The bank’s future is the digital passport

It is ironic that Wise, one of the UK’s fastest growing fintechs, was recently fined by Abu Dhabi for anti-money laundering failings. US$360,000 is a drop in the ocean for a company that aims to create a world of “money without borders – instant, convenient, transparent and ultimately free… wherever you are, whatever you’re doing.”

Interestingly, it was the “whatever you do” bit that lacked transparency and turned out to be the alarm bell that ultimately resulted in Wise being fined for failing to conduct additional due diligence on existing clients whose transactions were deemed to be high risk and surprising, failure to include nationality as part of the risk assessment… not very wise!

Wise has more than 13 million customers, connects 70+ countries and has transacted over £76bn, giving them a gross profit of £372mn according to Wise’s FY22 full-year results presentation, published on 22 June. For a company whose business model is about moving money between jurisdictions, it is surprising that AML and KYC checks remain a core risk.

The risk that FI faces

AML checks are dynamic as they need to record the lifetime of the customer relationship with a financial institution. They must be robust, reliable, consistent and transparent to ensure that changes in customer behavior or patterns can be identified and risks minimized.

This is usually where traditional FIs struggle. Legacy systems are ill-equipped to track the customer journey from onboarding to transaction history and then update their risk profile on a dynamic basis.

Risk assessment tools tend to be tailored across FIs, but each shares a common set of data requirements. Furthermore, in the digital world every transaction leaves a mark, the question is how to record these and then analyze them. This process must be balanced against simplifying and enriching the customer experience.

The solution is on the blockchain

Consider how frustrating it gets when you need to complete a new KYC application for every FI you work with. Harassing your customer leads to high bounce rates. Fortunately, there is a technology solution…blockchain.

Blockchain is the technology behind a distributed network of computers that can be used to store data securely, but which, uniquely, have a single memory – a single source of truth. This means that data cannot be freely copied and edited to create an alternative version of the truth, which is why blockchain technologists refer to it as the “platform of trust”.

Each customer can be assigned a “digital twin” on a blockchain that can be used to store, immutably, the core information that is a common requirement across FIs. The digital twin becomes the customer’s ‘KYC passport’. The passport can start with a scan of the passport itself, along with proof of address that can be updated every three months. The passport is a shared record between the FI and the customer where the customer has full administration rights while the FI can only have viewing rights together with the option to add, say, a risk score from its internal assessments. The digital passport can then be accessed by FIs if the customer gives permission.

The digital passport can be given to other financial institutions for KYC verification. Imagine applying for a mortgage by simply letting the provider or broker access your digital passport, and coming back with an offer. Customers can add specific data via the pass to continue building their data into a single controlled twin.

This approach has the advantage of decentralizing the database between the owner of personal data who can update as needed and the user (FIs) who need the data to be accurate, up-to-date and real-time in order to use their risk measurement. . Separating the process and combining the result will revolutionize AML-KYC accuracy and reliability. The costs of failure are high. Regulatory fines are only tangible, but the impact on your brand can be terminal.

Digital passports have several uses

The digital passport need not just be limited to financial data. Medical data such as vaccination records and other health information can be uploaded by the customer and made available to relevant organizations such as your doctor or consultant when permission is given. Imagine using the digital passport to register with a new doctor, the endless forms can become a thing of the past.

As each organization stores blockchain records for its customers, which are updated in real-time and controlled by the customer, these networks can be connected using platforms such as Finboot’s Marco, which enable permission to share data easily, safely and securely.

“With increasing competition across almost every sector of financial services, delivering a seamless user experience should be one of the highest priorities for any institution. The use of technology, and blockchain in particular, has the potential to streamline operational processes, improve regulatory governance , and add value to customers in a number of different ways; firms that fail to adapt to the opportunities this presents face being left behind,” says Gareth Lewis, CEO of Delio, a UK-based fintech that helps financial institutions to connect its clients with private investment opportunities quickly, transparently and compliantly.

Reimagining the customer journey and the constant need for data to be up-to-date and accessible, we can offer a world where banking and financial products and services can be unlocked by providing immediate access to one’s digital passport. Access can be time-limited and only to specific areas, which ensures that the customer always has control over their own data and who they allow to see it.

The technology exists today, and for those fintechs whose USP is a technological core, rethinking the AML-KYC process seems like the wise choice.

About the author: Nish Kotecha is the chairman and co-founder of Finboot, a SaaS company that has built an enterprise-grade suite of blockchain applications and middleware solutions