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How Reusable KYC Transforms Identity Verification

This is the second article in a series of five.

Know Your Customer (KYC) processes have become a critical component for institutions to verify the identities of their clients, especially within the digital finance and online services spheres. Traditional KYC methods, however, often involve repetitive, time-consuming, and costly procedures for both businesses and customers. Enter reusable KYC—a transformative approach that streamlines and enhances the identity verification process.

Reusable KYC represents a significant shift from traditional KYC practices. Instead of each institution performing its own separate verification for every new customer, reusable KYC allows verified identity data to be securely shared across institutions with the user’s consent. This not only reduces data redundancy but also enhances efficiency and security.

The technologies underpinning reusable KYC include decentralised identifiers (DIDs), Verifiable Credentials (VCs) and a digital wallet. These innovations ensure the integrity and confidentiality of user data while providing a robust and tamper-proof mechanism for identity verification. With reusable KYC, once a user’s identity is verified and stored in a digital wallet, it can be reused across various platforms and services without the need for repeated submissions and checks.

How Reusable KYC Works

Reusable KYC revolutionises the traditional identity verification process by leveraging digital technology to create a more efficient, secure, and user-centric system. This innovative approach enables users to control their verified identity information, allowing for seamless, secure sharing and updates. Here’s how it works:

Reusable KYC Workflow
  1.  Initial KYC Verification: The process begins with the traditional KYC verification. During this step, the user’s identity is thoroughly checked and validated by a trusted institution, such as a bank or a financial service provider. This verification typically involves submitting various forms of identification and undergoing rigorous checks to ensure authenticity and compliance with regulatory standards.
  2. Creation of a Digital Identity in a User-Controlled Wallet: Once the initial verification is complete, a digital identity is created for the user. This digital identity is issued to the user and stored in a user-controlled wallet, often referred to as a digital wallet or identity wallet. The wallet is a secure, encrypted application that allows users to manage and control their personal information directly from their devices.
  3. Secure Data Storage: The verified KYC data is stored securely within the user-controlled wallet. Advanced encryption methods are used to protect this data, ensuring that it remains confidential and tamper-proof. Users have full control over their data, deciding who can access it and under what conditions.
  4. Data Sharing Mechanism: When the user needs to undergo KYC verification with a new institution, they can share their verified digital identity from their wallet. This sharing mechanism is secure and user-consent driven, meaning that the user explicitly authorises each data-sharing request. The data is transmitted in a way that ensures privacy and security, typically using a protocol such as DIDComm or OpenID for Verifiable Credentials. .
  5. Verification by Receiving Institutions: Upon receiving the shared KYC data, the new institution can quickly verify the user’s identity without needing to repeat the entire KYC process. The institution trusts the initial verification conducted by the trusted entity and the integrity of the data stored in the user-controlled wallet. This significantly reduces the time and resources required for identity verification.
  6. Updates and Re-verification: Over time, users might need to update their KYC information, such as changes in address or contact details. The user can update their information in their digital wallet, and the updated data can be re-verified by a trusted institution. Once re-verified, the updated information is securely stored in the wallet and can be shared with other institutions as needed, ensuring the data remains current and accurate.

By streamlining the KYC process, reusable KYC enhances user experience by reducing repetitive submissions of information while improving security and compliance for institutions. This innovative approach fosters greater trust and efficiency in identity verification, transforming the way personal data is managed and shared.

Major Features of Reusable KYC

Reusable KYC offers a transformative approach to identity verification, addressing the inefficiencies and limitations of traditional KYC processes. Here are the key features that make reusable KYC a superior alternative:

  1. Cost Efficiency:
    • Reduction in Repeated Verification Processes: Traditional KYC requires customers to submit the same information repeatedly for different services, leading to redundancy and inefficiency. Reusable KYC eliminates this by allowing verified data to be used across multiple institutions, thus significantly reducing repetitive documentation and verification tasks.
      Address Traditional KYC Challenge 2 and 3 – Repetitive Use of Customer Data and Redundant Documentation
    • Lower Operational Costs for Businesses: By streamlining the KYC process, businesses can save on the resources and time typically spent on conducting multiple verifications. This reduction in operational workload translates into lower overall costs, making reusable KYC a cost-effective solution for businesses of all sizes.
      Address Traditional KYC Challenge 1 – High Costs of KYC Checks

  2. Enhanced Security:
    • Blockchain-Based Identifier: One of the primary security enhancements in reusable KYC is the use of DIDs. These blockchain-based identifiers ensure the integrity of the KYC provider without storing sensitive records on the blockchain. This approach mitigates the risk of centralised databases becoming attractive targets for cyberattacks.
    • Cryptographic Security: The use of advanced cryptographic techniques secures user data, ensuring that only authorised parties can access and verify the information. This robust layer of security addresses the vulnerabilities associated with traditional centralised KYC databases, which are often susceptible to breaches and data theft.
      Address Traditional KYC Challenge 4 – Centralised Databases and Honeypots in Traditional KYC

  3. Compliance and Standardization:
    • Adherence to Regulatory Standards: Reusable KYC solutions are designed to comply with various regulatory requirements, ensuring that institutions meet their legal obligations without additional complexity. This compliance is built into the system, reducing the regulatory burden on businesses.
    • Uniformity in Verification Procedures: By standardising the KYC process, Reusable KYC ensures that verification procedures are consistent across different institutions. This uniformity not only simplifies compliance but also enhances the reliability and accuracy of identity verification across the board.
      Address Traditional KYC Challenge 5 – Regulatory Burdens and Counterparty Risk

  4. User Control:
    • Data Access Control: Users have greater control over their personal data with reusable KYC. They can decide who has access to their KYC information, granting or revoking permissions as needed. This control enhances privacy and empowers users in the management of their identity information.
    • Easy Consent Management: Managing consent for data sharing is straightforward and user-friendly in reusable KYC systems. Users can effortlessly provide consent to different institutions, making the process of sharing and updating KYC data seamless and transparent.

  5. Speed and Convenience:
    • Faster Onboarding Process: The reuse of verified KYC data accelerates the onboarding process for users, allowing them to access services more quickly compared to traditional methods that require repeated verifications.
    • Instant Verification for Businesses: Businesses benefit from the ability to instantly verify user identities, reducing wait times and enhancing the customer experience. This immediacy not only improves operational efficiency but also increases user satisfaction.

In short, reusable KYC resolves the shortcomings of traditional KYC, setting a new standard for identity verification in the digital age.

Tangible Benefits of Reusable KYC in Action

For Businesses:

  • Streamlined Operations: Reusable KYC allows businesses to optimise their operations by eliminating redundant verification tasks. For example, a financial institution can onboard new customers more efficiently, reducing the time and resources spent on repeated identity checks, thereby allowing staff to focus on providing better customer service and developing new financial products.
  • Reduced Risk of Fraud: By employing advanced detection technologies, businesses can significantly lower the incidence of fraud. For instance, an online marketplace can utilise reusable KYC to verify sellers’ identities in real-time, preventing fraudulent accounts and ensuring a safer environment for buyers and sellers alike.
  • Improved Customer Satisfaction: A quicker and smoother verification process enhances the customer experience. For example, a telecommunications company that uses reusable KYC can activate new phone services instantly, delighting customers with the speed and efficiency of service activation.
  • Increased Revenue Due to Cost Reduction: Businesses save on the costs associated with traditional KYC processes. For example, a bank that adopts reusable KYC can reduce the expenses related to manual identity verification, allowing it to lower fees for customers or invest in new services, thereby boosting overall revenue.

For Customers:

  • Simplified Verification Process: Customers enjoy a more straightforward verification process with reusable KYC. For example, an individual opening accounts with multiple financial service providers can verify their identity once and use that verification across different institutions, saving time and avoiding repetitive paperwork.
  • Enhanced Privacy and Control Over Personal Data: Customers have greater control over their personal information. For instance, a user of a health insurance platform can decide which medical service providers can access their KYC data, ensuring their privacy is maintained while still receiving necessary services.
  • Quick and Seamless Access to Services: The efficiency of reusable KYC allows customers to access services swiftly. For example, a user signing up for a new digital wallet can complete the KYC process instantly, enabling immediate use of the wallet for transactions without waiting for lengthy verification processes.

By transforming traditional KYC processes, reusable KYC offers real-life advantages that enhance operational efficiency, reduce fraud, and improve user experiences, ultimately benefiting both businesses and customers.

Capitalise on the Benefits of Reusable KYC with cheqd

cheqd, together with FinClusive and Verida, introduced a verifiable KYC/KYB solution driven by digital credentials, aimed at revolutionising client onboarding and monitoring in both traditional and decentralised financial services worldwide.

This solution streamlines the client onboarding process and related compliance activities, cutting down onboarding costs, enhancing operational efficiency, and guaranteeing compliance with existing and evolving regulatory requirements in traditional as well as emerging alternative and decentralised financial sectors.

Interested organisations looking to harness the benefits of reusable KYC/KYB credentials are invited to contact [email protected] for more information on how to integrate this transformative solution into your operations.

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