pain points in the KYC journey? Are there any downsides to using distributed ledger technology in this instance? This article answers these important questions – and more.

Efforts to curb money laundering and terrorist financing are becoming increasingly sophisticated around the globe. As a consequence, banks, financial service providers and corporates have to carry out extensive checks on the legitimacy of their business partners in order to meet legal compliance requirements, or Know Your Customer (KYC). In a recent survey, more than 90% of corporate treasurers stated that responding to KYC requests is far more demanding today than it was five years ago [1]. The lengthy KYC processes mean that many companies have already reduced the number of their banking partners. More specifically, corporate treasurers complain about complex and sometimes poorly structured KYC procedures they have to go through before opening an account with a new bank. Such checks can take up to several months due to duplicate queries or various requirements from the banks.

While a survey conducted by a German treasury magazine in 2018 revealed that financial managers see the greatest need for digitisation in corporate banking in KYC issues[2], E.ON, a German electric utility company, offered one solution: it opened a bank account and delivered the data for the KYC checks electronically via a new electronic bank account management tool. However, this will only have real added value if many financial institutions share the same electronic solution.

Another major weakness in the current KYC process is that personal and company data are repeatedly requested by several institutions, with customers having to complete identical processes with different counterparties which produce identical results, causing avoidable expense for the institutions and annoying customers. According to a recent survey by Thomson Reuters, this outdated due diligence process generates average direct costs for financial institutions of $60m and overall is said to cost up to $500m per bank per year [3].

Download our Free Treasury App for mobile and tablet to read articles – no log in required.

Download Version Download Version