How blockchain can help you with Know Your Customer policy

What is Know Your Customer policy?

Know Your Customer (KYC) is a guideline in the financial industry which imposes an obligation on professionals in financial services to verify the identity, suitability, and risks involved with maintaining a business relationship. KYC is one of the broader scope of a bank’s Anti-Money Laundering (AML) policy, but it is a good business practice in other services as well to better understand investment objectives and suitability, and reduce risk from suspicious activities.

Why Know Your Customer policy is important?

Money laundering is a serious problem for the global economy, estimated at between 2 and 5 % of global GDP. Financial institutions are required by regulators to take action to help with money laundering problems and they have already invested billions of dollars for this purpose. Major financial institutions have reported spending up to $500 million per year on KYC and customer due diligence and average annual spending is $48 million. However, the penalties related to non-compliance with the requirements are still growing – a total of $321 billion from 2008 to 2016, with $42 billion in 2016 alone.

What is the cost of KYC regulations?

Complying with KYC requirements is the reason for increasing onboarding time of new customers, that’s why banks take an average of 24 days to complete the customer onboarding process. What’s more, it also causes higher costs of these processes – 19% increase in 2017 compared to 2016. A study by Bain & Co. estimates that risk, governance and compliance costs account for 15-20% of the total “run the bank” cost base of most major banks.

You need to consider additional costs as well. Banks could lose out on €150m in the next five years to customer abandonment and inefficient and cumbersome onboarding is a key driver behind a staggering 56% abandonment rate for banking customers.

How blockchain technology can help with KYC policy?

Thanks to digitizing identity verification a typical bank could save €10m a year. Using blockchain technology could allow for the accumulation of data from multiple providers into a single immutable, secured, and validated database. KYC verification using blockchain has the potential to be faster, easier, safer, and more efficient than the traditional verification procedures because it allows financial organizations to rely on a more secure organized unified model of data handling.

Taking into account the increasing amount of data being collected, financial organizations can use smart contracts for the execution of control and operational processes to standardized workflow across the industry. Reducing the need for manual oversight will increase efficiency.

Limiting human input will allow us to reduce the risks of mistakes or fraud. Blockchain can help with making Anti-Money Laundering processes automated to mitigate the risk.

Data on the blockchain ledger cannot be altered – they are secured by cryptography, which would help to prevent many of the financial crimes that banks face today and avoid fines which are a result of compliance failures.


Using blockchain technology in financial institutions can help with complying with the KYC regulations in a cheaper, faster, and more efficient way. It will not only allow you to save money, but avoid fines. The increase in the amount of collected data and the increasing pressure of regulators to deal with it appropriately is a perfect reason to consider implementing blockchain-based solutions in your own institution.