Digital Identity’s Role in Improving the Know-Your-Customer Experience Part 1
Blog | 14 March 2019
There’s a lot of discussion about digital identity improving the know-your-customer process. Let’s look deeper at where, how, and why the improvement happens.
First, what’s the typical process for KYC?
Step 1 : Data Collection
For a simple bank account opening, it’s usually asking a consumer for some basic information like name, address, citizenship, and a government identifier like social security number in the US.
Step 2 : Data Verification
The process then moves on to verifying all of the information given, so that the bank or other financial services institution can comply with various regulations. This helps ensure the potential customer is who he claims to be and that he isn’t barred from opening such an account. In most cases, all this information can be verified with some simple identification. However, the customer still needs to go to a physical office to show the documents and the bank often makes copies of those documents for their records.
Step 3 : Client Onboarding Decision
If the information is verified, the account is opened. If any piece of information is deemed false, or the information conflicts, the bank declines to open an account until the customer goes back to the branch to correct the errors. This may be the case when the bank teller transposes two numbers on the person’s date of birth and the bank’s information doesn’t match government records.l.
Specificities of the institutional investing world
For institutional investing, the process is longer and more complicated. There is information on the company, the individual board members and executives that needs to be collected and validated. The process for institutional investor KYC can take weeks and sometimes even months. The process takes so much time because not all requested information is submitted, or is submitted incorrectly. Therefore, the KYC processor needs to go back and request again, often asking for more detailed information than is required in personal KYC.
How does the digital identity improve KYC
That’s the traditional way to do KYC. Let’s add digital identity into the equation. The core principles of digital identity include data being:
Controlled by the data owner (person or company)
Validated by trusted third parties as well as decentralized consensus
Digital identity with those characteristics can help improve KYC in several ways at once. Using digital identities improves the accuracy of the data and speed of validation. Increased accuracy and validation then reduce the time to complete the entire process, the amount of rework needed, and the amount of labor needed for the process. In Part 2, we’ll discuss the specific process steps and digital identity’s impact on each step.