RegTech and FinTech: A Blockchain Case Study
RegTech and FinTech: A Blockchain Case Study
Blockchain has seen it's most zealous adopters come from the financial industry, which, not surprisingly, puts a big emphasis on data security.
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The customer is the King! This is what every bank employee knows, and tries their best to uphold, while at the same time knowing the customer is also an important factor in securing the network. To secure their networks, banks spend billions of dollars. According to the survey conducted by Thomson Reuters, some banks shell out £300 million annually to meet KYC compliances and Customer Due Diligence (CDD) requirements. In the survey, about three-fifths of the 822 financial institutions surveyed accepted that the regulatory engagements have increased in the last year, causing them to hire more employees to work on KYC. From the survey conducted by Thomson Reuters, about 30% of companies reported that it took a couple of months to onboard new customers, while some gave stunning responses, which include the time factor of four months to onboard a customer.
Overriding the Conventional Approach
If the KYC clearance takes more time than required, then the probability of the customer leaving for a competitor will go up. Consequently, financial institutions have to accept they will lose clients if they don't integrate the necessary technology.
To reduce the time required to onboard the customers in financial transactions, the financial and non-banking financial institutions (NBFCs) have started using a new, advanced technology - Blockchain. To override the conventional approach of KYC, it is necessary to understand the approach of the blockchain. The blockchain is a distributed ledge system, made up of a series of 'blocks' that contains the record of valid transactions and is able to reference of the previous block in the 'chain.' So, when the customer completes the KYC process with any financial institution, then that information on their block in the blockchain can be shared with other financial institutions. Since there is no centralized authority which can be hacked, blockchain technology is a good alternative for sharing KYC details.
RegTech and FinTech Compliances: Technology Blended With Blockchain
RegTech is basically Regulatory Technology which is blended with the blockchain to make the onerous task of regulatory banking easier, and allow for a reduction in the risks involved in meeting the operational compliances and reporting obligations. RegTech has an underlying technology which can be implemented and scaled rapidly as per the necessary requirements. It focuses on leveraging new technologies to improvise regulatory reporting, monitoring, and compliance processes of financial institutions. With the integration of blockchain technology into RegTech, financial organizations have saved up to 50% on compliance costs. The technology has changed the perception on KYC by introducing automated checks on companies, IDs, employees, and the ways the banks handle fraud issues.
The blend of these technologies with blockchain is widely accepted by banks and financial institutions as it is the most cost-effective way to assess whether industry regulations are being met or not.
Fostering Promises: For Better Onboarding Experience
The financial sector has been meeting the KYC compliances to avoid the huge penalties from the regulatory watchdogs. After proving the technological advancement of blockchain technology, the banks implemented the technology to make the transactions more transparent and secure against any cyber fraud. To understand the fostering the promotion of the safe banking, one must consider a situation where the KYC docs in the safe vault and the blockchain work in tandem, allowing only the authorized stakeholders to peep the transactions without interfering the same. The user with permission-based access control direct the transactions whenever needed.
The significance of using the blockchain technology for fulfilling the KYC compliance includes consistent information and customer anonymity with featured encryption. However, still, some challenges remain unaddressed. For instance: synchronization of the internal data to a blockchain, liaison between financial institutions to share customer data, and designing solutions on the blockchain to meet the adverse technical hurdles.
RegTech and FinTech underwent a great transformation when introduced to blockchain technology. The transformation can be better understood in terms of the cybersecurity and transparent transactions keeping the identity of the user anonymous. New technologies in the blockchain are in their development phase. Once developed, they may provide a much better approach to resolve KYC related issues.
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