KYC Optimization Using Distributed Ledger Technology

José Parra Moyano,Omri Ross

doi:10.1007/s12599-017-0504-2

Abstract

The know-your-customer (KYC) due diligence process is outdated and generates costs of up to USD 500 million per year per bank. The authors propose a new system, based on distributed ledger technology (DLT), that reduces the costs of the core KYC verification process for financial institutions and improves the customer experience. In the proposed system, the core KYC verification process is only conducted once for each customer, regardless of the number of financial institutions with which that customer intends to work. Thanks to DLT, the result of the core KYC verification can be securely shared by customers with all the financial institutions that they intend to work with. This system allows for efficiency gains, cost reduction, improved customer experience, and increased transparency throughout the process of onboarding a customer.

Highlights

The increased regulatory cost incurred due to the knowyour-customer (KYC) verification process in banking is Accepted after two revisions by the editors of the special issue.The aim of this paper is to propose a new approach to the KYC verification process
This paper has suggested an Information Systems (IS) to reduce the aggregated cost of KYC in a jurisdiction by means of distributed ledger technology (DLT)
This paper has shown how it is possible to distribute the costs of the core KYC verification process proportionally among those financial institutions, solutions that require the verification process be carried out for one given customer, and has defined a series of conditions that the IS in question needs to fulfill in order to ensure the correct incentive structure for the participating institutions

Summary

Introduction

The increased regulatory cost incurred due to the knowyour-customer (KYC) verification process in banking is Accepted after two revisions by the editors of the special issue. The aim of this paper is to propose a new approach to the KYC verification process. We introduce a system, based on DLT, that proposes a solution to the increased costs of the KYC process and the lack of customer satisfaction. Ross: KYC Optimization Using Distributed Ledger Technology, Bus Inf Syst Eng 59(6):411423 (2017)

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