Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.
As the year comes to an end, I am reviewing how many Fintech apps I personally use. I have been asking other `Fintech experts` this same question, to gauge adoption. I invite our Fintech readers to share what Fintech services you use personally or in your business (see my list in the comments below).
This activity made me realize that the interoperability gap in Financial services, remains huge. For every new digital consumer banking app that I choose to use (e.g. Revolut, Twint, eToro, Coinbase, etc) I need to go through the KYC process. And every time each of these fintechs need to update their KYC information, I need to separately provide them with the relevant documentation.
The digitalization of the KYC process has scaled but we are far away from adopting a shared ledger that allows for real-time synchronization of the required information for KYC/AML, that is accessible to any financial service provider and that securely maintains an auditable trail. This is not Blockchain for KYC, it is about getting rid of the silos between each entity that have to maintain securely a traditional database that is auditable and painfully updated. It is about moving to real-time, instead of batch processing of information and inconsistent data across various providers. It is about decentralizing this information within the ecosystem and allowing secure interoperability through APIs to any chosen partner.
A shared Distributed Ledger for KYC will be the norm, soon because it is the only way to connect securely and real time, corporate registries and any kind of financial service provider offerings to businesses. It is really the only way to gain efficiencies at an ecosystem level for all sizes of businesses.
An example of such a country-wide initiative is in the UAE. In July 2020, the UAE-wide ecosystem was launched to empower the economy. It is a collaboration overseen by the UAE Central Bank, the Business Registration & licensing sector, and for a start five commercial banks. All active Dubai trade licenses have been migrated to the Distributed ledger and any new companies onboarded by the participating commercial banks, are logged and administered on this private DLT. This DLT is powered by Norbloc.
Another countrywide initiative is the Spunta initiative with 100 bank members from the Italian Banking Association. The Corda powered DLT is designed for interbank reconciliation processes. Although the Spunta scope is not laser focused on a shared DLT for digital onboarding of Corporates & SMEs; it can be used for that purpose. This would reduce the overall cost to the Banking ecosystem, provide synchronous updating, improve customer experience by avoiding all the replications and problems with asynchronous updating.
There are more pilots around the world, looking into DLT adoption for e-KYC for SMEs and corporates. Spain, Australia and Sri Lanka are three countries that have publicly announced their consortia efforts towards this direction.
The next phase in this kind of digitalization will dangerously disintermediate the vendor management system providers. As an entrepreneur offering my Influencer marketing services globally, I have to onboard on different VMS (vendor management systems) each time I initiate a new client relationship. These systems have no harmonized user experience and there is no way for synchronous updating. A decentralized shared ledger again linked to the corporate registry for all business entities, is the solution that is inevitable. This is actually a revenue opportunity for business banking providers. My business banking provider has secure access to the DLT with the updated KYC which is linked to the corporate registry. My business banking provider offers an API to the Corporate vendor management system. As a vendor to a corporate, I just have to give permission to my banking provider to give access to a specific VMS system.
In the mass attention economy, Google and Facebook have taken over the ID provider role for any kind of consumer app. They offer it of course, for free in exchange of knowing all my choices and my digital footprint.
Banks should take on this role for businesses of all sizes and one way to do this is through enabling the shared ledger I described above in collaboration with all corporate registries starting at a regional, and then country level.
My dream business bank is one that offers me a business KYC service. The way, it would work is that every time I need to onboard on a vendor management system, I just enter the VMS information in my e-banking interface and the bank`s API provides the information needed.
Every time I want to register and open an account with a Fintech app (payments, investment, or crypto) I just use a special QR code produce again through my bank.
Essential reminder: The world has been using Blockchain and DLT interchangeably. Therefore, there is no way for us to measure the actual adoption of DLT
A distributed ledger is a database of replicated, shared, and synchronized digital data across multiple sites in a network. Unlike traditional databases that are centralized, Distributed Ledgers are decentralized with a system of synchronization that provides an auditable history of information and that is accessible to anyone within the network.
Unlike Blockchains, Distributed ledgers don`t package transactions or sets of data into cryptographic hash-linked blocks in a sequential chain.
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