The Impact of Blockchain on Digital Identity Verification for Banking

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INTRODUCTION:

In contemporary banking, as in ancient days, risk falls on the verification of the subject, which guarantees security in funds transfers. Conventional systems base on databases that are age-old and prone to hacking and funds laundering. This has forced many to look into the possibilities offered by different technologies, namely, blockchain-enhanced identity verification. The distributed aspect of the system combined with the use of the cryptographic ledger eliminates such risks.

The matter of confidence becomes one of the most critical in the banking sector. Blockchain allows identity verification in a simple, safe and efficient manner resulting in an improvement in KYC processes. It is reasonable to further identify the risk of fraud, duplication or manipulation of KYC information because it is locked in the vault of a non-editable system. Furthermore, such technology allows customers unlimited control over their sensitive data.

With more people going digital, Sirius is changing and facilitating identity verification processes regardless of time and location and such processes are highly secure and dependable. This eliminates geographical borders and makes identity sharing between people and parties possible with elements of control to prevent abuse of the system.

• ENHANCED SECURITY AND PRIVACY:

The chances of forging a digital identity are greatly diminished when the processes of its verification are based on a blockchain. In a traditional framework, identity management systems can be compromised since they are dependent on a central database. Unlike this, the distributed structure of blockchain means no single server holds the information thus making it almost impossible for an attacker to succeed. Also, every transaction is done in a secured way preventing any alteration of the identity details.

Additionally, blockchain allows actors to exercise more discretion over the information that they provide to their users. They can allow different institutions to access part of their identity by themselves without the intervention of a central body. Such a model ensures that the user decides how long an organization will be able to access the data. That is what is referred to as a ‘self-sovereign’ identity.

There is also no longer a need for one person’s verification of identity on several occasions when the procedures are hosted on a blockchain. When a user’s identity is confirmed in a bank through a blockchain, that information can be obtained in a secured manner by any other bank or financial institution without the need to verify it again.

• STREAMLINED KYC PROCESSES:

With KYC procedure, banks get to know all their clients so as to prove their identity and reduce the risk of fraud. Leaps with the KYC procedures are that a lot of time is wasted and a lot of resources spent because every bank has to carry out its own identity verification. KYC will be easy with the use of Block chain in a way that verification of identity has to be done only once and then it is shared around institutions.

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When it comes to KYC, the commitment continues on how blockchain addresses data management. The KYC data is stored in a secure manner where only the authorized persons are able to retrieve it without the data having to be stored in copies. It also diminishes the time and expenses toward KYC risk management activities. Also, the blockchain guarantees that the information is protected from illicit changes, which rule out any chances of fake documents or identity fraud.

As for the identification of new clients and their subsequent integration into the organizational structures of the banks, this process is simplified too since all of the identification checks are conducted and performed instantly upon being registered on the block chain. This improves the customer satisfaction, and the financial service providers can improve the services they provide instead of being entangled with the logistical activities.

• CROSS-BORDER VERIFICATION:

Cross-border identity check becomes easier with the use of blockchain technology. In conventional systems, the process of identity verification in different countries can be a hassle due to the difference in regulatory laws and the requirement of intermediaries. The advance in information technology allows for the development of a universal identity verification system that works regardless of the country of operation.

With this ability, it becomes easier to conduct banking business, especially international transactions that or otherwise complicated because of the inability to ascertain the client’s identification due to differences in laws. The system will be particularly useful for banks as identity verification even in the depth of the ocean is instantaneous. This enhances international banking process and cut on time delays.

Further, regulators will not have problems monitoring the identity verification since the procedures are visible in the blockchain limiting privacy concerns. Then, harmonization of cross-border differences is upheld, yet privacy of users is still protected consistent with prevailing policies.

• FRAUD PREVENTION AND RISK MITIGATION:

In banking, fraud remains a fundamental problem and one of the most common types is identity fraud. It follows logically that when identity information is placed in the system, it has to remain as it is since it is secured through the blockchain technology and this makes the possibility of fraud within the system quite impossible. This adds an extra layer of defense for the banks as well as the customers.

As a result of providing verifiable history of identity checks in a clear manner, it provides a way of curbing banks from being compromised. Such attempts at alteration would be detected by the entire network, thus enabling timely interventions of the potential threat.

Moreover, blockchain also mitigates risks that come with manual verification of the identity of the customer. Identity check are performed through automated smart contracts that do not involve any human intervention to perform the identity check minimizing the chances of error and increasing security of the banking system.

CONCLUSION

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Blockchain technology is reshaping the manner in which identification procedures are carried out in the banking sector by increasing security, decreasing the complexity of KYC procedures, making it easier to conduct verifications across borders, and reducing the incidence of fraud. The use of blockchain has many benefits to financial institutions and therefore as the use increases, the future of digital identity verification will be efficient, safe and easy to access for banks and customers.