Know Your Customer Research Articles

Know your customer: Unravelling the challenges

Regulated financial institutions must conduct regular know-your-customer (KYC) reviews on corporate clients to prevent money laundering and the financing of terrorism. However, national add-on requirements and regulatory discrepancies challenge the vision of a unified Europe, hindering the creation of an efficient, digital and hence scalable pan-European anti-money laundering (AML) process for all stakeholders who are active beyond their national borders. The current inability of banks to introduce efficient but robust pan- European KYC processes delays customers’ access to finance and other banking products, and indirectly impedes the free movement of goods, services and capital. The European Commission plans to introduce the Anti-Money Laundering Regulation (AMLR) to harmonise and strengthen the EU AML framework. This could reduce national divergences, allowing for a level playing field across the internal market and consistent application of provisions throughout the EU. Unfortunately, harmonised regulation alone does not solve the current issues faced by financial institutions. While a harmonised rulebook provides certainty related to ‘what’ needs to be done, significant pan-European discrepancies remain related to ‘how’ the requirements can be fulfilled. For example, the EU has directed all member states to establish commercial and beneficial ownership registers, but left the design of such registers under the authority of the member state. Consequently, banks active on a pan-European level have to adjust their processes based on the type and content of the national register. Also, the definition of what constitutes a politically exposed person (PEP) varies significantly across the EU, as do the enhanced due diligence requirements which are triggered upon the identification of such a PEP. This paper provides suggestions on how EU member states can help the financial industry in a joint effort to prevent money laundering and combat the financing of terrorism more effectively. The objective of this discussion is to create a streamlined and unified approach to KYC processes across Europe.

PERAN REGULASI TEKNOLOGI DAN KARYAWAN BANK UNTUK MENCEGAH TINDAK PENCUCIAN UANG DI BANK

Banks, commonly utilized as financial institutions, are often implicated in money laundering activities. The majority of these institutions report suspicious transactions to the Indonesian Financial Transaction Reports and Analysis Center (PPATK). This study seeks to assess the influence of implementing regulatory technology (regtech) and the involvement of Anti Money Laundering (AML) officers in preventing money laundering within a bank. Employing explanatory research to test hypotheses, the primary data collection involved a questionnaire distributed to 689 AML officers in Indonesia, with a 42.9% response rate from 296 participants. Multivariate analysis results indicate that electronic know-your-customer (KYC) lacks significance in preventing money laundering. Conversely, transaction monitoring, along with considerations of cost and time, demonstrates a positive and significant impact on thwarting money laundering. Additionally, there is a notable positive effect between bankers' competency and awareness in preventing money laundering. Both Regulatory Technology and bankers play crucial roles in averting money laundering. Notably, research concerning technology and bankers in the context of money laundering prevention remains limited in Indonesia. This study contributes valuable insights to existing literature on anti-money laundering and the progression of anti-money laundering systems.

CYBER-PHYSICAL CUSTOMER MANAGEMENT FOR INTERNET OF ROBOTIC THINGS-ENABLED BANKING

Across the globe, in-person banking continues to play a significant role in financial services. Robotic service personnel at hybrid bank offices may increase productivity while cutting expenses. Hybrid banking needs an effective autonomous Know-Your-Customer (KYC). This research proposes an automated system for interbank KYC in robot-based cyber-physical banking based on deep learning. To protect the customer's privacy, a deep biometric architecture was used to model their KYC and anonymize the visual data that was gathered. The blockchain network and the symmetric-asymmetric encryption-decryption module were used to transmit and validate the biometric data in a secure, decentralized manner. For the safe transmission and storage of in-person financial documents, a high-capacity fragile watermarking technique based on the integer-to-integer discrete wavelet transform combined with the Z6 and A6 lattice vector quantization is also suggested. A Pepper humanoid robot was used to simulate and evaluate the suggested framework for automated biometric-based bank check collecting of handwritten checks from clients following COVID-19 pandemic safety protocols. Using the suggested framework, the biometric data of bank clients—such as their fingerprint and name—is watermarked and integrated in the relevant bank papers. Compared to comparable algorithms, the findings demonstrate that the suggested security protection framework can integrate more biometric data in bank papers. Moreover, compared to other suggested algorithms, the protected bank document quality is 20% better. Additionally, the banks' privacy needs may be met by the hierarchical visual information transmission and storage module that obscures people's identities in films that are gathered by robots. All things considered, the suggested framework may provide a quick, easy, and affordable interbank solution for upcoming in-person banking while abiding by banking laws and security standards.

Nature of Rural Women’s Financial Exclusion in Zimbabwe.

Most rural women in the developing world are financially excluded from the formal financial sector. The purpose of this paper is to give an overview of rural women’s financial exclusion in developing nations. Causes of rural women’s financial exclusion is discussed. This helps governments, agro-based companies, banks and development partners to understand the extent of rural women’s financial exclusion so that measurements to address such issues can be made. A desk research was used to carry out the study. Most literature show that rural women in Zimbabwe do not have the Know Your Customer (KYC) requirements needed by banks and financial institutions to open bank accounts and access loans for income generating projects. Banks do not want to relocate to rural areas because rural women are not an attractive clientele due to the feminisation of poverty rampant in rural areas. In most developing countries, just as is the case in Zimbabwe, there is a bias towards urban areas in the financial sector. Rural women do not own the acceptable collateral. Men own most of the acceptable collateral. There are also gender inequalities in the access to financial services in rural areas besides women constituting the largest population in world’s rural areas.

Factors to be Considered in Financing Rural Women

Gender segregation still persist in the financial sector, rural women face various challenges in accessing financial services and products especially in the rural areas. Men own most of the land and agricultural machines in the rural areas. The Post structural Feminist theory will be used in this study to show that women are different from men and have different categories that need to be considered in rural financial services. Women constitute 52% of the Zimbabwean population yet they are not fully benefiting from financing programmes. As a result, they resort to informal channels of financing such as Self Help Groups in form of Rotating Savings Cooperatives and Associations (ROSCAs) which offer limited funds at exorbitant interest rates. Rural women usually find challenges to meet the Know Your Customer (KYC) requirements from many financial institutions because gender issues are often ignored in the formulation, implementation and evaluation of these programmes. Policy pillars to include gender in rural finance will also be discussed. Importance of rural financial services and the challenges that rural women face in the financial sector will be discussed. Gender issues in the rural financial sector will be explored so that rural women can meaningfully benefit from available programmes hence reduced poverty.

TelcoID: Mobile Network Operators as Identity Providers

Phone numbers are globally unique identifiers that are extensively utilized in online service registration processes of verifying a user's identity. They are issued by mobile network operators (MNO) during the customer onboarding process, after performing a know-your-customer (KYC) process. In an increasing number of countries, regulatory bodies prescribe MNOs to verify customers’ identities by checking their national identity cards card during the KYC process, making the digital identity associated with a phone number trustworthy and valuable. However, MNOs do not capitalize on customers’ digital identities for anything other than offering connectivity. This paper explores how MNOs can empower their customers with trustworthy digital identities, referred to as TelcoIDs, that the customers are free to utilize for all sorts of online services. To be compliant with the latest privacy-preserving principles of the Self-sovereign Identity paradigm, a decentralized identity management system that is commonly operated and governed by different MNOs, serves as the technical foundation for TelcoIDs. The proposed concept has the potential to not only add value for customers of MNOs but also to create a new business opportunity for MNOs in the role of trustful identity providers.

The goal of financial inclusion in Zambia’s 8th national development plan

Zambia has not trailed behind other nations in promoting financial inclusion, one of its deliverables in its 2022-2026 Eighth National Development Plan. The analysis focused on the likelihood of reaching this goal and the implications for bank operating stability. A mixed research (quantitative and qualitative) approach was used and drew respondents from several remote areas in Zambia. A hypothesis test on the observed against the hypothesised mean (p-value = 1.93e-38 and <0.005) rejected the null to accept the alternative presupposition that banks have a relevant role in achieving financial inclusion, but they are not a necessary ingredient. The correlation test also aligned at both 95 and 99% confidence levels, that supported the null hypothesis to conclude that there is no correlation between the preferred channels of financial services and the adequacy of financial inclusion. Respondents felt that the financial inclusion services would still be offered at basic satisfactory levels regardless of the available form of financial service provider. The Kruskal-Wallis test supplemented the findings with p = 3.09667e-20(<0.05) that rejected null to conclude that any form of financial services is statistically significant in delivering basic financial inclusion in Zambia. The implications for banks are the risks for continuous survival because of the popular user-friendly alternative channels. It is recommended that the Bank of Zambia should sustain the relative relevance of formal banks by balancing their contributions with other innovative financial service channels. Banks should integrate with new market entrants, or the future will have a banking system without banks. Regulators must support banks’ survival traits such as the light set of criteria in their Know Your Customer (KYC) package.

An Improve the Onboarding Process in Trade Finance Applications Using Blockchain Technology

Today, challenges in Know Your Customer (KYC) and Anti-Money Laundering (AML) processes include inefficiencies, data silos, and the risk of fraudulent activities. Integrating blockchain technology offers a transformative solution to these issues. Blockchain's decentralized and tamper-resistant nature ensures a single, verifiable source of truth for customer information, reducing data discrepancies across institutions. Smart contracts can automate AML compliance checks, ensuring real-time monitoring and rapid response to suspicious activities. The immutability of blockchain records enhances auditability, facilitating regulatory compliance. Furthermore, the secure and transparent nature of blockchain instills trust among stakeholders, fostering collaboration in combating financial crimes. By leveraging blockchain in KYC and AML processes, the financial industry can achieve enhanced efficiency, reduced fraud, and strengthened regulatory adherence.

Bank Loan Fraud Detection with Integrated KYC Verification System

In today's technologically-driven financial landscape, bank loan fraud poses a significant threat to both financial institutions and their customers. While traditional methods of fraud detection have been moderately effective, the increasing sophistication of fraudsters necessitates the implementation of more advanced measures. This research proposes an integrated system for bank loan fraud detection that leverages the robustness of Know Your Customer (KYC) verification. By combining traditional KYC processes with advanced machine learning algorithms, this system seeks to provide a more comprehensive approach to detecting and preventing fraudulent loan applications. Initial results indicate a marked reduction in successful fraud attempts, as well as a decrease in false positives compared to conventional systems. Furthermore, the integrated system offers enhanced customer experience by streamlining the loan application process, reducing verification times, and ensuring greater security of personal data. As financial institutions continue to grapple with the challenges of fraud, this research underscores the importance of integrating traditional verification methods with cutting-edge technological solutions for optimal results

Digital Authentication System in Avatar Using DID and SBT

Anonymity forms the basis of decentralized ecosystems, leading to an increase in criminal activities such as money laundering and illegal currency trading. Especially in blockchain-based metaverse services, activities such as preventing sexual crimes and verifying the identity of adults are becoming essential. Therefore, avatar authentication and the KYC (Know Your Customer) process have become crucial elements. This paper proposes a mechanism to achieve the KYC process by verifying user identity using smart contracts. Users obtain an SBT (Soul Bound Token) from the metaverse service provider through the DID (Decentralized Identity) credential issued during the KYC process. The identity verification of avatars occurs within smart contracts, ensuring user privacy and protection through ZKP (Zero Knowledge Proof). Tools for generating ZKP are also provided, enabling users, even those who are unfamiliar with ZKP, to use them conveniently. Additionally, an integrated wallet is offered to seamlessly manage DID credentials and SBTs. Furthermore, in case of avatar identity issues, users can request an audit by the issuer through the associated DID tokens.

The Role of Cryptocurrencies in Shaping the Future of Mobile Money Services in Lusaka, Zambia.

Purpose: This research provides a comprehensive exploration of the intersection between cryptocurrencies and mobile money services, particularly in the Zambian context. The study illuminates both the potential and the challenges of integrating cryptocurrencies with mobile money services, providing a novel contribution to the existing body of knowledge.
 Methodology: Utilizing descriptive and inferential statistics, the study reveals a moderately strong positive correlation between cryptocurrency usage and both the volume and frequency of mobile money transactions. However, it also identifies significant barriers to adoption, including a lack of user awareness, security concerns, regulatory ambiguity, and the volatility of cryptocurrencies.
 Findings Through thematic, content, and comparative analysis, the study underscores the regulatory challenges, increased security risks, and the added burdens of compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations associated with the integration of cryptocurrencies. Moreover, the research identifies the potential disruption of existing mobile money systems by blockchain technology and the significant infrastructural investments and regulatory adaptation that it necessitates.
 Unique contribution to theory, policy and practice: The research proposes two strategies for aligning the regulatory frameworks for mobile money services and cryptocurrencies in Zambia: development of specific regulations or guidelines for cryptocurrencies that align with existing mobile money rules, and establishment of a separate regulatory framework that addresses the unique characteristics of cryptocurrencies. In highlighting the transformative potential of blockchain technology and the importance of user perspectives and regional variables in the integration process, the study offers valuable insights for researchers, policymakers, and practitioners. The research underscores the necessity for a responsive approach, continuous review, and update of regulatory frameworks, emphasizing consumer protection, market stability, and the promotion of innovation. While the research confirms the promising opportunities, cryptocurrencies offer to enhance mobile money services, it also emphasizes the need for careful consideration of potential adverse effects. Future research is encouraged to continue exploring this rapidly evolving field, broadening the geographical scope, and focusing on user education and robust security measures.

Advancements in Real Estate: Tokenization and Deep Learning Insights

This survey covers three areas in real estate: to- kenization models, deep learning-based price prediction, and AI-based Know Your Customer(KYC) verification. The papers explore blockchain-based tokenization of real estate assets, high- lighting benefits like increased liquidity and fractional ownership. Deep learning techniques improve price prediction accuracy by analyzing patterns and using regression algorithms. AI-based KYC verification focuses on document analysis and identity recognition to automate processes and enhance accuracy. The survey emphasizes collaboration, advanced techniques, and the transformative potential of these areas in real estate.

The politics of mediation: subjectivity, value and power in the digital grid of Aadhaar

ABSTRACT Digital data infrastructures act as mediating technologies that shape and manipulate flows and visibilities. Focusing on the case of the Indian digital ID Aadhaar, this article proposes a theory of mediation as a conceptual framework for understanding the role of digital technology in projects for datafication of state governance and national economy. In 2016, the Indian biometric ID Aadhaar was instrumentalised in a nation-wide move towards digital monetary transfers, a campaign launched under the banner of ‘demonetisation’. The digital state ID was integrated into Know Your Customer (KYC) systems of financial identification complicating government practices of recording and subjectivation. This process, during which government discourse explicitly drew parallels between political subjectivation and financial control, indicates the growing significance of the digital medium in shaping the relationship between states and their subjects. The notion of mediation proposed here addresses the mutual articulation between monetary transfers, practices of government recording and data valorisation in a context where state projects for digitalisation are increasingly integrated in global digital networks and data platforms.

KYC Verification Using Blockchain Approach

Abstract: Know Your Customer (KYC) verification is a critical process for businesses to ensure compliance with regulatory requirements and mitigate the risks of financial crimes such as money laundering and identity theft. Traditional KYC processes often involve cumbersome paperwork, lengthy procedures, and privacy concerns. However, the emergence of blockchain technology offers a promising solution to enhance the efficiency, transparency, and security of the KYC verification process. This abstract presents an overview of a blockchain-based approach to KYC verification. By leveraging the decentralized nature of blockchain, this approach enables the secure sharing and verification of customer identity information across multiple organizations without compromising data privacy. The use of cryptographic techniques ensures the integrity and immutability of customer data, while smart contracts automate and streamline the KYC process, reducing manual effort and associated costs

How can banks continue digital transformation in a downturn?

Digital technologies have come to play an increasingly important role in our lives. Their availability to customers has set expectations for personalised experiences with the banking services they use, making it imperative for banks to innovate and continuously evolve their product offerings to keep up. The banks that are able to do this most successfully are new entrants with advanced technological capabilities that can adapt to changes in the economic environment and consumers’ shifting expectations more quickly. It is this adaptability and technological knowledge that ensures that these new entrants are best positioned to capitalise on periods of downturn. This paper will examine digital transformations that have reshaped the world of banking to date, including the shift to digital banking in the wake of the COVID-19 pandemic, the uses of data and analytics, as well as data-driven tools like AI in present-day retail banking. Furthermore, the paper will detail areas where digital transformation is yet to exert a profound effect on banking, particularly lending to small and medium-sized enterprises (SMEs), an essential area given the contribution that small-to-medium businesses make to economic growth. Finally, the paper will explore ways that new entrants can use digitalisation to support these crucial businesses, as well as detail other examples of digital innovations that are shaping the future of banking; for example, AI automation in know your customer (KYC) and the rise of ‘open banking’.

Blockchain-Based Know Your Customer (KYC) System using Advanced Encryption Standard Algorithm

Abstract: Know Your Customer (KYC) is a crucial regulatory obligation for banks and financial institutions to record customer information before providing financial services. However, traditional KYC processes are slow, costly, and prone to errors. To address these challenges, a proposed solution aims to use blockchain technology, smart contracts, Ganache, and Advanced Encryption Standard (AES) encryption in the KYC process. This solution leverages the immutability and transparency of the blockchain to create a secure and efficient KYC process. Smart contracts approve and secure the KYC process, eliminating intermediaries and reducing time and cost. Ganache tests and deploys smart contracts, while AES encryption ensures the confidentiality and integrity of customer data. The proposed architecture involves a proof-of-concept system that can be used as a basis for further development and implementation in the financial industry and other regulated sectors. By leveraging these technologies, the proposed solution can revolutionize KYC processes, providing a secure, decentralized, and efficient process while ensuring the privacy of customers

Blockchain-Based Digital Cheque Clearance and Verification System

This research work possesses detailed functioning of cheque truncations. Cheque is a financial document issued by an individual bank to its customers for the purpose of a transaction from one person to another as well as self-transaction. This is also known as CTS (Cheque truncation system). The proposed system is based on blockchain where all banks are starting to adapt its contents for various purposes on day-to-day usage for its customers. This proposed cheque-clearing system includes more secure as well as sophisticated facilities in it. The cheques do deposit physically but can get cleared and verified digitally. Our proposed system is highly scalable because it’s used algorithms and techniques. On average, cheques get approximately a day or 3 to get clear, to evaluate this time consumption it is a fast and secure solution on to this problem which is time-saving. This research work focuses on the detailed functioning of cheque truncation and the adoption of blockchain technology in the Indian banking system for cheque clearing and various other applications. Cheque truncation is the process of eliminating physical movement of cheques in the clearing process. Traditionally, the physical cheques are exchanged between banks, leading to delays and security risks. With the introduction of the Cheque Truncation System (CTS), cheques are processed digitally, reducing the clearing time and enhancing efficiency. The proposed cheque-clearing system leverages blockchain technology, specifically the SHA-256 algorithm, to provide a more secure and sophisticated solution. SHA-256 is a cryptographic hashing algorithm that generates a unique hash value for each transaction or data element. It ensures the integrity and immutability of the data stored on the blockchain. The adoption of blockchain in cheque clearing brings several benefits to the Indian banking system. Firstly, it enables faster and more efficient clearing of cheques. Instead of the traditional T+1 clearing time, where T is the day of submission, the blockchain-based system significantly reduces the clearing time, potentially processing transactions within minutes. Moreover, the blockchain-based cheque clearing system offers enhanced security. The use of SHA-256 algorithm ensures that the transaction data is tamper-proof and cannot be altered once recorded on the blockchain. This protects against fraudulent activities and enhances trust among stakeholders. Beyond cheque clearing, blockchain technology has various other applications in the Indian banking system. It can be utilized for secure and transparent record-keeping of customer transactions, simplifying Know Your Customer (KYC) processes, streamlining international remittances, enabling smart contract-based agreements, and improving the overall efficiency and transparency of banking operations. The scalability of the proposed system is a significant advantage. Blockchain technology is designed to handle a high volume of transactions and can be scaled horizontally by adding more nodes to the network. This ensures that the system can accommodate the increasing number of cheques and transactions efficiently. By leveraging blockchain technology, the proposed system offers a fast, secure, and scalable solution to the existing challenges in cheque clearing. It enables digital verification and clearance of cheques, reduces the clearing time significantly, enhances security, and opens up opportunities for broader adoption of blockchain in the Indian banking sector.

Beyond financial regulation of crypto-asset wallet software: In search of secondary liability

Since Bitcoin, the blockchain space considerably evolved. One crucial piece of software to interact with blockchains and hold private-public key pairs to distinct crypto-assets and securities are wallets. Wallet software can be offered by liable third-parties (‘custodians’) who hold certain rights over assets and transactions. As parties subject to financial regulation, they are to uphold Anti-money Laundering and Combating the Financing of Terrorist (AML/CFT) standards by undertaking Know-Your-Customer (KYC) checks on users of their services.In juxtaposition, wallet software can also be issued without the involvement of a liable third-party. As no KYC is performed and users have full ‘freedom to act’, such ‘non-custodial’ wallet software is popular in criminal undertakings. They are required to interact with peer-to-peer applications and organisations running on blockchains whose benefits are not the subject of this paper. To date, financial regulation fails to adequately address such wallet software because it presumes the existence of a registered, liable entity offering said software. As illustrated in the case of Tornado Cash, financial regulation fails to trace chains of secondary liability. Alas, the considered solution is a systematic surveillance of all transactions.Against this backdrop, this paper sets forth an alternative approach rooted in copyright law. Concepts that pertain to secondary liability prove of value to develop a flexible, principles-based approach to the regulation of non-custodial wallet software that accounts for both, infringing and non-infringing uses.

Swiss foundations caught between compliance, control and complaints

Abstract Swiss foundations are subject to a wide range of legal and regulatory requirements, including anti-money laundering (AML) and know-your-customer (KYC) rules. These rules and regulations aim to prevent illicit activities such as money laundering, terrorist financing, and tax evasion. However, Swiss foundations often face a difficult balancing act between complying with these rules, avoiding complacency, and managing complaints from stakeholders. This article explores the challenges faced by Swiss foundations in managing these competing priorities.

The Role of Regulatory Technology & Bankers to Prevent Money Laundering in Bank

Bank is a financial institution that is most often used as a place for money laundering, as well as the most financial institution that sends suspicious transaction reports to the Indonesian Financial Transaction Reports and Analysis Center (PPATK). This study aims to illustrate the impact of adopting regulatory technology (regtech) and the role of AML officers in the Indonesian banking sector on money laundering prevention effectiveness. The primary data for this study was collected through a survey instrument distributed to 689 AML officers in Indonesia with the expertise in anti-money laundering (AML) compliance; there were 296 respondents that filled the questionnaire with a response rate of 42.9%. The results of multivariate analysis indicate that electronic know your customer (KYC) is not significant in money laundering prevention. Transactions monitoring (TM) of regtech and cost & time (CT) of regtech, drive money laundering prevention to a highly statistically positive & significant. Furthermore, there is a positive & significant relationship between bankers competency & awareness in money laundering prevention. Research related to regtech and AML officers in Indonesian banking sector money laundering prevention efforts is still very limited in Indonesia. This study contributes to the existing literature on anti-money laundering and the development of anti-money laundering technology.