OCBC Bank, HSBC, and Mitsubishi UFJ Financial Group (MUFG), together with the Infocomm Media Development Authority (IMDA) have completed the test of blockchain technology for a shared 'Know Your Customer' (KYC) platform.
Banks traditionally conduct their own KYC processes when a customer wants to open an account, apply for credit card, or buy an insurance policy. Customers are thus required to provide same information that they could have already provided to other banks or government agencies.
The existing KYC process is also manual and paper-based, which take banks one week before they are able to validate the information and ascertain the customer's identity.
"This is laborious and inefficient for both the bank and the customer. The manual process also gives rise to inconsistent information being collected by banks, and customer information not being promptly updated," said the consortium in a media release.
The banks thus tested a KYC blockchain, which runs on a Distributed Ledger Technology that allows them to record, share, and access customer information (with client's consent) in a single platform. The information are then secured using advanced cryptography.
Banks can easily validate the information to government registries, tax authorities and credit bureaus. They can then update customer's information on the shared KYC platform to ensure data accuracy. In addition, banks can store digital records of the validation process on the shared KYC platform to streamline auditing and regulatory reporting.
The participating banks believe the blockchain-based KYC can help financial institutions combat crimes that threaten the sector.
"Financial crime has in the past had connotations of being 'low impact' but this belies the devastating effect it has on people and societies: it threatens livelihoods, ruins companies and bankrupts individuals. In the fight against financial crime, banks play a key role and sharing information is vital," said Beaver Chua, head of Financial Crime Compliance, HSBC Singapore.
"This partnership fans the spirit of cooperation among competitors as well as regulatory and government bodies, and we hope this will help foster and inspire more of such collaborative innovation initiatives. Our pioneering efforts have resulted in a KYC process that will not only enhance customer convenience, but will improve the industry's operating efficiencies while reducing financial fraud and crime," added Pranav Seth, head of E-Business, Business Transformation and Fintech and Innovation Group, OCBC Bank.
Meanwhile, using new technologies such as blockchain to transform businesses is also seen as beneficial to achieve Singapore's Smart Nation goal.