The Future of KYC in Web 3.0
Crypto wallets and underlying blockchain technology have the ability to completely revolutionize the way Know Your Customer (KYC) is done and personal data is handled for consumers by financial institutions. Crypto wallets have the ability to give users control and ownership over their sensitive information, while still allowing organizations the ability to see this data to verify identities to ensure KYC compliance.
The Current State
When an individual signs up for an account with a financial institution in the United States, that financial institution is required to verify that individuals’ identity. To do this, these institutions have to collect the individual’s name, date of birth, social security number, verify their address through a picture of their ID, and obtain a copy of a bill with their address listed. This means every time an individual opens an account with a financial institution they must share this sensitive information with the institution, who then is taking ownership of this data on their internal servers. There is therefore a great deal of trust the individual is placing with this institution that they will safeguard their information properly.
There is no legal requirement for these institutions to own this data themselves, just in the Web 2.0 world, the only way to prove identity has been for the institution to take custody of the information from the user.
In today’s world, individuals have accounts with a variety of financial institutions like retail banks, FinTech companies, sports betting sites, investment accounts, etc. This means individuals are trusting their data with a wide variety of sites.
Crypto wallets have an the ability to revolutionize this process by giving institutions the information they need to verify the individual’s identity without taking custody of that information
A New Normal For KYC
In the future, crypto wallets will have the functionality for users to hold their identity verification information within the wallet itself. The user would own this data since the wallets are decentralized and they own all the data within the wallet itself.
When signing up for a new financial institution, a user would connect their crypto wallet and give the institution permission to view the verification information stored in the wallet. The institution would verify the individual by viewing the information in the wallet but would never take custody of the information.
If the financial institution was hacked in the future, there would be no risk that the individual’s sensitive information would be stolen and if the user deleted their account, they wouldn’t have to worry that the financial institution was still holding their data.
In today’s world, individual’s place a great deal of trust in financial institutions’ management of their sensitive information. Crypto wallets have the ability to allow individuals to keep ownership over their data and not pass this ownership to financial institutions. The functionality of the wallets however would still allow the financial institutions the views on the data they need to adhere to all KYC requirements.